A “Temporary” Tax Becomes Permanent in Chile

According to 4-traders:

Chilean fuel and forestry conglomerate Empresas Copec SA (COPEC.SN) and pulp and paper producer Empresas CMPC SA (CMPC.SN) each will post a one-time tax charge in their third-quarter earnings, the companies said in separate filings with the local securities regulator late Thursday.

Copec will post a $168 million tax charge that will lower net income by $113 million, while CMPC will report a $114.3 million charge that will decrease net income by $57.8 million.

The charge is a result of a new tax law that increased the corporate income tax rate to 20% from 18.5%.

After an 8.8-magnitude earthquake in central and southern Chile in 2010, the Congress approved a temporary increase in the corporate tax rate to 20% from 17% to finance post-quake reconstruction.

This year, the corporate income tax rate retreated to 18.5%. It was expected to return to 17% next year, but the new law permanently set the rate at 20%.

Nothing is as permanent as a “temporary” tax. Nearly all governments expand until they destroy the citizens and their businesses. The Adam Smith Institute adds:

Milton Friedman used to say that nothing was so permanent as a temporary government programme. He was right: Britain’s income tax was brought in as a temporary measure to help fight the war against Napoleon (at six pence in the pound on incomes over £60), and it’s still with us. They say (can it still be true?) that Bismarck introduced a tax on champagne corks to fund the fleet; the fleet’s now at the bottom of the ocean, but the tax remains….

How can this happen? Well, I used to think it was just a product of democracy. I’m not suggesting we ditch democracy as a bad job, but it does tend to produce profligacy in government. Politicians have every incentive to promise us greater and greater benefits today, and put off paying for them until tomorrow, shuffling the cost on to a minority (usually ‘the rich’, whoever they are) or on to our children, and our children’s children. That is a sure recipe for living beyond our means, at least until it all blows up because it is no longer affordable.

Democracies always accumulate debt and destroy themselves. As soon as the machinery is refined for people to enrich themselves by voting, people naturally prefer voting rather than working hard to create wealth.

Related posts:
Does the Chile Economic Model Remain Intact?
Is Chile Losing the Battle of Ideas?
Chilean President Warns of Danger of Socialism

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