(16-06-2014, 10:27 AM)grubb Wrote: [ -> ] (16-06-2014, 12:24 AM)piggo Wrote: [ -> ]We are effectively paying a minimum tax of 36% on top of our income tax... but our social benefits pale in comparison to other countries with similar level of taxes.
It's also funny that contribution is capped at 5,000. So the people below averaged are effectively "taxed" more than the one above the average income bracket... So much for income redistribution.
Going by the logic of self sufficiency, CPF contribution should not have a cap. Living expectations varies pretty much according to income level... so 1.2k/mth may be sufficient to a typical singaporean worker. Same may not be sufficient to someone who have been earning 10k/mth or in the case of our leaders, 8k/day
I would agree with piggo.
Consider this. The low returns of the cpf and stagnating wages of low income groups, in addition to the emphasis on self sufficiency (i.e. lack of social safety net), pushes up the savings rate of singaporeans significantly. The savings are then channeled to feed investments. This is all part of the asian growth model.
However, this is also a huge implicit tax on the masses because effectively wealth is transferred from the savers to the investors. Through this implicit tax, the masses have contributed to nation building but enjoyed a less than proportionate share of increase in wealth. In the past the rising tide lifted all boats and everybody was happy. Now that the cost of living has caught up, isn't it right to give something back?
Apart from reforms in the CPF, I like to see more wealth taxes. The reestablishment of estate tax would be a nice start (not likely since theres so much vested interests. can already see a lot of people shivering in their pants.)
I wouldn't dismiss immediate on the comment of fairer wealth distribution, but we need a sustainable solution, rather a populist policy
As for the "Wealth tax", I would like to share one small story I heard recently below. Although the story is for US, and should be applicable to Singapore, with a little twist.
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Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily beer by $20. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
‘I only got a dollar out of the $20,’declared the sixth man. He pointed to the tenth man,’ but he got $10!’
‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’
‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’
‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics, University of Georgia