My tax paradise (Nothing as powerful against tax havens as tax heavens)

My tax paradise is not, as some could think, a country where there are no taxes paid, but a country with a just, transparent and efficient tax system which, without weakening the citizen, allows for the fiscal revenue necessary for the government to undertake what the citizen considers it should undertake on their behalf… and nothing more. 

Currently such a fiscal paradise does not exist anywhere. In fact what dominates in the world is the existence of real Kafkaesque tax infernos. Countries capable of transforming themselves into tax paradises have all to gain. 

My tax paradise would be governed by the following two principles: 

1. Every person has the inalienable right to contribute to his country by the payment of taxes, no matter how poor he is. It is also unacceptable that citizens can be odiously divided by interested politicians and bureaucrats, in those paying and those not paying taxes.

2. The state must not receive any income other than those taxes paid directly by the citizens in their own name. It should be an inalienable right of citizens to have their governments work exclusively for them, without patrons or other interested parties, introducing confusion into such relation.

In this respect, in my tax paradise, any person who receives a single dollar in income, for any reason or from any source, pays taxes. The tax rate, progressive of course, could for example be between 10 and 49 percent. Never should the government be able to get hold of the largest portion of the income of any citizen, no matter how wealthy that citizen might be.

Companies would not be taxed at all, because their function is to create jobs and increase the taxable income of the citizens, something they can do much better without any distortions. Of course, companies would have to withhold and pay taxes on dividends paid to those who are not fiscally domiciled in the country.

All other revenue that may enter the state, such as the net oil revenues (Venezuela) and net import duties, should be distributed directly to citizens, in the extent that macroeconomic realities so permit, and will become part of their taxable income.

The tax revenues collected by the central state should be automatically distributed on a highly decentralized basis, which in our case (Venezuela) I visualize to be about 10 percent for the governorates and 40 percent to municipalities, 90 percent of these to be distributed based on population and 10 percent based on the territory. Municipalities may also collect their residential property taxes.

In cases of national emergency, and with the favorable vote of 80 percent of the Assembly, the National Assembly may also enact a tax on the value of financial assets up to a maximum of 1 percent per year, up to a maximum period of 3 years.

¿Could public services be privatized? Absolutely, but always allocated on the basis of minimizing user fees and not, as is usual, maximizing state revenues.

¿What about public debt? Not a penny more that 30 percent of GDP, and only long term debt.

I appreciate any suggestions you may have to help make even more paradisaical my tax paradise. 

Translated from Op-ed in El Universal

PS. Phrased in other words: Corporate taxes only dilute citizen's tax representation or... clearer yet... the corporations have hijacked the citizen's tax representation... to the delight of politicians.

PS. In order for the government to timely collect taxes on what derives from corporate profits, these profits, as shown on financial statements, should yearly be passed through to the shareholders, and the corporations, in order to assist the shareholders in the payment of those taxes, decree and pay some dividends.

PS. And of course, VAT and similar, beside being regressive do not give real representation, as there is not an identified citizen behind its payment.

PS. April 2016 "Panama Papers" Don't let redistribution agitation profiteers raise your expectations.

PS. Public borrowing capacity (or money printing seigniorage) is a valuable strategic asset that should not lightly be consumed or squandered.

Flashback: April 3, 1998 The taxes we have to pay! Daily Journal Please read it.

PS. Oh, how I dislike redistribution profiteers... let's diminish their franchise value with a Universal Basic Income

To the last penny

I was heading a delegation in Tanzania, which at least was thought to be important, when we were seated around some modest tables to hear a report on the use of a donation that for 7,614,873.60 TZS (approximately $8,000) had been given to a very humble school for its total renovation. Its Head Teacher, for about ten minutes that seemed immensely long for us due to the litany of figures, explained to us in great detail how the money was used, down to the last penny. We thanked him and left. 

After a while, reflecting on what we had witnessed, I realized that more than an accountability, the act represented an important reminder for all of us that when accepting responsibility for management, this should always be based on the principle of “to the last penny” and cannot, as is so often, taking it lightly rounded up “to the last trillion”. I was very sorry that I had not thanked the Head Teacher more effusively for his report. 

I say all this because the "La Negra" program offered by Manuel Rosales and which consists of giving the 2,500,000 poorest families a direct participation of 20% in the income that we obtain from the liquidation of our oil, would necessarily create the need to report every penny of 100%, so that the promised 20% can be set aside and delivered to those for whom every penny counts, without a doubt. 

Since the State cannot be allowed to compensate the income that it delivers with La Negra with greater public debt, which could lead us to where the rope breaks, the program also implies the need to create a Supreme Audit Entity so that autonomous, report to society everything related to our public indebtedness, down to the last penny. 

Likewise, with 2,500,000 families directly interested in the results of oil activity, it will also be necessary to consider creating what I have always requested, an office of the type of oil Ombudsman so that, on behalf of society, it can monitor everything that PDVSA and the Ministry of Energy are brought up and defend us, to the last penny. 

