Room at the top - for rich to pay more taxes

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#1
The Straits Times
www.straitstimes.com
Published on Apr 07, 2013
Room at the top - for rich to pay more taxes

Some among the rich argue - or would at least agree - that they should pay more

By Han Fook Kwang Managing Editor

If you asked someone whether he was willing to pay more tax, you would probably be expecting a rude answer - it seems like asking if he wants to have his bones broken.

It turns out though that it isn't such a no-brainer, and there are people who are not only prepared to pay more but who will also argue quite vociferously why they should do so.

The most well-known is American billionaire investor Warren Buffett, who has long argued that the United States' tax system needs to be overhauled because wealthy people like him are not paying enough tax.

According to him, the tax rate on his income amounted to only 17.7 per cent in 2011, way below the 32.9 per cent average of what his own office staff, including his secretary, were paying.

That's because a large part of his income came from stock-related earnings, which in the US attracted a flat tax rate of 15 per cent.

This was how he put his case in a piece he wrote in 2011: "Our leaders have asked for 'shared sacrifice'. But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

"While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labours but are allowed to classify our income as 'carried interest', thereby getting a bargain 15 per cent tax rate...

"These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It's nice to have friends in high places."

The world's most successful investor, who is worth US$53 billion (S$66 billion), wants a more progressive tax system where the rich are taxed a much higher rate.

He isn't alone in making this call.

Some time ago, I heard on BBC radio a Scandinavian businessman defend the very high taxes he had to pay to support the welfare system there because he believed it was a good system and those better off should help pay to support it.

The issue of how progressive a tax system Singapore should have was raised in this year's Budget debate when Finance Minister Tharman Shanmugaratnam gave what I thought was the most detailed thinking from the Government on this matter.

He made several points worth recapping because this will be an important issue in the years ahead as government spending increases and revenues decline with an ageing population.

First, he argued that Singapore already has a progressive system and that if you take total taxes - including maid levies, car taxes and so on, and not just income tax - the top 10 per cent of tax payers contribute one third of the tax revenue.

Second, he stressed that the Government wasn't interested in making the system progressive for its own sake but wanted to do it in a way which would best help the lower- and middle-income groups.

Hence it needed to take into consideration issues such as how any change would affect the economic dynamism of the country, what it would spend the revenue collected on and whether the system was fair and equitable.

These are sound principles and we are fortunate to have a finance minister who has thought deeply about these issues.

The question remains though: Can and should the rich be made to pay more?

I believe there is room in Singapore to do so.

This is particularly so in the area of wealth, as opposed to income.

Wealth is what you have at any one time - property being the most common - while income is what you earn in a year.

The rich here get away with too much of their wealth left intact from taxation.

Owners of high-value homes must have felt like Mr Buffett, having friends in high places, when the Government abolished estate duty in 2008.

This is a tax on assets left behind after death and, when it was applied to property before it was abolished, affected those with a value above $9 million.

It was a high threshold and so would not affect most people, only the very rich.

Yet it was removed, without much debate even from the opposition Workers' Party.

One reason cited then was that removing it would help promote the wealth management industry in Singapore by encouraging the overseas rich to bring their assets here.

I wouldn't be surprised if they responded in droves as a result, with many buying property here to add to their stockpile, pushing up prices.

Whatever the result, the move made the tax system less progressive.

In this year's Budget, there was an attempt to redress this somewhat when changes were made to property tax which would result in those owning high-value homes paying more taxes.

But estate duty remains a relic of the past.

Is it time to bring it back, perhaps for the second and subsequent property?

And what about introducing a capital gains tax which taxes gains made when, say, you sell a property or shares in the market?

Any decision about how much more the wealthy should pay should take into account the principles that Mr Tharman highlighted. It also depends on whether there is a need to increase tax revenue, given the healthy surpluses in the Government's coffers.

One further caveat: This shouldn't descend into an ideological war to milk the rich for its own sake. That's why it was important for Government to set out its approach to this issue.

You might ask what right any government has to tax what is rightfully yours and you've worked hard to accumulate.

The answer is that when the value of your assets, especially property, goes up, it usually isn't solely because of what you've done personally, but the result of the effort of all in the country to make it a stable and prosperous place with a promising future. Without these conditions, there would be no asset appreciation.

Singapore is a great place for the wealthy - it's peaceful, safe and stable, has first-class infrastructure, and where everything (well, almost) works.

Where else can the super-rich drive and park their luxury cars in peace?

When millionaires buy seafront homes on Sentosa, they know there will be no armed robbers from the sea to threaten their lives.

