They’re a done deal, but that doesn’t mean that the recently enacted fiscal reforms are no longer a topic of discussion. And so it was that an audience of students, faculty and a few members of the general public gathered in the auditorium of the grad school of Panama’s Catholic institution of higher learning, the Universidad Santa Maria la Antigua (USMA) to hear a young defender of the Torrijos administration’s reforms get triple teamed by skeptics in panel discussion.
Carlos Guillermo Rognoni Arias, of the nation’s Office of General Revenue (DGI), began by asserting that the government’s motive is rooted in years of neglect and special interest politics, in which tax breaks and exonerations were handed out to the most vocal and powerful lobbies, and accounting stunts that put conspicuous consumers into paper penury for tax purposes were developed and accepted, to the point that the tax system could no longer serve the basic function of raising enough money to pay for essential public services.
The Torrijos reforms were not about creating new taxes, Rognoni argued, but collecting existing ones by closing loopholes. Few small businesses that now pay taxes will see an increase, he said.
Noting the tax breaks for “gastos de representacion” (unitemized costs of doing business), Rognoni noted that “there are people who earn half salary, half gastos de representacion,” and that as far as he and the administration he serves are concerned, “this isn’t an expense, it’s really part of their pay.
The young man from the DGI also pointed to a lowering of property tax rates, a reduction of the top income tax rate from 30 to 27 percent and an appeals process that allows businesses that would suffer a special hardship from the alternate minimum tax to get some relief.
But former Treasury Minister Menalco Solís wasn’t buying those arguments. Arguing that the rationalization of public spending somehow got lost in the mix, he characterized the reforms as a tax hike of one of the worst sorts.
“This is a tax increase to cover a deficit,” Solís argued. “The Supreme Court magistrates are going to pay less with the reforms, the members of the legislature are going to pay less --- it’s regressive.”
“If your policy is to create jobs, this reform doesn’t do it,” he continued, also alleging that the new policies effectively punish women who stay at home to raise their kids instead of going out to earn a second family income. He differed with Rognoni’s take on gastos de representacion, arguing that many companies need to have well dressed employees driving luxury cars in order to “represent themselves well.”
Mostly, however, Solís had procedural objections. “The government had to pass this law,” he said, “but the way they did it wasn’t uplifting.”
“I’m worried about the course of the nation,” Solís explained, when the legislature is “humiliated.” He alleged that the law was as badly written as one might expect when members of the committee reviewing it on first reading had signed onto blank resolutions to be filled in later rather than examining the proposal point by point. “The deputies didn’t know what they were voting for.”
Former ARI director and Comptroller General José Chen Barría was a bit more agnostic, but also unimpressed. “Really, nothing has happened,” he argued.
Chen Barriá has seen tax reforms come and go and seems jaded by the experience. “There are people who try to sell the sky, but we shall see,” he said. As in, “we will see if this reform is more equitable,” which he says will have be measured by the extent that it raises the standard of living of Panama’s poor.
The former comptroller acknowledged that the country faces a series of difficult decisions, especially if it wants to finance a canal expansion. But he blasted the PRD for playing insipid political tricks to attract naive young voters and the Arnulfistas who governed before them for lying about the deficit.
“The truth is that if the government takes in more, it can invest more --- and we hope that they do invest” rather than waste the additional revenue, Chen Barría opined.
USMA law professor Jorge Lombardi represented the “supply side” doctrine, noting that the industrialized countries didn’t impose income taxes until they had developed, pointing to selected examples of countries whose economies were improved after tax cuts and arguing that foreign investors are largely looking for low taxes.
The problem as Lombardi sees it is that, despite Panama’s reputation abroad as a tax haven “Panama is not a low-tax country.” The 30 percent (about to be lowered three points) top income tax bracket, he said, means that “foreign investors won’t consider coming to Panama.”
The question and answer period featured variations on these themes, but probably gave rise to other concerns about Panama’s future: even at this, the nation’s elite Jesuit university, the weakness of our democratic traditions screamed out in the mostly missing ability of both students and faculty to make a good argument or pose an appropriately pointed question. Perhaps it wasn’t a fair sample, as those who spoke up may have been self-selected from among those predisposed to rant.
At the end of the night, this debate did not change very much. But maybe it will after the end of the current administration, because if history is any guide the great majority of the students in attendance will live to see and pay for and become jaded about several tax reforms to come.
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