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Cheating for Olympic gold
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Election spending and taxes
Two thousand years ago competitors heading toward the stadium tunnel walked between two rows of statues. On their right was a famous marble row of heroic athletes, victors all. On the left, however, stood 16 statues of Olympic cheaters, eternally dishonored and living in infamy. Their chiseled names remain visible to this day. The Olympic message was as clear then as it is today: Don’t cheat! Unfortunately, the high stakes of national pride, professional athletics and simple hubris have led others to conclude that the more important lesson in sports competition is different: Don’t get caught cheating. Doping, steroids, gender faking, age falsification, judge bribing, opponent knee-capping, hitchhiking to a marathon finish…the list of cheats is long and creative. Yet, despite millennia of getting caught, cheaters abound. Cheating and bribery, however, are not limited to individual athletes. The practice has infected Olympic host-country bid committees and multiple other global sporting institutions, like the international soccer federation Fédération Internationale de Football Association. As the world prepares for the 2016 Rio Olympics, Brazil’s political leaders are caught up in the country’s largest bribery and kickback scheme broadly involving government construction contracts that include Olympic facilities. Brazilian private contractors, like oil giant Petrobras, were caught bribing and skimming around construction deals. The consequence has brought millions of demonstrators into Brazil’s streets and shame to the country’s current President Dilma Rousseff and former leader Luiz Inacio Lula da Silva. While the competition for global corruption and graft is stiff and includes Fifa, Brazil’s widening bribery scheme may win this year’s gold medal for greed and stupidity. Russia’s Sochi 2014 Winter Olympics were a great way for
President Vladimir Putin’s cronies to score corrupt cash. Russian Olympic competitors preparing for this summer’s Rio games were caught juicing it up in a scheme that had domestic labs testing their nation’s athletes. The regulatory regime found faked results and may disqualify Russia’s best from competition this summer. Suddenly, up pops another potential Olympic doping scandal starring Russian tennis star Maria Sharapova. Pressure on athletes to enhance their performance seems to be concentrated in Russia this year, perhaps where popular sports glory can deflect rising disapproval of Russian politics and policy. Moscow is suffering from international economic sanctions, bleeding in a hybrid Ukraine war, and pursuing coy military actions in Syria. While foreign Olympic corruption is exasperatingly abundant, the United States is not innocent. The 2002 Salt Lake City Winter Olympics scandal and indictments were a study in bad judgment and worse bid execution. Cheating is in direct contravention to the Olympic spirit. But so is war. During the quadrennial Olympics in Greece, an important part of the games was the peace truce that held during the games. Some politicians work hard to stop war during modern Olympiads, but peace is more an Olympic ideal than reality. Olympic peace remains elusive. The modern Olympics continue to reflect the highest athletic standards, and inspire awe and respect. It is time to create credible and effective international oversight and audit structures to assure the spirit of international sporting is not overtaken by cynics at a cheaters’ orgy. As Los Angeles awaits word on its 2024 Summer Olympics bid, LA Mayor Eric Garcetti and his host committee can show the world that transparency, inclusiveness and fair play represent athletics’ true spirit. As the winged Greek goddess of victory, Nike, may have said: Just do it!
The problem is, people tend to place great weight on this declaration of statistical significance without understanding what it really means. A low p-value does not, for example, mean that the pill almost certainly works. Any such conclusion would need more information—including, for a start, some reason to think the pill could make you richer. In addition, statistical significance is not policy significance. The size of the estimated effect matters, too. It might be so small as to lack practical or explanatory value, even though it’s statistically significant. The converse is also true: An estimated effect might be so strong as to demand attention, even though it fails the p-value test. These reservations apply even to statistical investigation done right. Unfortunately, it very often isn’t—
as the American Statistical Association made clear earlier this month in what amounts to an academic cri de coeur. Researchers commonly engage in “p-hacking,” tweaking data in ways that generate low p-values but actually undermine the test. Absurd results can be made to pass the p-value test, and important findings can fail. Despite all this, a good p-value tends to be a prerequisite for publication in scholarly journals. As a result, only a small and unrepresentative sample of research ever sees the light of day. Why aren’t bad studies rooted out? Sometimes they are, but academic success depends on publishing novel results, so researchers have little incentive to check the work of others. One rare replication project managed to confirm the results of only 11 out of 18 papers published in leading economic journals. That looks pretty good compared with psychology, where a similar (albeit contested) study of 98 papers produced a replication rate of less than half.