Should they be taxed more to enjoy these privileges?

If they were asked whether they would pay more so as to continue with this happy state of affairs, I believe most will say yes.

That's as good a reason as any to tax them more.

hanfk@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
Reply
#2
With Reit income (distributions already benefited from corporate tax exempt landlord sturcture), dividend income no longer subjected to tax withholds, no capital gains taxes, no estate duties - Singapore is literally a tax haven for no work income generating individuals. Even more so, corporate taxes are amongst one of the lowest in the world.

Any taxes of wealth (via consumption and ownership of assets) that is making a comeback can only be progressive for an aging population and narrowing of income gap going forward. As it is, income taxes appears to be a toothless tool since a high proportion of population does not pay taxes.

(07-04-2013, 07:16 AM)Musicwhiz Wrote: The Straits Times
www.straitstimes.com
Published on Apr 07, 2013
Room at the top - for rich to pay more taxes

Some among the rich argue - or would at least agree - that they should pay more

By Han Fook Kwang Managing Editor

If you asked someone whether he was willing to pay more tax, you would probably be expecting a rude answer - it seems like asking if he wants to have his bones broken.

It turns out though that it isn't such a no-brainer, and there are people who are not only prepared to pay more but who will also argue quite vociferously why they should do so.

The most well-known is American billionaire investor Warren Buffett, who has long argued that the United States' tax system needs to be overhauled because wealthy people like him are not paying enough tax.

According to him, the tax rate on his income amounted to only 17.7 per cent in 2011, way below the 32.9 per cent average of what his own office staff, including his secretary, were paying.

That's because a large part of his income came from stock-related earnings, which in the US attracted a flat tax rate of 15 per cent.

This was how he put his case in a piece he wrote in 2011: "Our leaders have asked for 'shared sacrifice'. But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

"While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labours but are allowed to classify our income as 'carried interest', thereby getting a bargain 15 per cent tax rate...

"These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It's nice to have friends in high places."

The world's most successful investor, who is worth US$53 billion (S$66 billion), wants a more progressive tax system where the rich are taxed a much higher rate.

He isn't alone in making this call.

Some time ago, I heard on BBC radio a Scandinavian businessman defend the very high taxes he had to pay to support the welfare system there because he believed it was a good system and those better off should help pay to support it.

The issue of how progressive a tax system Singapore should have was raised in this year's Budget debate when Finance Minister Tharman Shanmugaratnam gave what I thought was the most detailed thinking from the Government on this matter.

He made several points worth recapping because this will be an important issue in the years ahead as government spending increases and revenues decline with an ageing population.

First, he argued that Singapore already has a progressive system and that if you take total taxes - including maid levies, car taxes and so on, and not just income tax - the top 10 per cent of tax payers contribute one third of the tax revenue.

Second, he stressed that the Government wasn't interested in making the system progressive for its own sake but wanted to do it in a way which would best help the lower- and middle-income groups.

Hence it needed to take into consideration issues such as how any change would affect the economic dynamism of the country, what it would spend the revenue collected on and whether the system was fair and equitable.

These are sound principles and we are fortunate to have a finance minister who has thought deeply about these issues.

The question remains though: Can and should the rich be made to pay more?

I believe there is room in Singapore to do so.

This is particularly so in the area of wealth, as opposed to income.

Wealth is what you have at any one time - property being the most common - while income is what you earn in a year.

The rich here get away with too much of their wealth left intact from taxation.

Owners of high-value homes must have felt like Mr Buffett, having friends in high places, when the Government abolished estate duty in 2008.

This is a tax on assets left behind after death and, when it was applied to property before it was abolished, affected those with a value above $9 million.

It was a high threshold and so would not affect most people, only the very rich.

Yet it was removed, without much debate even from the opposition Workers' Party.

One reason cited then was that removing it would help promote the wealth management industry in Singapore by encouraging the overseas rich to bring their assets here.

I wouldn't be surprised if they responded in droves as a result, with many buying property here to add to their stockpile, pushing up prices.

Whatever the result, the move made the tax system less progressive.

In this year's Budget, there was an attempt to redress this somewhat when changes were made to property tax which would result in those owning high-value homes paying more taxes.

But estate duty remains a relic of the past.

Is it time to bring it back, perhaps for the second and subsequent property?

And what about introducing a capital gains tax which taxes gains made when, say, you sell a property or shares in the market?

Any decision about how much more the wealthy should pay should take into account the principles that Mr Tharman highlighted. It also depends on whether there is a need to increase tax revenue, given the healthy surpluses in the Government's coffers.

