Each society needs to provide some social services to its people, such as infrastructure, education, health care, law and order and safety. The cost of these services have to be paid through taxation.
A fair method of taxation is a flat amount to be paid by all residents or households. As each person or household benefits more or less equally from the social services, they should contribute equally.
Unfortunately, in a society where there is a large disparity of earnings, there are many people who do not earn enough to pay for the cost of living. They will not be able to contribute towards the taxation.
A better method is to impose higher taxes on the high income earners. As they earn much more than the median wage, they are able to carry a larger share of the social cost.
Some people argued that a high tax rate will chase away the high income earners to other countries. This may apply to certain businesses that are globally mobile. There are many businesses that depend on the domestic market of a country. The high incomes have to be earned in the country and cannot be moved away.
In my view, a maximum tax rate of 30 percent of earnings is fair, as it would still leave 70 percent in the pockets of the high income earners.
There are debates on what has to be provided by the state and what should be provided by the private sector. In my view, the basic needs that should be provided by the state up to a standard that is necessary and cost effective. Those with higher incomes can opt to pay for a higher standard of service in the private sector, such as private schools or health care.
If the state does not provide for the basic needs, many people will have to buy these basic needs from the private sector and pay a much higher price, due to predatory practices and a high profit margin.
This has already happened in the financial sector which pays a low rate of interest on the savings and sells bad investment products that cause the investors to lose their savings. In the health care sector, some people have to pay higher fees to private doctors, without getting better outcomes.
It is better for the essential social services to be provided by the state on a cost effective basis, and for the cost to be shared fairly among the tax-payers. The higher income earners should be asked to contribute a larger share.
Tan Kin Lian
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