ECON 13 Macroeconomic Theory and Practice

First Semester AY 2015 2016

NAME: PIOQUINTO, Mark Lester C.
BLOCK 35

REFLECTION PAPER #1

During his first State of the Nation Adress, President Rodrigo Roa Duterte
highlighted his plans to lower both personal income and corporate taxes. People from
different business organizations and households lauded the president for his statements. In
my opinion, these assertions are nothing short of promises until the actual bills are passed.
Revamping the present tax structure is a slippery slope. Tax cuts can encourage
individuals to work and save since theyll be having a larger portion of their income. While
keeping more of your hard earned money is good for you, it could have detrimental effects
on the economy in the long-run. As they say, There is no such thing as free lunch.. If the
tax cuts are not financed by immediate spending cuts, it will likely result to an increased
government budget deficit. In chapter 27, weve learned that government budget deficits eat
away a chunk of national savings to finance its spending. As a result the amount of
investment capital available in the market decreases consequently. Government spending is
a vital part of our GDP as evidenced by our studies in Chapter 23.
Lowering the personal income tax will increase an individuals disposable income. In
chapter 26, weve learned that disposable income is the amount of money that households
have available for spending and saving after income taxes have been deducted. If
disposable income increases, households have more money to either save or spend, which
naturally leads to a growth in consumption.
Areas with higher cost of living usually mean that individuals have less disposable
income, or money in their bank accounts, after paying for the basics and need higher
incomes to live as well as they would in a less costly region.
In chapter 24, weve learned that cost of living refers to the amount of money required to
maintain a standard of living, accounting for basics like housing, food, taxes and healthcare.
Lower corporate taxes can also encourage investors to set up shop in our country.
Our corporate tax rates should be competitive towards our neighboring countries to further
attract investments. Also, reduction in taxes on an organization frees up capital that can be
used for further expansion and creation of new jobs.
At the end of the day it all boils down to execution. As Ive said before and as
evidenced by our studies of the preceding chapters fiddling with tax rates and the ultimate
economic outcomes is more complicated than many would be willing to admit. I really wish
our new president pulls this one off. If this ship sinks, we all go down with him.