Thursday, 27 August 2009

Needed: Even more creative thinking

John Mangun
Outside the Box
Business Mirror

Your response to the idea of eliminating income taxes was refreshing. One thing bothered me, though. As I thought over a large portion of the e-mail that you sent, it seemed that eliminating income tax was like talking about a dying old relative you might miss once he is gone.

There were also well-meaning individuals who were not really willing to give up income taxes but felt there was a need for some changes to the income-tax structure. I had the feeling that I was listening to an older child looking at an almost-forgotten stuffed animal thinking how nice it would be to cuddle it again. Just a good washing and maybe sew that hole in the arm, and it would be good as new. Sorry, I do not buy that argument.

Income tax has always been an insidious weapon of government. The income tax is presumed to have been created in modern times. Not true. The Chinese Emperor Wang Mang started the first income tax in the year 10. It was a flat-rate tax on the profits of professionals and skilled labor. Sounds familiar?

The “progressive income tax” of modern times, where the more you make, the higher your tax rate, comes from the unprogressive times of feudal kingdoms when kings built their wealth from the labor of serfs. The king’s men would come by around harvest time and take, for your tax payment, half of the production of your farm subject to a minimum tax amount. If that minimum did not leave much left over to keep the family from starvation, well, that was just bad luck for you. Kings and emperors like income tax because it is guaranteed. People have to make some sort of income to eat. And understand this: Legally taxing your income means that the government owns a portion of the fruits of your labor before you touch it, exactly like the king was divinely entitled to a portion of your crops.

However, if abolishing the income tax is too radical a change for you in this quest for more creative government policy, suppose we change the laws that govern the income earners, if not the income.

Philippine labor laws have been described as some of the most pro-labor in the world. That might be a valid assessment. They might also be described as the most anti-job creation and anti-worker in the world also.

In my humble opinion, Philippine labor laws may be the most schizophrenic on the planet; that is, laws that are similar to a mental disorder characterized by abnormalities in the perception of reality. Simply put, they are unreal and need some creative changes from the next administration.

The Philippines’ pro-labor laws institutionalized the idea that an employee should be employed nearly forever and nearly regardless of performance or conduct. Therefore, it is extremely difficult for a company to terminate an undesirable employee. The legal rights of a tenured employee are very strong in its ability to keep that employee in his position.

To counter those tenured-employee rights, a class of workers, contract employees, have virtually no rights at all. They can be terminated virtually without due process for any reason at any time. There is only a slight chance for career advancement or advanced training. These thousands of contract employees pay the penalty for the thousands of tenured employees to be able to keep their jobs. Companies pay a price, too, in that they are scared to death of increasing their roster of tenured employees for fear that those who deserve to be fired cannot be fired. And they lose the opportunity of spending time and money developing talent from a vast pool of potentially great employees who make up their contract work force.

Workers, then, are given jobs and not careers. Bad employees are allowed to continue to work, which is to the detriment of the company and the employees themselves. There is no reason to improve skills and abilities if there is little chance to be penalized for bad performance.

A presidential candidate was recently asked by a company owner why it is so hard to fire an employee for illegal-drug use. The candidate replied that processes must be followed, meaning verbal warning, written warning, final warning. Yet that same employee found with drugs on the street is charged with a crime without the verbal, written and final warning. So the drug user can go to jail but not necessarily be fired for the same drug use. Does that make sense? Deliberately break the coffee machine at the office, and you are required to pay for it and you get a warning. Do the same thing at the Shoemart appliance department and you get arrested.

Despite all the pro-labor laws that are not pro-worker, in many ways workers are taken huge advantage of. For example, companies get generous financial incentives. Companies in the special economic zones are given the privilege not to pay taxes on their profits for many years. Yet the workers who create those profits are taxed without any benefit or special privilege. The company makes profits off the worker tax-free, but the worker pays taxes and does not share in the tax benefits. That does not sound very pro-labor. And these laws, like so many others, are not very smart for the economy, either.

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