Taxing the Wrong Stuff

I am amused by the idea of taxing junk food as reported by The Economist. Here is the logic of its supporters: junk food causes obesity. Obesity causes diseases. In state-sponsored health care system, the cost of curing these diseases has also to be shared by non-obese taxpayers. Thus, as the existing junk food consumption doesn't reflect true social cost, tax on junk-food shall be imposed.

This is nonsense. The Economist itself says that:

More important, junk food is not itself the source of the externality—the medical costs that arise from obesity. Unlike smoking, or excessive gambling and drinking, eating junk food does not directly impair the well-being of anyone else. And because obesity is determined by lack of exercise as well as calorie intake, its ultimate relationship with health costs is more tenuous than that of, say, smoking. It is possible to eat a lot of fatty food, exercise frequently and not generate any externalities. A more direct, though controversial, approach would simply be to tax people on the basis of their weight.

Double Whopper, anyone?

Tax Incentive or Pertamina Reform?

Now we know that our oil production capacity has declined (Op-ed, Kompas, 01/07/08) and it prevents us to reap the benefit of recent high oil price. Ministry of Finance wants to use tax incentive to attract more, presumably, foreign investment in oil mining industry.

Umar Juoro of CIDES, that op-ed author, disagrees. He argues that it would take long time before such new investment result in more production --three years at least, he wrote. Instead, he proposes to reform Pertamina, the state owned oil company, --notorious for, well, its inefficiency--, to be as good as Petronas or Aramco, to take the lead in our effort to increase oil production.

Now, in your opinion, which one is more feasible --within period of three years?

On tax

It's close to tax reporting due date. God knows how I hate tax. That silly "progressive" income tax. In addition to being the cruelest income cutter, progressive tax is also the meanest disincentive to work hard(er). Think about it. From kindergarten to high school to college to wherever, we are told: work is good. But Tax thinks otherwise. According to Tax, working is sinful. And a sin should be punished. That's why once you have a job and get paid, you are punished. You have to pay tax. Worse yet, the more you work, the more severe your punishment is. (They give this system a cute name: "progressive").

I always think this idea of "progressive" system is dull (not only in taxation, but in anything). Same fraction (in percentage) of different levels of income should already take care of the differences. It should be "fair" therefore to take (for some legitimate purpose; development for example) 5% from a person with Rp 2 million monthly income and 5% from a person with Rp 20 million. It's not fair to, say, charge the former 5% and the latter 10%. Because at 5% for each, the absolute amounts should already take care of the difference: the richer one pays a lot higher (Rp 1 million) than the poorer one (Rp 0.1 million). "Progressive" tax, on the other hand, orders the richer to pay Rp 2 million. You call this "fair"?

Of course there's all legitimation for tax. Development (esp. welfare state) needs money from taxing the people. Fine. I'm not saying there shouldn't be any tax whatsoever. But income tax has to be in a flat rate. Not like that "progressive" tax. (The system of zakat is more fair, for that matter). Of course flat rate system only addresses the issue of "fairness". As for being a disincentive to work, any kind of income tax is.

Economic Policy

"Who Stands to Gain" Is Not A Proof

If you are as sick and tired as I am of how people buy so much into conspiracy theories, you are not alone. Wikipedia has an amusing entry on this , but I'd just like to point out one of the most annoying lines of twisted reasoning that I often find in our daily newspapers (mostly from interviews with public figures or 'experts', not bylines) so that we'll recognize them next time we see it.

The "Who Stands to Gains" Approach
This refers to the approach, usually used by an 'expert' or a public figure, following a major event such as bombing/economic crisis/tourism slump/kemben melorot, that usually start with a strong denial, "No, it can't be X who did this." Why do you think that's true, Sir, we ask obligingly. "Look, let's see who stands to gain from this bombing/economic crisis/tourism slump/kemben melorot? Who are happy that we are suffering from this bombing/economic crisis/tourism slump/kemben melorot?" asks the so called expert, followed by wink, wink, a pause, and a smile. And before we can say "Sorry, Sir, that's a bunch of bullcra...", he goes for the thumping conclusion, "See, Y stands to gain from this bombing/economic crisis/tourism slump/kemben melorot, so it must be the case that Y is the one who did this."

I'm sure you have seen people say these things, most likely you have seen worse! So let me hear them!.