One further caveat: This shouldn't descend into an ideological war to milk the rich for its own sake. That's why it was important for Government to set out its approach to this issue.

You might ask what right any government has to tax what is rightfully yours and you've worked hard to accumulate.

The answer is that when the value of your assets, especially property, goes up, it usually isn't solely because of what you've done personally, but the result of the effort of all in the country to make it a stable and prosperous place with a promising future. Without these conditions, there would be no asset appreciation.

Singapore is a great place for the wealthy - it's peaceful, safe and stable, has first-class infrastructure, and where everything (well, almost) works.

Where else can the super-rich drive and park their luxury cars in peace?

When millionaires buy seafront homes on Sentosa, they know there will be no armed robbers from the sea to threaten their lives.

Should they be taxed more to enjoy these privileges?

If they were asked whether they would pay more so as to continue with this happy state of affairs, I believe most will say yes.

That's as good a reason as any to tax them more.

hanfk@sph.com.sg
Reply
#3
This trend towards higher taxes on wealth or high income or estate duty was an inevitable step. Politically it will be done at some point.

Property segment will get hit badly, because who wants to spend a lifetime paying off a mortgage that gets taxed again when he/she passes on?

Of course the rich will manage to find the right jurisdiction (there are still plenty) but Singapore isnt going to be one of them at this rate.

As for whether it is a positive or negative thing for Singapore, only time can tell. Since we dont need the budget revenue, this is to fulfill a social need to reduce income/wealth gap. But legislation is never perfect and the middle class will probably feel it the most again. And some money will flee Singapore for friendlier homes, again some people will win some will lose - our cost of living should shrink dramatically.
Reply
#4
Yes. I think an estate tax of 10% for wealth above 10m would be highly symbolic and probably not so high as to encourage too much tax evasion except at the higher levels where net worth is above 20m.

But I do think taxing wealth is hard to do well. Reason is that while income is tied to location, wealth is a lot less tied except for property. I am thinking if the govt chooses to implement too draconian measures on wealth, eg via estate taxes, capital gain taxes on equity, prop, sale of company etc, or even just wealth tax outright, many wealthy people will just not buy local stocks or properties.... For business, just structure all using offshore companies and sell those companies rather than local ones. What I mean is that there will be tons of ways to avoid those wealth taxes and may also result in many decisions to move wealth to more favorable locations.

But I am just layman thinking, perhaps some policy tax experts can comment and share what can practically be done.
Reply
#5
The crux is why our estate duty was abolished in the first place ? If the answer is obvious then it is unlikely to reinstate .
“risk comes from not knowing what you’re doing.”
I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
Reply
#6
The business-rich class can hire as many tax lawyers or specialists to pay as little Estate tax as possible. If not able just uproot somewhere else lol. It's the working-rich class which is the middle to upper middle class will suffer most. But i think Malaysia, Hong Kong, do not have Estate Duty for a few years, then Singapore finally just follow. Are AUSTRALIA and New Zealand also estate tax free?
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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#7
trust vehicle used by the riches can by-pass the estate tx..that was explained as the main basis why this tax was removed....i guess this ST managing editor not so well informed?
Reply
#8
The writer hit the right conclusion: it's not just about tax that the rich is concerned: it is about environment, legal system and probably most of all, safety.

That links with why estate tax is a pain to them. Not so much of the money, but more on the declaration. Imagine what we wouldnt know if khoo tech puat didn't have to do declaration. Since the abolishment we can only guess the assets of those passed on, and forfeit accountability

From a sociopolitical perspective, Buffett explained it best: it is to level the playing field. Without estate tax, the wealth gap would exponentially increase and reach a point when the top controls all the resources, and not the talents. History has shown us what it will inevitably lead to.

Estate taxes should be reinstated. The original argument that it involves too much paper work but too little revenue is a farce.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
Reply
#9
Many top elites are multi millionaires, if not hundred millions , they want ED ?
“risk comes from not knowing what you’re doing.”
I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
Reply
#10
If ED is reinstated, then HK. will definitely zoom far ahead of Singapore as a "Financial Center". Maybe Malaysia will benefit too not to mention surrounding countries, Australia, new Zealand, etc.... . Don't think the very rich just wait for Gov. to ED them; whatever WB may think.
By the way, after ED has been obsoleted in Singapore then we have special "Sentosa Cove" where the very rich from all over the world come to make it their "2nd Home". And Singapore becomes one of their favourite playground. To whom benefits? i am sure you know the answer.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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