SEN. Juan Miguel F. Zubiri, taking the cue from President Duterte’s promise to scale back personal- income tax, has filed a bill reducing the automatic deductions from taxpayers’ monthly paycheck.
In Senate Bill 124, Zubiri proposes to spread “tons of helicopter money” on households through “huge cuts in taxes automatically withheld from everybody’s paycheck.”
Zubiri pointed out in the bill that Filipinos have long endured “the most burdensome personal income-tax rates in Southeast Asia,” asserting it is now “absolutely imperative for Congress to reduce individual tax rates, and enlarge personal exemptions at the same time.”
Zubiri said, “Families deserve stacks of helicopter money by way of a broad-based withholding-tax cut to enable every household to spend more and achieve a superior quality of life.”
According to the senator, economists around the world use Nobel laureate Milton Friedman’s analogy of a helicopter dumping piles of money from the sky—for everybody to freely collect and spend—to illustrate cash injections as potent stimulants to consumption and growth.
Zubiri’s proposal to reduce the personal income-tax rate and allow more exemptions, he explains, should quickly raise the standard of living among Filipinos, create jobs and help push for a more inclusive economic expansion.
Once passed into law, Zubiri’s bill doubles from P50,000 to P100,000 the basic personal exemption enjoyed by all taxpayers and similarly inflate the additional exemption for each qualified dependent child, from P25,000 to P50,000, up to a maximum of four children. At the same time, the Senator also filed companion Senate Bill 121 seeking to “cut down to just 25 percent the individual tax rate of 32 percent.”
Upon enactment, Zubiri said the twin proposals would effectively “raise household incomes by double digits.”
“Let us assume we have a husband and wife who are both employed and who have two dependent children. They have a combined annual compensation income of P480,000, or P40,000 monthly,” Zubiri said for instance.
He quickly added that under his proposal, “the couple would pay 68 percent less in withholding taxes every year and would have to pay only P23,500 in withholding taxes, or P50,500 less than the P74,000 they are currently shelling out.” As a result, he said, the couple would enjoy an additional takehome pay of P50,500, or “helicopter money” that translates to a 12.5-percent jump in the household’s annual disposable income.
“Here’s how it works. Right now, the couple is allowed only P150,000 in exemptions —P50,000 for each spouse [or P100,000 for both spouses] plus P25,000 for each dependent child [or P50,000 for both children],” the senator said. “After deducting the P150,000 in exemptions from their P480,000 in earnings, the couple winds up with a combined net taxable income of P330,000.”
Applying existing tax rates, he noted the P330,000 is hit with P74,000 in withholding taxes—a flat P50,000 plus P24,000; or P50,000 plus 30 percent of the excess over P250,000 (with P80,000 being the excess taxable at 30 percent).
Under the Zubiri bill, the couple would be allowed P300,000 in exemptions—P100,000 for each spouse (or P200,000 for both spouses) plus P50,000 for each dependent child (or P100,000 for both children). After deducting the P300,000 in exemptions from the P480,000, the couple would end up with a combined net taxable income of only P180,000.
He said the P180,000 is then slapped with only P23,500 in withholding taxes— a flat P7,000 plus P16,500; or P7,000 plus 15 percent of the excess over P70,000 (with P110,000 being the excess taxable at 15 percent). In a statement, Zubiri, however, did not indicate the absolute amount of “helicopter money” he wants dropped on Filipino families every year.
But during the May 2016 election campaign, Zubiri promised voters he would push passage of “tax privileges that would deliver as much as P250 billion in new money at the disposal of Filipino families every year.”
He said the additional spending money should immediately boost consumption, create new wide-ranging demand for goods and services, encourage domestic industries to lift output and employ more workers, and spur faster economic growth overall.
The senator recalled that President Duterte, in his first State of the Nation Address, vowed to reduce personal, as well as corporate income-tax rates.
“My administration will pursue tax reforms toward a simpler, more equitable and more efficient tax system that can foster investment and job creation. We will lower personal and corporate tax rates,” Zubiri quoted Duterte’s campaign promise.