What to do? Journals that publish research, and institutions that fund it, should demand more transparency. Require researchers to document their work, including any negative or “insignificant” results produced along the way. Insist on replication. Supplement p-values with other measures, such as confidence intervals that indicate the size of the estimated effect, as well as its statistical precision. Most important, users of statistics need to wise up to the limits of the science. Empirical studies are a vital guide to policy, but must be used carefully. Look at the evidence as a whole, and beware results that haven’t been repeated, or that depend on a single method of measurement. Hold findings to a higher standard if they conflict with common sense. Policy-makers can’t ask statistical analysis for certainty. That’s unattainable. But they can and should demand conclusions that are clear and realistic enough to withstand scrutiny.
In 1976 the US tried again, sweetening the pot for companies with Section 936 of the Federal Tax Reform Act. That created new jobs in chemicals, pharmaceuticals and electronics, but at huge fiscal cost as mainland corporations gamed tax laws. When the US phased out the tax breaks, the island’s manufacturing employment took a big hit—a blow that Puerto Rico’s legislators are quick to blame for the island’s decline, not least because it conveniently absolves them for their own bad decisions. The Republican-controlled US Congress is now debating what to do about Puerto Rico’s fiscal mess. The island’s top officials have all but begged for the ability to restructure the debt of its municipalities under Chapter 9 of the US bankruptcy code—a power Puerto Rico had for decades until Congress took it away. Better yet would be the ability also to restructure its general obligation debt, which it can’t realistically pay. Congress seems unlikely to allow restructuring. Instead, the Republican majority wants to impose a fiscal control board that takes over Puerto Rico’s fiscal affairs. Analysts at Puerto Rico’s Center for a New Economy have argued against this approach’s “colonial and imperialistic overtones,” which also contradict the GOP’s devolutionary, small-government philosophy. Instead, they advocate passing a “fiscal responsibility law” with strict
enforcement provisions. As smart as this idea looks on paper, the island’s repeated failures to put its own fiscal house in order undermine that case. On the other hand, imposing a control board without granting debt relief risks accelerating Puerto Rico’s downward spiral. That brings us back to the central question of Puerto Rico’s sovereignty. A control board for Puerto Rico would be all-too-consistent with its quasicolonial status: Its legislators and executives behave irresponsibly in part because the buck doesn’t stop with them. The island depends on the federal government for a quarter of its revenues, on terms that Washington sets, while it’s straightjacketed by federal regulations that hurt its competitiveness and estrange it from neighboring economies. Making Puerto Rico a state wouldn’t necessarily cure it of bad fiscal behavior (see: Illinois). And independence would bring huge challenges. But remaining a commonwealth isn’t working either. More than a half-century after JFK called Puerto Rico a “source of hope and inspiration,” its predicament should be a source of shame for every American. Its US citizens have rates of poverty and unemployment that dwarf those on the mainland, and diminishing prospects that make a mock of the American Dream. They don’t even enjoy the full benefits of
the US Constitution. Their lot won’t fundamentally improve until they seize control of their own destiny and choose between statehood or independence. And when they finally make that choice, Congress should honor it, either welcoming Puerto Rico as the 51st state or allowing it to be independent. Once Cuba gained its independence from US control in 1902, it became theoretically free to make its own mistakes, notwithstanding the colossus to the north looking over its shoulder. And Lord knows Cuba made plenty of them, even before its current detour through socialist privation and repression. Over the years, Cuba has nonetheless delighted in tweaking Uncle Sam in the United Nations over Puerto Rico’s “colonial” status, and is doubtless enjoying some quiet schadenfreude over its neighbor’s troubles. Yet, these two islands can lift each other up. In addition to their shared history and culture, they face some similar demographic and economic challenges, and have some complementary strengths—Puerto Rico’s pharmaceutical industry and Cuba’s nascent biotechnology sector, for instance. An unlikely partnership, perhaps. But as President Obama has noted about Cuban policy, we know what hasn’t worked. Maybe it’s time to try something different for Puerto Rico too.
