In a recent column in The Economist, economist and former presidential adviser Arthur Laffer revisited two of the most consequential tax reform programs of the late twentieth century: the tax cuts implemented by Ronald Reagan in the United States (US) and Margaret Thatcher in Britain.

When Reagan assumed office in 1981, the highest marginal income tax rate in the US was 70 percent. By the time he left office, it had fallen to 28 percent. Thatcher inherited a tax system where the top rate reached 83 percent; 11 years later, it stood at 40 percent.

The reforms were fiercely debated. Critics warned that lower taxes would favor the wealthy while depriving governments of revenue. Yet history suggests a more nuanced outcome. Despite economic turbulence and policy missteps in their early years, both administrations succeeded in creating an environment that encouraged entrepreneurship, investment, and risk-taking. New businesses emerged, capital flowed into productive enterprises, and both economies became more dynamic.

Whether one fully embraces supply-side economics is beside the point. The enduring lesson is that incentives matter—they either encourage productive activity or discourage it.

This lesson remains highly relevant to the Philippines.

To be fair, the country has already undertaken significant reforms. The TRAIN Law reduced personal income taxes for many workers, while the CREATE Act lowered corporate income tax rates and improved the country's competitiveness. These measures corrected long-standing distortions and moved the Philippines closer to regional norms.

However, tax reform should be viewed as a continuing process rather than a completed project.

One of the strongest advocates for further reform is noted tax expert Mon Abrea, who argues that the Philippine tax system places a disproportionate burden on the middle class. His observation deserves serious attention.

The middle class drives consumption, homeownership, education spending, and entrepreneurship. It also contributes heavily to government revenues through withholding taxes. Unlike participants in the informal economy, salaried workers have little opportunity to avoid taxation; taxes are deducted before they even receive their pay.

If the goal is inclusive growth, policymakers should consider measures that increase the take-home pay of Filipino workers. Additional disposable income would likely translate into higher consumption, greater savings, stronger domestic demand, and more investments in education and health. As many households continue to struggle with inflation and rising living costs, easing the tax burden on the middle class could provide meaningful economic relief.

Tax reform, however, is not solely about lowering rates.

The Philippine tax system remains complex, particularly for small and medium-sized enterprises. Entrepreneurs often cite compliance costs as a major obstacle. Filing requirements, permits, documentary submissions, and regulatory procedures consume valuable economic time and resources.

A simpler tax system can be just as important as a lower tax rate. Simplicity encourages compliance, reduces opportunities for corruption, lowers administrative costs, and encourages enterprises to operate within the formal economy.

Abrea has also advanced another proposal worthy of discussion: abolishing the travel tax.

The travel tax was introduced during an era when international travel was largely considered a luxury. Today, overseas travel is frequently connected to business, employment, education, family obligations, and tourism. The travel tax imposes an additional cost on mobility and has increasingly become an anachronism.

Eliminating the travel tax would demonstrate a willingness to modernize the tax system by removing levies whose original rationale may no longer be compelling. Sound tax policy requires periodic reassessment to serve the public interest.

Beyond tax rates, the broader challenge is creating a policy environment that promotes long-term investment. Investors seek predictability as much as they seek favorable tax treatment. Regulatory uncertainty, bureaucratic delays, and frequent policy changes can discourage investment even when tax rates are competitive.

The Philippines continues to compete with countries such as Vietnam, Indonesia, and Thailand for investment capital. A competitive tax regime must therefore be accompanied by policy consistency and efficient governance.

Equally important is improving the stewardship of public funds. Citizens are more willing to pay taxes when they see tangible results in the form of better infrastructure, schools, hospitals, transportation systems, and public services.

Conversely, reports of corruption, waste, and poorly executed projects erode trust in government and weaken tax morale. Recent controversies involving public expenditures have heightened demands for greater transparency and accountability. Taxpayers have every right to expect that the resources they contribute are spent efficiently and for their intended purposes.

At its core, taxation is a social contract. Citizens surrender a portion of their income in exchange for public goods and services that improve collective welfare. Government, in turn, has an obligation to ensure that every peso collected is managed prudently, transparently, and accountably. Does the tax system promote growth while the government demonstrates responsible stewardship of public resources?

The next phase of Philippine tax reform should focus on four priorities: easing the burden on the middle class, simplifying compliance for businesses, eliminating outdated taxes such as the travel tax, and strengthening accountability in the use of public funds. Together, these reforms can help foster a more dynamic economy while rebuilding public trust.

In the end, the objective is to create a larger, more productive economy in which citizens can prosper and taxpayers can see that their contributions are being used wisely. That may be the most enduring lesson from the tax revolutions of Reagan and Thatcher—and one that remains highly relevant to the Philippines today.