Thursday, April 08, 2010

Big rats and fat cats

How is this relevant to Singapore? What is the role of government? Read this article by Dr. Wong Wee Nam.

Role of Government

The poor will only get a fair share of the economic pie through a just re-distribution of income. The only way to re-distribute income is through public policies and laws. Unfortunately the problem is that most of the people who are in the position to influence, initiate or implement the changes are members of the tiny apex who have the largest share of the national income. Unless one is very altruistic, who would want to come out with an equitable system especially when it means affecting one’s self-interest? It is natural for anyone in this position to believe completely the virtue of Adam Smith’s “invisible hand”.

Big businesses and corporations love to wave the flag of globalisation, free market and competitiveness. This is because the wages of the workers can always be kept low by making them compete against foreign workers that can be imported from the part of the world where many people are still hungry. They can easily wring concessions from workers with the threat of relocation. Conversely, no worker can hope to wring concession from the bosses with the threat of resignation or emigration.

The power of big corporations and businesses can also be be seen in Singapore. Thus when companies do not make profit, they can put pressure to cut the workers’ salaries so that they can still be profitable. If the profit is not attractive enough, they can exert pressure to bring down the corporate tax rates.

In the end not only do they pay lower taxes, the tax payers’ money that is used to produce skilled workers, good infrastructure and a safe environment for these companies will be raised through the GST that is paid by everyone.

In a just and equal society, the role of the government should be to act as a regulator to balance the needs of the people and the greed the big businesses. Its job should be to iron out any kinks that may give rise to injustice and conflict and to re-distribute wealth in a fair manner. Its policies should not favour one side or the other. It cannot play such role if it decides to go into business and become a Fat Cat itself.

For a just an equal society, a government must be able to control the greed of the Big Rats and trim the fat of the Fat Cats instead of justifying the necessity of their existence


Anonymous said...


You need Sir Alex Ferguson and Wayne Rooney. You also need the referee and linesmen. You need Man United and Chelsea. Only then, you have a football game, and a super league.

Cashew Nut

Tan Kin Lian said...

It is all right to let super people and CEOs be paid whatever is appropriate, so long as they pay their tax.

We need a system to tax people at 90% of earnings above 50 times of the national average.

I believe that the super people will continue to be top for fame, love of the sport, building a business, public service and not for the love of money alone.

Tan Kin Lian said...

The message from Wong Wee Nam is "the leader cannot control the fat cat, if the leader is also a fat cat".

Anonymous said...

In reality, in a democratic society, there will always be fat cats. This is a Dysfunction of Democracy. There will always be opportunities for some people to prosper, through good fortune, shrewdness, exploitation, talent, whatever, to prosper 100 times, 500times more than the least fortunate. PC

symmetrix said...

Taxing super-duper-rich ppl at 90% of their earnings may not be workable. If that happens, there will be no incentive for them to become super earners.

Assume I am working my butt out and earning $1 million per mth (which I am nowhere near to). Why should I give 90% as tax? There will be no motivation for me to work so hard. I'd rather give the money directly to charity in 3rd world countries, than to a govt that is filthy rich.

Anonymous said...

"Taxing super-duper-rich ppl at 90% of their earnings may not be workable. If that happens, there will be no incentive for them to become super earners."

Believe me even if you impose 90% tax for the super rich, they will still find a way to avoid tax. Of course this does not mean that you don't impose such a tax. All i am saying is such a tax is necessary for greater equality and income redistribution. Of course I expect the right wingers to lobby and protest vehemently, just like the Republicans in the US.

Anonymous said...

"the leader cannot control the fat cat, if the leader is also a fat cat".

This could be the reason why the income of the top earners getting higher and higher,
because our leaders whose remuneration are benchmarked to the top earners in the country.

jamesneo said...

Hi, I believe taxing at 90% will be counterproductive and excessive. i will give a number later that i think is a more suitable number. Does this tax applies to business owners? is it the profit or asset increase of the business? Will these lead to a barrier to a local entrepreneur to start a business? Unless the corporate tax is high, will these business owners sent lower paid employees to that country while they control the business from another country?

Secondly, many of these rich people are highly mobile and will just go to places with low tax.
If one want to go for high tax my gut feeling is that 40-50% is the best for personal and 30-40% for corporate as it ensures that sufficient amount of these people will still be around.

Let us analyze this from a mathematical perspective. Let say the national monthly average is $4000 and tax rate is 10%,=3600. For a person with 50X the national average, 50x4000= 200000. with a 90% tax rate, their money is only 20000 only 5.55 times the national average. Typically, the private housing are at least 3-5 times the normal housing while their car might be 2-5 times the average plus normal expenditure let say 5 times normal people. With only 5.5 times the national average these supposedly rich people cannot afford this expenditure. If the tax rate is 50% the final money is 100000=27.7 times. This amount of money is sufficient large for this rich people to lead an extravagant life. Of course some people will be greedy and will want to go to low tax countries but i believe a sizable amount of rich people can live with these(they may complain but will live with it).

For people with salary much larger than 50X, the 40-50% can be adjusted accordingly.

hang lian said...

If I understand correctly, Mr. Tan is proposing a 90% tax be apply to income ABOVE 50 times the national average.

In jamesneo's example above, anything above $200k should be taxed at 90% (presumably normal tax rates apply for $200k and below).

Tan Kin Lian said...

Reply to hang lian

You are correct. The national average salary in Singapore is $50,000. So, the proposed tax of 90% will apply to salaries above $2.5 million. I think that $2.5 million a year is more than enough to "motivate" people. Beyond that, they will be "motivated" on other reasons - e.g. fame, benefit mankind, etc.

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