There are those who accuse the "La Negra" program of being populist, but the truth is that if executed correctly, it would transform the political-economic realities of our country, producing a modern participatory democracy, so we all have an interest in the daring it now and in the guarding it thereafter.

Translated from El Universal

Monsters Inc.

I recently saw the cartoon movie Monsters Inc. again with my daughters. Two friendly monsters, Sulley and Mike Wazowski, put body and soul into perfecting their scare techniques to get the greatest possible emotional charge out of children’s screams. Monstropolis depends on this as its source of electrical energy. Knowing that “there’s no power without screams”, these good-hearted fellows fully identify with their company’s slogan: “We scare because we care.” Of course, their reciprocal fear of children helps them do their unpleasant civic duty. 

A growing energy crisis caused by the fact that “children today don’t scare like they used to”, plus a direct encounter with a cute and very tough-to-scare little girl called Boo, starts our heroes on an adventure where they discover that laughs have ten times more amperage than screams. In the happy ending they redefine themselves professionally as great comedians.

After so many horror stories (enough to make Stephen King envious, were they not true), there is no doubt that fear is palpable here in Venezuela. Although a little cautious fear may be a good thing, we know that chronic fear is bad. It paralyzes everything and can eventually lead to collective suicide, making it urgent for all of us to shun the darkness. 

I wonder what would happen if, when the lights came on, we discovered that, without our knowing it, our country was really just Monsters 2, a movie about a social experiment watched by the rest of the world as a lesson on how to manage conflict that arises from polarized opinions.

And what if we suddenly also discovered that the audience was laughing at all our monsters, having seen that they were only just balloons filled with hot air to rise up and frighten us?

In that case, we would have to conclude that we were the star players in the Mother of all revolutions and counter-revolutions (of the Café, Bodega or Cantina type, as the case may be). In that case, we would be left only with our fear of appearing ridiculous... A welcome change indeed! 

Am I dreaming? Perhaps, but as I watch how the world shrinks, I become more and more convinced that we will shake off our fear in Venezuela. So my friends, to quote Dory in Finding Nemo, the movie that followed Monsters Inc.: Keep on swimming… keep on swimming.

Translated from El Universal

The Clause

“As of this date, the Bolivarian Republic of Venezuela agrees not increase its current level of public debt, nor to contract public debt with payment due in less than ten years. In the case of failure to comply with the above, all current public loans will be considered due and payable immediately. In order to guarantee that any future government does not employ subterfuge to evade the spirit of this Law, the Nation agrees to abide by international arbitrage.” …Just this simple clause, typical of the those applied in the private sector to control corporate debt levels, would enable, as if by magic:

An immediate and dramatic drop in the interest rates applied to the country, when international markets realize that the country, with its relatively modest debt, is determined to put an end to the distortion of short-term debt, the refinancing of which has been the eternal reason for charging high rates, while at the same time guaranteeing that the resulting relief in servicing the debt is not used as a pretext for increasing it. 

The end of the country risk financial rating, when after only a few days credit raters will have to classify Venezuelan public debt as worthy of investment.

Opening the economy to all kinds of private initiatives on the part of individuals, families, companies and cooperatives, since all would have access to new loans under reasonable conditions – something which to date has been blocked by our political leaders’ hunger for tax income and the consequent increase in debt.

Friends, I am sure the clause I propose would help put our country on the road to sustainable economic development but - I swear! - how difficult it is to convince our leaders of the past and present who blithely condemn old debt while at the same time extolling the virtues of new debt.

It sounds easy but... could it be done? Indeed it could! The hard part will be to free ourselves of loans traffickers and to ensure that our eternal paradigm changes actually change – even if only one little paradigm. 

Some may rightly say that the country would lose part of its independence. However, it would be well worth it if this would allow us to decree an abolition of public debt slavery, the same way we abolished slave labor long ago. 

Translated from El Universal, Caracas, July 3, 2003

A RADICAL OF THE MIDDLE?

Those who are politically between the extremes are commonly known as the passive, silent majority, but a radical of the middle is neither passive nor silent … but nor is he strident, aggressive or vulgar. 

A radical of the middle does not let a few extremists bring the country to the verge of a civil war. Like a good father, he would put them face to face in a cage in Bolívar Square, roped belly to belly, televised, until they came out friends and compatriots.

A radical of the middle believes the nation must hold responsible those who are responsible, “no matter what head must roll”. He would dismiss civil servants for their pure ineptitude and would imprison both those who are corrupt and those who by striking damage the nation’s vital interests.

A radical of the middle knows that the nation cannot survive without a strong and efficient State (not necessarily a big one) and a dynamic private sector. He knows that educational excellence is necessary for the country to advance, but that this has no value without a good general educational system, since a genius gets nowhere without good countrymen. To him, the grandeur and strength of a nation is measured in terms of the treatment it gives to its small and weak.

