Tuesday, October 16, 2007

The Gap between Rich and Poor: The Ministry of Finance should not be an Accomplice
China Times editorial (Taipei, Taiwan, ROC)
A Translation
October 16, 2007

Globalization and new technological developments are relentlessly changing the world. But to some people, the world is not flat. In fact, it is less and less flat, because life is harder than ever. During the past decade, more and more middle income families have found themselves joining the ranks of the poor. This worsening income disparity is something the ruling regime must face up to.

Yesterday this paper, in an article entitled "Taiwan's Nouveaux Pauvres," pointed out that globalization, new technology, industrial restructuring, and other factors, have given birth to a Nouveaux Pauvres class outside of the traditional class of "old, infirm, sick, and children." Its numbers are estimated at 1.38 million people. These were members of the middle class who formerly enjoyed a comfortable existence, but have suddenly become borderline poor. They do not qualify for the government's low income household subsidies. When they fall on hard times, they may be tempted to take the quick way out.

According to the Directorate General of Budget, Accounting and Statistics (DGBAS) family income survey, the wealth disparity between Taiwan's households, after reaching a 90 year high, has diminished. But has it really? According to newspaper opinion polls, 84% of those surveyed felt that the wealth disparity was serious, and 51% of those surveyed worried about becoming poor. Obviously public perception and official statistics are poles apart.

The increasing gap between rich and poor on Taiwan over the past decade has exceeded everyones' expectations. According to Ministry of Finance Financial Data Center figures, the ratio of households with annual incomes in excess of 10 million NT vs. those with annual incomes below 370,000 NT has increased from 1:48 to 1:55. Among households with annual incomes over 10 million NT, the average household income is just under 20 milllion NT. This is 836 times the income for households with annual incomes below 370,000 NT. These figures are shocking.

But the Directorate General of Budget, Accounting and Statistics and Financial Data Center reports grossly underestimate the income of the wealthy. Past investigators relied primarily on surveys. The wealthy often underreport their incomes. Genuinely poor people are hard to to locate. Capital gains and profits from real estate transactions are even larger loopholes. These are the major sources of income for the wealthy. Financial Data Center tax revenue figures do not include overseas income and capital gains. In recent years, many bosses of newly listed companies received cash dividends approaching 100 million NT. High tech firms award their staff bonuses and produce many millionaires. By contrast, eight out of ten low income households squeak by on fixed salaries. In recent years wages for labor have stagnated. Consequently the income of the wealthy has increased at a rate far exceeding that of the poor. An increase in the gap in between rich and poor is inevitable.

In its annual report the Asian Development Bank bluntly stated that the fruits of Taiwan's economic growth are being enjoyed exclusively by the wealthiest 20% of households, and this will endanger future economic growth. The result of the increasing gap between rich and poor is weak consumer demand and increasing social tensions. Nepal and Burma all living examples.

The widening gap between rich and poor is a result of globalization. It is especially serious in the US. Former Fed Chairman Alan Greenspan is dee[;u concerned. In his newly published autobiography, he pointed out that technological innovation and competition-driven globalization has become the primary factor in many countries' centralization. The wages of high tech specialists have skyrocketed, while middle and low income salary growth has stagnated. The income of the wealthy over the past 25 years has grown rapidly, causing the gap between rich and poor in America to worsen day by day. He felt that reducing wealth inequality would depend on education and a policy of open immigration.

Famed American economist Paul Krugman pointed out that between 1979 and 2005, middle class American household net income grew only 13%, while the richest 1/10th of one percent of household incomes grew 296%. Most people assume the the increasing gap between rich and poor is due mainly to advances in technology and globalization. Krugman believes politics plays a more important role. The large scale tax cuts of George Bush Jr's conservative Republican administration in particular have created these unforgiveable results.

In recent years the government has aggressively promoted its tax reduction policy, going down the same road as the Bush II administration. If we examine the government's income redistribution policy, we see that 90% of it depends on social welfare, and only 10% of it depends on tax revenues. Tax cuts reduce wealth disparity by a factor of only 0.15. This means income redistribution by means of tax cuts doesn't work. Expanding the scope of tax cuts may lead to a point where benefits vanish altogether.

The government's real estate tax cuts and inheritance tax cuts have benefitted mostly the wealthy. In order to upgrade industry, major stockholder dividends enjoy investment tax cuts, income from negotiable securities are tax exempt, and future income tax exemptions for individual capital gains are currently under study. Because interest income accounts for six tenths of the income of the wealthy, an interest income related tax cut measures will only worsen the disparity between rich and poor.

Our nation's tax rates are already among the lowest in the world. A tax policy flagrantly biased in favor of the rich has turned Taiwan into a paradise for the rich and a hell for the poor. Poor people bear a disproportionate part of the tax burden. Is this the society everyone was hoping for? Unfortunately the Ministry of Finance, which is responsible for national tax policy, has become a "tax reduction department," and forgotten the meaning of tax equity and justice. If this trend is not reversed, the Ministry of Finance will become an accomplice responsible for widening the gap between rich and poor, in which case it may as well change its name to reflect its true function.

中國時報  2007.10.16
貧富差距擴大 財政部莫成幫凶









 美國知名經濟學者克魯曼(Paul Krugman)指出,自一九七九年至二○○五年間,美國中產家庭的實質所得僅成長十三%,但最有錢的千分之一的家庭所得成長了二九六%。多數人認為貧富差距擴大主要是新科技進步與全球化因素使然,但是,克魯曼認為,政治扮演更重要的角色,保守派共和黨主政時期,尤其是小布希時代推動大規模減稅政策,造成不可原諒的後果。




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