TAX LAW FOR BUSINESS
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AMPAIGN contributions and expenditures are the common cash inflows and outflows during election period. In order to regulate the same, the Omnibus Election Code, the Fair Election Act of 2001, and the Synchronized National and Local Elections Act of 1991 set the limit as to how much a candidate can spend, as well as the types of lawful expenditures that a candidate can spend on. All these expenditures and contributions must be summarized in the statement of contributions and expenditures to be filed with the Commission on Elections (Comelec) after the conduct of elections. Attached to the statements are the receipts and invoices issued relative to election campaign.
B J G | Bloomberg View
RESIDENT Barack Obama dangles US dollars before the Castros, while Congress stonewalls Puerto Rico’s pleas for debt restructuring. The Tampa Bay Rays take the field in Havana as San Juan fends off New York hedge funds wielding legal baseball bats. The Rolling Stones play a free concert for Cubans; Puerto Rico can’t get no satisfaction. As Cuba rises and Puerto Rico falls, it’s worth considering the diverging trajectories of these two ex-Spanish colonies that the Puerto Rican poet Lola Rodríguez de Tió described more than 100 years ago as “two wings of the same bird.” Even as the resumption of diplomatic ties with the US opens new possibilities for Cuba, Puerto Rico’s current status as a US commonwealth has turned into an ugly dead end. Puerto Rico is defaulting in slow motion on $70 billion worth of debt. Its economy has shrunk nine of the past 10 years. A few hundred miles to the west, meanwhile, economic reforms are creating new livelihoods for self-employed Cubans, whose material conditions are improving. Buoyed by the arrival of new tourists, remittances and foreign investments, Cuba’s economy grew by 4 percent last year. And when the US embargo is lifted, Cuba—which for much of the 19th and 20th centuries was the Caribbean’s predominant economy—is likely to take a growing bite out of
Puerto Rico’s fortunes, in tourism, manufacturing and services. And that’s before accounting for Puerto Rico’s existing fiscal straits, which will lead to shrinking government services, higher costs imposed by utilities under siege from creditors and a string of broken social promises and busted pensions. True, Cubans don’t have democracy. Then again, at the national level, neither do Puerto Ricans: Despite being US citizens, they can’t vote for president or in Congress, which these days mostly ignores them. Cubans may face the threat of arbitrary detention and abuse. But they’re much less likely than Puerto Ricans to be shot dead on the street, or to be victimized by drug traffickers or other criminals. In fact, by many other yardsticks, you’re better off being born in Cuba than Puerto Rico. Don’t take my word for it. Look at the World Factbook put out by those raving socialists at the Central Intelligence Agency. Lower infant mortality? Check! Same with lower unemployment, higher literacy
groups, to register with the BIR, issue official receipts and withhold taxes. The registration of the candidate shall be made with the RDO having jurisdiction over the political subdivision where the candidate is seeking election or over their principal residence or registered address as the case may be. For political parties or party-list groups, registration shall be made with the RDO having jurisdiction over their head office or principal office. Included in the registrations are the books of accounts and the non-
The value of that p-value
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ECISIONS affecting the lives and livelihoods of millions of people should be made using the best possible information. That’s why researchers, public officials and anyone with views on social policy should pay attention to a long-running controversy in the world of statistics. The lesson to be drawn from this debate: Whenever you see a claim of the form “x is significantly related to y,” watch out. At issue is a statistical test that researchers in a wide range of disciplines, from medicine to economics, use to draw conclusions from data. Let’s say you have a pill that’s supposed to make people rich. You give it to 30 people, and they wind up 1 percent richer than a similar group that took a placebo. Before you can attribute this difference to your magic pill, you need to test your results with a narrow and dangerously subtle question: How likely would you be to get this result if your pill had no effect whatsoever? If this probability, or so-called pvalue, is less than a stated threshold —often set at 5 percent—the result is deemed “statistically significant.”
