Demand Realistic Property Tax Reporting
China Times editorial (Taipei, Taiwan, ROC)
August 30, 2011
Summary: Rich folk living in 100 million yuan mansions cannot understand what it is like to be broke and live in a tent. Banquet guests riding elevators to the top of luxury high rises pay scant attention to what life is like for those at the bottom of the economic ladder. To learn what it was like to be poor, Ph.D and former New York Times columnist Barbara Ehrenreich worked as a waitress and a cleaning woman. She related her experience in her book, "Nickel and Dimed: On (Not) Getting By in America." As she noted, when the economy is good, housing prices soar. As a result the poor are afflicted not by poverty, but by prosperity.
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Rich folk living in 100 million yuan mansions cannot understand what it is like to be broke and live in a tent. Banquet guests riding elevators to the top of luxury high rises pay scant attention to what life is like for those at the bottom of the economic ladder. To learn what it was like to be poor, Ph.D and former New York Times columnist Barbara Ehrenreich worked as a waitress and a cleaning woman. She related her experience in her book, "Nickel and Dimed: On (Not) Getting By in America." As she noted, when the economy is good, housing prices soar. As a result the poor are afflicted not by poverty, but by prosperity.
The United States is the world's economic leader. When the real estate bubble burst, millions of houses were repossessed. Tent cities sprung up everywhere. During the Asian financial crisis, tent cities sprung up in public parks all over Japan. In recent years this has led to concern about young people becoming "Internet cafe refugees." A Japanese Ministry of Health survey found that 60% of those who squat in Internet cafes are day laborers. They are classic examples of poor but overworked families.
On Taiwan, a new generation of young homeless people squat in Internet cafes. According to a survey by the Homeless of Taiwan Association, those aged 26 to 35 account for 10% of the homeless near the Taipei Railway Station. Homeless persons born in the 1980s are on the rise. They are less educated, low-skilled workers. Some may find work this month, only to get laid off the next. Such instability means they have no steady income. They cannot afford to rent a house. All they can do is squat in Internet cafes.
Globalization, advances in technology, inequities in the social structure and tax system, have all widened the gap between rich and poor. When the economy is strong, those at the top of the economic pyramid and export-related industries benefit the most. But when the stock market rises, housing costs soar. People at the bottom of the economic pyramid can no longer keep up with soaring housing costs. They experience a greater sense of deprivation. Even worse, when the economy takes a downturn, they are the ones hardest hit.
The DGBAS has announced the results of its latest Household Income and Expenditure Survey. Household income is divided into five brackets. Last year, the wealthiest households had disposable income 6.19 times as high as the poorest. This is a slight improvement over the previous year. It is the third highest in history. The historical data shows that the gap increased from 4.97 times in 1991, to 6.19 times today. This is the largest increase in two decades, and shows that the government must work harder to narrow the gap between rich and poor.
Consider the effect of government transfer payments on families. According to DGBAS statistics, social welfare payments and tax transfers last year reduced the income gap 1.5 times. Social welfare had the largest impact, at 1.4 times. The impact of taxation was only 0.11 times, a record low. These numbers show that over the years government efforts to narrow the income gap have steadily increased the role of social welfare, while steadily decreasing the role of taxation. This calls for soul-searching. The original function of taxation was income redistribution. Now its impact is diminishing, mainly because the tax system is unfair, but also because repeated tax cuts have been made over the years.
As we all know, stocks and real estate are the main source of income for the rich. Transactions on the stock exchange are tax-free. Real estate taxes have little to do with actual sale prices. These phenomenon have long been targets of criticism, Such a tax system contributes to soaring housing prices. It also widens the gap between rich and poor.
To curb housing speculation, and to narrow the gap between rich and poor, DPP presidential candidate Tsai Ing-wen has proposed a real estate tax on residential properties not occupied by the owner. A tax system based on actual selling prices will be gradually phased in. Tsai however, offered no specifics on how it would be implemented. President Ma Ying-jeou subsequently announced five measures to ensure more equitable land and housing ownership. In a report to the Executive Yuan, Finance Minister Li Shu-teh said the current value of land and the assessed value of real estate would be gradually adjusted in the coming years, bringing them closer to market prices. This would eventually enable taxation based on actual prices. Observers are skeptical. Increasing the real estate tax will increase the powers and responsibilities of local government. This would have to be assessed by county council committees. This would not be up to the central government. This is the main reason property taxes have been based on numbers far below actual market prices.
From the perspective of tax fairness, a realistic property tax would certainly help narrow the wealth gap. But the real estate industry would react violently, making such a reform impossible for many decades. Twenty years ago, when Wang Chien-hsuan was Treasury Minister, he tried to promote taxation based on actual selling prices. He learned a painful lesson. His successors avoided the problem altogether. The KMT and DPP are now proposing property taxes based on actual selling prices. This is a rare opportunity for property tax reform. But how can this objective be achieved? Neither party has offered any specifics.
One hundred million yuan mansions and tattered tents are as far from each other as night and day. An unfair tax system has widened the gap even more. The presidential election however, has inspired candidates from both parties to propose property taxes based on actual selling prices. For this, they deserve praise. Accurate reporting of selling prices is a precondition for taxation based on actual selling prices. But how can tax rates based on actual selling prices be implemented? Both parties must offer concrete and feasible approaches. Only this can win public support, Goals and slogans alone will not do the trick.