A radical of the middle is concerned both by the brain drain and by the “heart drain”. He sees the opportunities and the threats of globalization and does not accept proposals or impositions, no matter where they come from and regardless of how fashionable they may be, without analyzing them critically himself.

A radical of the middle knows that with the help of OPEC oil has generated fabulous income which, unfortunately, PDVSA and the governments have wasted... but he believes that there are better options than selling the kitchen sink. He is convinced that, on balance, the public debt will never be of any use; he wants to eliminate it and seek foreign investment, but only when the interests of national investment have been assured.

A radical of the middle knows that the country cannot be saved from the trenches and has marched against the government, but has also abstained himself from marching in opposition to the opposition. He respects the current Constitution and the right to make changes to it and, above all, Democracy itself… since it was designed precisely for him... as only he is able to duly represent the minorities at the extremes. His current slogan is “Neither Havana nor Miami… CARACAS”

Translated from El Universal, Caracas July 19, 2003

The financial handicap

The financial handicap

In horse racing, to try to equalize the chances of victory among the competitors, the handicap system is frequently used, which implies putting a greater weight on the horses, which have shown a greater ability to win. The world of finance is not so benevolent, there more weight is imposed on those who, according to the market, have fewer prospects... present greater risk.

Every morning when a Venezuelan goes out to build his future and that of his Homeland, whether he is a public or private servant, he carries on his shoulders the weight of the country risk (CR) that the financial markets have set that day. That CR, which in principle is calculated based on how much more interest the market requires for Venezuela's external public debt, compared to a similar one in the United States, is currently located at 11% - 14%.

CR affects not only the public sector, but permeates the entire economy. Effectively, we see, for example, a private person who wishes to contract external debt and if he does not have external guarantees to offer, he must pay his normal interest rate, plus the CR. In terms of public service rates, the models indicate the need to reward the investor with a normal profit margin, plus the CR.

A high CR is economic contamination, which covers everything and prevents breathing normally. If Venezuela wants to recover from this economic emphysema, there is no better way than to reduce the CR fast and considerably.

Obviously, CR has many causes and many origins, but the main one is generally related to the ability to service the country's public debt.

In this sense, I guarantee you that if we only manage to spread the amortization of our public debt over a much longer term and guarantee to the market that this is not done to increase it later, due to its relatively modest size, we could quickly achieve that our debt was classified as investment grade, which would reduce the CR considerably.

All it takes is a little will and drive. If the discordant parties insist on preferring to fight suffocated and short of breath, then so be it. However, I am convinced that the oxygen that reducing the CR would produce would benefit both the Government and the opposition, not to mention the rest of our country, which needs and deserves it so much.

Translated from El Universal
http://unsustainabledebtsustainability.blogspot.com/2023/02/the-financial-handicap.html

Out of the box tourism: Lessons from Florence

THE CONTEST!

My apologies to the Florentines, but their beautiful city is like the Magic Kingdom of the Renaissance. The inexhaustible flow of tourists, hotels, prices, and lines for attractions, fast or slow meals, and souvenirs, all makes one question, between Medici and Disney, just who copied the model of whom. In my opinion, not only are the gelatos of Florence richer, but also, with the possible exception of Goofy, Michelangelo’s David and the frescos of Fra Angélico are far superior to Mickey, Pluto, and the rest. 

What an inheritance the Medicis left to their city! The Florentine economy will always be easy to manage, since the only thing that their Paperon de Paperoni (Scrooge McDuck) has to do is fix admissions prices. The one little cloud on the horizon could be the quantity of English, Venezuelan, German, and other immigrants who try to take advantage of the infrastructure. What would Machiavelli have thought about entering the European Union?

We know that despite all its possibilities, Venezuela, in a local saying, still has not managed to connect the foot to the ball when it comes to developing its tourism industry. This will never be resolved by naming ministers who spend their time conducting publicity campaigns, or visiting Orlando and Florence. We are not proposing that other Medicis substitute for those who govern us—we can discuss this on another day. But in the meantime, we could emulate the experts.

In Florence 500 years ago, the contest system was used to assure that the best artistic proposals were utilized to adorn the city. So let’s organize a grand contest.

It will be a grand contest to choose a grand team and a grand plan for the strategic development and management of the tourism sector for the next 30 years, with an estimate of costs and results.

A qualified panel of judges should choose the best three proposals, and the proposals should be publicly debated on television. The losers will receive an important prize, and the winners will be commissioned to execute their proposal during thirty years, with a significant fixed, indexed and guaranteed annual budget.

Since televised public contests enjoy high ratings, this contest could also be a way to build pontes novos, new bridges, in our divided society.

The Santa María del Fiore Cathedral took more than 100 years to construct, and for a long time everyone thought its dome would be impossible to build. And so, friends, let’s not lose the hope of finding a local genius like Brunelleschi for our Helicoide (a local 45-year-old monstrous white elephant). 

From El Universal, Caracas, April 10, 2003

Extracted from "Voice and Noise" 2006