Wealth Gap in the USA: A Warning for the ROC
China Times editorial (Taipei, Taiwan, ROC)
October 31, 2012
Summary: George Soros and Warren Buffett have persuaded hundreds of wealthy individuals to participate in a patriotic millionaires tax increase program. Hopefully tycoons and entrepreneurs on Taiwan will show similar boldness and responsibility. The wealthy should pay more in taxes. Corporations should pay employees more in salaries. They should immediately reduce the gap between the rich and the poor. They should provide additional fuel for tomorrow's economic recovery.
Full Text below:
The U.S. presidential election looms. Americans are about to go to the polls. The main reason the candidates election prospects remain in a state of flux is the economic situation. The economy has tanked. Trade and budget deficits have ballooned. The wealth gap has widened. These facts are highly detrimental to the election prospects of the incumbent. The most serious problem is the gap between the rich and the poor. The problem did not arise overnight. But its consequences have been tearing the United States apart, and will continue doing so into the future. This issue is far more important than who will inhabit the White House. As we hold a mirror up to the U.S., we see how similar the situation is on Taiwan. We have no choice but to be more vigilant.
The wealthiest one percent in the United States owns 40% of the nation's wealth. Over the past three decades, the incomes of the wealthiest one percent of Americans have doubled. The assets of the wealthiest 0.1 percent of Americans have doubled. The income of the middle class on the other hand, has remained stagnant. The American Dream, with its emphasis on class mobility, in which everyone has the opportunity to succeed, has become a myth.
The United States has the most inequality of any nation on earth. People with insight, such as Nobel laureate Joseph Stiglitz, have warned that if the government allows the gap between the rich and the poor to increase, America will become a divided society. It will resemble the economies of the Third World. The problem of unequal distribution of wealth will eventually lead to a reaction against the rich.
Inequality in America has been increasing for decades. The increase in inequality began with the Reagan administration, when it loosened controls on the financial sector. It originated with the decline of the progressive tax system. Reagan's successors continued along the same path. As a result, today's richest one percent pay only 15 percent in income taxes. Their average tax rate is far lower than for middle-income earners. Also, the capital gains tax rate is lower than the payroll tax rate. So-called capital gains are often windfall profits. In other words, the U.S. tax system helps the rich make more money. It hinders the middle and lower classes in their attempt to earn money.
When wealthy conglomerates make money, they scream that government regulations should be relaxed. But during a depression or recession, they call upon the government for relief. This is truly a case of "privatizing the profits while socializing the losses." It is the epitome of injustice.
Now consider Taiwan. In recent years, the gap between the rich and the poor has been widening. Widespread unemployment, including unpaid leave, involuntary part time employment is common. People on Taiwan have yet to join Occupy Wall Street type movements. The rich and the poor have yet to clash head on. But if the problem is not addressed today, we will regret it tomorrow.
Narrowing the gap between the rich and the poor is a problem with many facets. This article will not try to address them all. But we urge the government to reform the tax system. We urge businesses to increase salaries. Help yourself by helping others.
Taxes account for only 12 percent of the ROC's GDP. This is far lower than the United States and Europe. It is also lower than South Korea. The USA boasts that it is the showcase of capitalism. Yet its income tax to GDP ratio is higher than the ROC's, which pursues the Three Peoples Principles. Now consider the ROK. Its economic structure and development pattern is similar to the ROC's. Before 1995, the South Korean income tax to GDP ratio was lower than the ROC's. In 1996, the situation was reversed. The South Korean government imposed a higher income tax to GDP ratio. The world was impressed with its boldness. By contrast, the ROC government, with its low income tax to GDP ratio, seems indecisive, inadequate.
ROC tax rates are low and getting even lower. This may have something to do with frequent elections. Political parties compete for votes by promising tax cuts. The government fails to balance its powers and responsibilities with social justice. Quadrennial elections began in 1996. This matches the cycle of declines in tax ratios. It gets worse. Taxation of income has a redistributive effect. This effect should be greater than the effect of government wealth transfers. But in recent years, income redistribution on Taiwan has relied mostly on government transfer payments, rather than taxes. Under democracy, issuing money is easy, raising taxes is difficult.
The capital gains tax will not take effect until New Year's Day next year. Recently legislators proposed merging it into stock transaction taxes. Their pretext was the lackluster stock market and the downturn in the economy. But large numbers of families are unemployed. Anyone still able to invest in the stock market is among the lucky ones. The level of taxation is unrelated to prosperity and competitiveness. Consider the high tax rates in the Nordic countries. Their economies remain vital. The gap between the rich and the poor remains small. Addressing unemployment is more urgent and more essential than adjusting capital gains tax rates. After all, the capital gains tax has yet to be imposed. The Ministry of Finance has finally managed to get the capital gains tax passed. It must not be abandoned.
Business owners must take the long view. They must take the initiative to reduce profits and increase employee salaries. This will motivate staff productivity. It will also increase domestic demand. Many years ago U.S. auto magnate Henry Ford paid employees higher salaries to inspire them to work harder and enable them to buy Ford automobiles.
George Soros and Warren Buffett have persuaded hundreds of wealthy individuals to participate in a patriotic millionaires tax increase program. They said, “Our country has been good to us. It provided a foundation through which we could succeed. Now, we want to do our part to keep that foundation strong so that others can succeed as we have.”
Hopefully tycoons and entrepreneurs on Taiwan will show similar boldness and responsibility. The wealthy should pay more in taxes. Corporations should pay employees more in salaries. They should immediately reduce the gap between the rich and the poor. They should provide additional fuel for tomorrow's economic recovery.