Capital Gains Tax: A Fight to the Bitter End
United Daily News editorial (Taipei, Taiwan, ROC)
July 24, 2012
Summary: The capital gains tax bill must make the final mile. The Presidential Office and the Executive Yuan must not relax. They must fight every step of the way. The political implications must be considered. Nothing must be accidental. They must communicate better with the public. They must seek consensus. In particular they must address the concerns of the business community over economic development. After all, the domestic economy is weakening. Growth prospects are deteriorating. Therefore after the government promotes the capital gains tax, it must concentrate on strengthening the economy. It must must come up with ways to grow the economy and inspire public confidence. The capital gains tax, which can start small and grow big, can do just that.
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Can the 24 year curse on the capital gains tax be lifted? We will know soon. The result of the prolonged tug of war will be announced tomorrow.
Tomorrow the Legislative Yuan will convene an extraordinary session. The Income Tax Amendment and the Basic Tax Rate Amendment represent the Capital Gains Tax. This Alternative Minimum Tax Amendment is first on the legislative agenda. It has been given priority over U.S. beef imports and NCC appointments. That means President Ma is determined to see it pass. On March 28, the Ministry of Finance Financial Efficiency Improvement Group listed the capital gains tax as the number one item on its tax reform agenda. Various parties have debated the issue for nearly four months. Hundreds of versions have been proposed. But one was selected. It is time for advocates of the capital gains tax to lay their cards on the table. Recently the economic situation has worsened. Voices of dissent can be heard from within the KMT. Can the bill go the distance? This remains to be seen.
The capital gains tax has long been a bone of contention. The initial dispute was over whether it should be imposed. Later the dispute was how it should be imposed. Eventually the dispute was over whether to postpone it or withdraw it from consideration. Three major sources of resistance now stand its way. Storm clouds have gathered. The first source of resistance is industry and business leaders who oppose a capital gains tax at this time. TSMC chairman Morris Chang is a prime example. He favors the levying of a capital gains tax. But he considers a tax increase during the current economic downturn "the worst possible timing." This argument assumes that the overall economic situation at home and abroad will get worse. Last week the Academia Sinica cut its economic growth estimate to 1.94%. This provided those opposed a capital gains tax on the grounds of bad timing additional ammunition. This strengthened the opposition.
The second source of resistance was idealists who wanted comprehensive tax reform. Most of these were academics. But some were politicians. Some of these people felt the newest version of the capital gains tax was too compromised by concessions to political and economic realities. They felt the tax base was too narrow, that it failed to tax people on the basis of their ability to pay, and that it strayed too far from their original goal of tax justice. The result was a capital gains tax that is neither fish nor fowl. Better not to promote it. Better to start anew. Some felt this way from the very beginning, and resistance has steadily increased. The ruling administration's version of the tax bill has been changed repeatedly. One concession has followed another. The Ma administration has lost credibility. Naturally this has invited heavy criticism.
The third source of resistance is less visible. It is unlike the first two sources of resistance, which are vocal. But often sneak attacks are harder to guard against. The capital gains tax bill does more than fulfill the government's goal of tax justice. It also symbolizes President Ma's leadership. If the capital gains tax dies a natural death, the Ma administration will become a lame duck -- ahead of schedule. The impact on government operations and economic growth will exceed even the impact on fairness and justice. That is why the capital gains tax must pass. The political significance of the capital gains tax bill is immense. That makes it instrumental in a political struggle against the Ma administration. Add to this arguments that the timing is not right and that the bill is flawed, and the capital gains tax bill may not survive.
When climbing a mountain, the fear is that one may just fail to reach the peak. Since it began promoting the capital gains tax, the Ma administration has lost a Minister of Finance and suffered market turbulence induced by policy uncertainty. Its credibility on policy has been repeatedly challenged. This has thrown the entire government off its stride. If it gives up after paying such a high price, the Ma administration will find it difficult to justify itself. Its leadership and prestige will suffer. The blowback should not be underestimated. By contrast, on the positive side, the capital gains tax bill in its current form may not be perfect. But it has already reduced the impact on the capital market. This is the closest it has come to passage since its introduction 24 years ago. Miss this opportunity and it is unlikely to return. Even if people are not fully taxed according to their ability to pay, at least the capital gains has been included in the tax base. Unearned income is no longer tax-free. We will have taken a step toward tax justice. Most importantly the success or failure of the capital gains tax bill affects the stability of the regime. President Ma Ying must use his leverage. He must ensure solidarity. He must rebuild his credibilty. He must move the country forward.
The capital gains tax bill must make the final mile. The Presidential Office and the Executive Yuan must not relax. They must fight every step of the way. The political implications must be considered. Nothing must be accidental. They must communicate better with the public. They must seek consensus. In particular they must address the concerns of the business community over economic development. After all, the domestic economy is weakening. Growth prospects are deteriorating. Therefore after the government promotes the capital gains tax, it must concentrate on strengthening the economy. It must must come up with ways to grow the economy and inspire public confidence. The capital gains tax, which can start small and grow big, can do just that.
2012.07.24 01:52 am