During the October 7 interpellations of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, Senator Frank Drilon warned of the dangers brought about by merging fiscal incentive rationalization and the lowering of corporate income taxes in one bill. He argued that fiscal incentive rationalization does not qualify as a revenue measure, and therefore it is improper for the entire bill to be subject to the president’s line item veto. Senator Drilon thus proposed that the Senate separate the bill into two: one bill for lowering corporate income taxes, and another for fiscal incentive rationalization, in order to limit the president’s power of line item veto to the bill on lowering corporate income taxes.
Action for Economic Reforms (AER) disagrees with Senator Drilon’s position. The very definition of the term “rationalizing fiscal incentives” – whether to exempt or not exempt firms from paying taxes – essentially makes fiscal incentive rationalization a revenue matter. Exempting or not exempting companies from paying taxes affects tax revenues. The very fact that the bill that incorporates fiscal incentive rationalization has to go through the Ways and Means Committee of both Houses of Congress indicates a recognition that it is a revenue measure. The Ways and Means Committee is defined as a legislative committee concerned with the function of having “methods and resources for raising the necessary revenues for the expenses of a nation or state.” Certainly rationalizing fiscal incentives covers both methods and resources for raising the necessary revenues.
Further, Senator Drilon separates revenues or taxes from policies, when he says that “the other provisions in the rationalization of fiscal incentives which involve policies.” Is he saying that “a revenue measure” does not involve policy? We do not think so. Rather, he is saying that policies pertaining to revenue (or rates) are different from other policies that involve structure and governance. Again, he is wrong, because you cannot separate the two in tax policy. They go together.
We wish to remind Senator Drilon about the historical episode of the passage of the sin tax reform in 2012, in which he was the champion. The reform was not only about what he calls “revenues.” Equally important in the package of the sin tax reforms were “policies” to restructure the taxes to make them simpler and efficient and to remove the protection given to some players. We refer to the adoption of a unitary excise tax system and the removal of the price classification freeze, which Senator Drilon energetically fought for. We argue that these reforms are in the realm of restructuring, and they are no different from the proposed restructuring of fiscal incentives.
We believe that Senator Drilon’s proposals will create a situation in which Congress can hold the Executive hostage by stripping the latter of the power to veto most questionable, most dangerous provisions in an essentially revenue matter that is packaged by Congress as a revenue measure. Furthermore, we call on the Senator to rescind his proposed amendment to split the CREATE bill into two, as fiscal incentive rationalization and corporate income tax reduction must go together and cannot be separated.