As many of you know, I grew up poor while living in the States. Up until high school, I benefited from public assistance in the form of free school meals. My single mum’s job had to support the four of us. Her pay was less than my first internship while in uni. But you know who hated taxes? My mum. She, like so many others in her cohort, were convinced that taxes were evil, oppressive, and unfair. In the ’80s, when income tax rates for the highest earners were at 70%, she voted to cut taxes. But how much did she pay in (income) taxes? Zero. How much did other people’s taxes support her and our family? A lot!
In the years that followed, US President Reagan cut taxes to 28% for the highest earners. This gave the rich a huge tax break. But it also drastically cut social spending. In high school, there was no free meal programme. We even lost the school bus service. Those were years where I was malnourished and had to bum rides and food off my friends.
So why did my mum, who paid $0 in income taxes, support cutting taxes and thereby cutting social spending? I think it’s because we’re all given the same story – the big bad government is taking your hard earned money away. And if they just gave you back your money, you’d be better off, make better use of it, and live a much happier and prosperous life.
A lot of people believe this. It doesn’t matter if they’re rich or poor. We’re all brainwashed to believe taxes are bad.
Millionaire novelist Stephen King said in the article “Tax Me, for F@%&’s Sake!”, “The majority would rather douse their dicks with lighter fluid, strike a match, and dance around singing ‘Disco Inferno’ than pay one more cent in taxes.” Nevermind that Mr King thinks taxpayers are only males.
The Question No One Asks
Few people ever ask themselves whether they benefited in any form from the taxes collected.
All they can think about is the loss of their money (even when they didn’t pay a cent, like my mum).
They never think about the security they enjoy, the clean streets, the clean water, the easy access to electricity and technology, the pothole-free roads, the beautiful parks, the accessibility and affordability of public transport, the subsidised housing, the subsidised healthcare, the legal system that protects workers rights, the research and education system that tops global rankings, and the availability of global food, products and services.
Even the very fact that they can earn a good income can only happen when they live under favorable environmental and social circumstances. And these circumstances were not created by themselves, but created largely by their government.
If taxes did not support my poor family, I would have never made it through uni. I would have never broken out of the poverty cycle. If I grew up in a third-world nation, I definitely would have remained poor.
Even Warren Buffett acknowledged that society was responsible for much of his wealth. He said that “if you stick me down in the middle of Bangladesh or Peru, you’ll find out how much this talent is going to produce in the wrong kind of soil”.
The Nobel Prize-winning economist Herbert Simon estimated that “social capital” in developed nations is responsible for at least 90% of what people earn. This means that it was NOT merely your hard work, talent, or luck that was responsible for your earning potential, assets, or net worth. It was mostly a result of being born at the right time, to the right parents, in the right nation that had a good social infrastructure, laws, and stability (all of which are funded through taxes).
What about those who aren’t so fortunate?
Fairness in a More Progressive Tax System
This is why I believe in a more progressive tax system, even though I’m now saying this from the perspective of a high-tier taxpayer. At a recent post-budget feedback forum, I had the chance to briefly suggest to SMS Indranee Rajah that the Estate Duty be reinstated but with higher rates like they once were in the ’80s in Singapore.
Wealth is getting more and more concentrated, especially dynastic wealth. There are now nearly 2,500 billionaires in the world. And if you ever read “Crazy Rich Asians“, a fictional story loosely based on the author’s own experiences (the movie will be out later this year), you’ll find that the vast majority of these Ultra High Net Worth Individual (UHNWI) have been that way since birth.
Sure, many of them went on to become successful businessmen, doctors, and lawyers. But it was because they had all the privileges, support, and opportunities from the start.
Imagine your child having to compete with a child who has the best nutrition, the best education, and a team of caregivers, tutors and mentors giving them all the attention they need. Imagine that child has a world of resources, enough to fail several times without affecting his wealth or his future.
How could the average child even compete?
Singapore’s Revenue and Expenditures for FY2018
& Thoughts on the GST Hike
Here are the figures for Financial Year 2017. The source data can be found here. As you can see, most of Singapore’s revenues in TY2017 came from corporate income tax, which doesn’t really affect the majority of Singaporeans directly. The rest of the revenue came from a diversified mix of sources. There were also many so-called one-off windfalls that added to the budget surplus.
The future is full of uncertainties, yet we have future obligations that will require a massive amount of funding. Thus, dipping too much into our reserves may be to our detriment. And it is not wise to borrow money and go deep into debt just so we avoid raising taxes. This, as mentioned in a previous article, is how nations fall or remain third-world.
Personally, I would have wanted an increase in tax rates for high income earners, taxes on Capital Gains, and/or the reinstatement of a higher Estate Duty, rather than a hike on GST. But I have to trust that our government is doing their best, given the information they have on hand. All we can do is wait and see, and in the meantime, trust.
On the other hand, raising GST rather than income tax, favours those who are frugal. Frugal people are thoughtful, resourceful, and deliberate in how they spend their money. If you practice frugality, you could reap the benefits from higher taxes while minimising the impact on your wallet. Unlike income tax, GST is a tax where you have some level of control.
I’m not an economist, policy expert, or prognosticator. But I believe the continued success of our nation depends heavily on social spending and creating a conducive environment for its people to live, work, and thrive. And it also depends on setting aside enough to pay for our future needs.
Hence, our collective success depends on all of us, as taxpayers. But the problem we’ve always faced is that spending is popular, but raising money to pay for it is not.