Bastiat, liberty, and taxes

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One indicator of freedom in society is how much an individual can keep from his monthly or yearly income. The bigger the portion of his income being forcibly taken away from him, like mandatory taxes and contributions, the less free the individual is. The leaders and administrators of the collective, the State, have assumed the role of a big brother or a big nanny for him and his family.

While this might be a consolation for countries and societies with good welfare programs, it can become a convenient excuse to steal and plunder the public, the productive and hard-working people especially, by both the administrators of the collective and the recipients of various subsidies and transfers.

The great 19^th century French philosopher, economist and statesman, Friedrich Bastiat, wrote in his famous book, “The Law”:

“Man can live and satisfy his wants only by ceaseless labor; by the ceaseless application of his faculties to natural resources. This process is the origin of property. But it is also true that a man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder.

Now since man is naturally inclined to avoid pain— and since labor is pain in itself—it follows that men will resort to plunder whenever plunder is easier than work. History shows this quite clearly. And under these conditions, neither religion nor morality can stop it.”

The plunder that Bastiat was referring here, is not the illegal type of robbery, like kidnapping, carnapping, drugs peddling and bank hold-ups. For this type of activity is also very laborious as perpetrators need to tackle two forces – the victims themselves and their families, and the armed forces of the State. Rather, Bastiat was referring to legal plunder, actions that have the full blessing by the State and its legal, political and armed forces. This legal plunder would include high and multiple taxation and fees, obligatory contributions, and mandatory tests and certifications before one can get any permit from the government.

Two weeks ago, the World Bank (WB) and its sister institution, the International Finance Corporation (IFC), released their important annual study, “Doing Business” 2010 Report. This is a very powerful study that involves lots of data collection and analysis with one single aim: to measure how governments in each country covered by the survey and study, would simplify the procedures and payments for entrepreneurs and job creators. Ten major factors are being measured – ease in starting a business, in enforcing contracts, in getting construction permits, in getting credit, in foreign trade, in paying taxes, in closing a business, among others. For this article, only one factor will be tackled – ease of paying taxes. Below is a table constructed from the data gathered by the WB-IFC Report.

Table 1. Paying taxes, selected Asian economies, 2009

Source: Doing Business, 2010 Report, http://www.doingbusiness.org/ExploreTopics/PayingTaxes/?excel=true

Note how the Philippines would rank so low, having among the highest tax rate as a percentage of the profit in Asia and the rest of the world. Almost one-half of a private corporation’s annual earnings would literally go to paying various taxes and mandatory contributions, and only two countries have tax rate higher than the Philippines – China and Japan. And Philippine tax rate is twice the rate being paid by corporations that are based in Singapore and Hong Kong. Of course, not all corporations are religious enough to surrender one-half of their rightful earnings to the government.

What is also notable in the above table is that supposedly capitalist Philippines require 47 different taxes and fees from the companies that do business in the country, whereas supposedly socialist countries China and Vietnam require only 7 and 32 different taxes, respectively. Is the Philippine government more socialist than the socialist governments of China and Vietnam?

The high taxation rate of the country stands in stark contrast with the poor quality of public infrastructure and social services, and the poor quality of its governance. Bastiat wrote something that explains why this kind of social outcome is happening in many countries. He said,

“Under the pretense of organization, regulation, protection, or encouragement, the law takes property from one person and gives it to another; the law takes the wealth of all and gives it to a few—whether farmers, manufacturers, shipowners, artists, or comedians. Under these circumstances, then certainly every class will aspire to grasp the law, and logically so.”

So, how do we know if a particular policy would belong to public plunder? How do we recognize a legal plunder from a rightful contribution to the government to protect the taxpayers themselves? To this, Bastiat’s answer is as follows:

“But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.”

Amen to that. Denying individual liberty is easily done in the name of promoting the welfare of the collective, and in the end, the collective has become an abstraction that becomes a material object only when it is for the mandatory collections and legalized, regular plunder.

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