As Cuba rises, Puerto Rico falls
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there shall be 5-percent creditable withholding tax (CWT) for every payment made by political parties and candidates for their purchase of goods and services as campaign expenditures. The 5-percent CWT shall be remitted to the BIR not later than the 10th day following the month of the payment. What happens then if the candidates or political groups failed to withhold the same? The circular stressed that the full amount corresponding to said expense shall be reported as unutilized campaign funds subject to income tax. In summary, with the above Comelec and BIR rules and regulations, election spending is seen to influence the positive tax-collection outturns to the government and empower the participatory process in shaping good governance due to simpler tax and election compliance.
Atty. Ronald S. Cubero
Relating the above requirements to taxes, the Bureau of Internal Revenue (BIR) released a circular (RMC 30-2016) on March 14, which clarifies the tax obligations of the candidates and other participants in the May 9, 2016, national and local elections. The essential information in the circular falls into two broad categories: BIR registration, and tax treatment of campaign contributions and expenditures. As for the BIR registration, it requires all candidates and political parties, including the party-list
and a lower overall death rate. Things weren’t supposed to turn out this way for the island that President John F. Kennedy touted three months after the Bay of Pigs invasion as “a source of hope and inspiration to those of us deeply concerned with charting new courses of social progress for our Hemisphere.” The proximate cause of Puerto Rico’s current distress is its crushing debt, which has tripled since 2000. And yes, irresponsible and corrupt legislators and executives (and the voters who elect them) deserve much of the blame. But the larger problem has been Puerto Rico’s relationship with its federal overlords, who have oscillated between patronizing micromanagement and malign neglect—devising ill-suited development strategies, granting and then revoking economic benefits, imposing regulations that undermined the island’s competitiveness and creating disincentives for work. Consider the Washington-backed effort to turn Puerto Rico into a manufacturing hub. During the late 1940s, US companies were given federal and local tax breaks to locate on the island. But US minimum-wage laws and trade agreements with other nations gradually eroded Puerto Rico’s competitive advantages. Moreover, instead of investing in the island, US companies brought their profits back to the mainland.
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value-added tax official receipts. As for the tax treatment of campaign contributions and expenditures, the circular stressed that, by their nature, campaign contributions were given not for personal enrichment of the concerned candidates but for the purpose of utilizing such contributions for campaign. Thus, these are exempt from income tax. However, the circular provides three exemptions whereby these contributions become taxable: (1) In the event that these contributions were not utilized for electoral campaigns, these unutilized or excess funds shall be considered as subject to income-tax and therefore must be included in the candidate’s taxable income as stated in his/her income tax return (ITR) to be filed at the end of the year; (2) In the event that any candidate fails to file with the Comelec the appropriate statement of expenditures, the entire amount of such campaign contributions shall be directly subject to income tax; and (3) In the event that these contributions were spent before and after the campaign period as set by the Comelec, the said contribution shall be subject to donor’s tax. In the case of campaign expenditures, the circular clarified that
B M K | TNS
LYMPIA, GREECE—Athletes competing in the ancient Olympic games were venerated for their prowess and ability. Here, on these original Olympiad grounds of nowtoppled temples and former glory, visitors are reminded of the elevated role honor played within competition.
Thursday-Saturday, March 24-26, 2016
The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a memberfirm of World Tax Services (WTS). The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at ronald.cubero@ bdblaw.com.ph or call 403-2001 local 350.