Leadership Practice Before Leadership Theory
China Times editorial (Taipei, Taiwan, ROC)
May 28, 2012
Summary: A determined government will stick to its ideals and demand reform. It will stress fairness and justice. But the purpose of reform is to achieve one's ideals. Fairness and justice is not socialism. This is the anniversary of the luxury tax. This is the eve of the capital gains tax. Have administration officials considered the pros and cons? Do not allow leadership theory to override leadership practice. Do not allow empty rhetoric to replace hard reality.
Full Text below:
Over the past two years, the Ma administration has held high the banner of social justice. It hopes to narrow the gap between rich and poor. It hopes to change the "M-shaped society." But as we all know, the gap between rich and poor has widened. This represents a long-term change in the social structure. The change has international, domestic, and even cross-Strait causes. The Ma administration has oversimplified a complex process of evolution. It assumed that a few luxury taxes and capital gains taxes would rid us of injustice. Once again the Ma administration has adopted a one size fits all approach. It hoped to lay claim to righteousness. It hope to extricate itself from an increasingly embarrassing fiscal dilemma. The results prove otherwise. These policies merely throw gasoline on the fire. They merely intensify rich vs. poor class antagonisms. They depict the middle class as semi-impoverish. As a result the entire society lives in fear. Naturally it looks to a better tomorrow.
Take the luxury tax. This is considered an unassailable PC policy move that seizes the moral high ground. It asserts that everyone should be able to afford to own a house. But are peoples' lives really that tragic? "Are people on Taiwan really homeless? Hasn't the government long boasted that over 80% of the public owns their own homes?
It is not that people cannot afford housing. It is that they cannot afford to upgrade to a "decent home." What is a "decent home?" The media usually shows us luxury mansions. It says that people cannot afford them, even if they were to spend all their food money on house payments. But do ordinary people live in luxury mansions? If they don't, then what's wrong with imposing high land taxes and high real estate taxes on luxury mansions? The rich consider this chump change. Why drag the middle class into the equation?
Take housing prices in Greater Taipei. They are higher than for areas outside of Taipei. Far more expensive. But why? "Speculation!" is the Ma administration's standard answer. But speculators account for only three percent of all housing transactions. They have raised housing prices sky high. Prosecute these opportunists. But why lump the homes of the middle-class into the same category?
Taipei housing prices have risen for a variety of factors. For decades the government favored the North at the expense of the South. Cross-Strait relations have improved. Inheritance taxes have been lowered. Global capital has flooded Asia. This is the macro level. Now consider the micro level. Better city and county water quality, more convenient transportation, higher quality medical care, greater employment opportunities, and higher incomes, are all factors. Builders begin new projects. Brokers sell older housing units. If prices stray too far from market value, they fall naturally. Sellers naturally cut prices. If prices in other areas are too low, the government should do something about it. It should not artificially depress Greater Taipei prices. That is not fairness. That sort of fairness is fake.
Can a fake policy of fairness fool the people? One year ago the Ma administration had grand ambitions. Over 60 percent of the people supported the luxury tax -- a 15 billion dollar a year levy. It would enable justice to prevail. Fifteen billion in one year. But deduct luxury tax and land tax collection costs. How much does the government actually take in? Last year people complained about not being able to afford housing. This year they hold housewarmings. What percentage of people think justice has been "partially achieved?" Fame and fortune are "like fish and bear paws." One cannot have both. But one can have one.
Now take the capital gains tax. Minister of Finance Liu cited two examples. He justified the capital gains tax. Suppose a client earns four million in the stock market but fails to pay 200,000 in capital gains taxes? That is an injustice. But Minister Liu forgets. Individual investors must pay transaction taxes. According to the Securities Association, an individual trader must make three to four billion in transactions to make 4 million dollars. In other words, small investor transaction taxes already amount to millions. According to marginal tax rate calculations, small investors pay as much as 25%.
Minister Liu cited another example, Hon Hai chairman Terry Gou. He said in 2010 Guo earned 1 billion from stock sales, but only paid 3.48 million in stock transaction taxes. Suppose we adopt the Executive Yuan's version of the capital gains tax. Start with 2010. By the end of 2009, Hon Hai's closing price was 151.5 NT. In 2010 Hon Hai shares ranged from 155.5 NT to 106 NT. How could Gou possibly have made one billion? Assume everything was sold at the peak. One share earned 4 NT. In other words, how could Guo dispose of 250,000 Honghai shares before and after January 5, 2010? Is it really possible? Assume the face value was the price paid. The Executive Yuan version cost calculation does not match. Is this fair?
Political appointees must of course defend the government's policies. But their defense must be based in fact. They must be objective and neutral. The first example stigmatizes small shareholders. The second stigmatizes major shareholders. The Taiwan stock market is like Hong Tong County. Small investors and large investors alike are victims of unfairness and injustice.
The capital gains taxes are a case of "If only I knew then what I know now." The administration is riding a tiger. It can neither stay on nor get off. But we say better late than never. Better to know than not know. Gasoline and electricity price hikes and capital gains taxes cannot be implemented simultaneously. Therefore the administration should ask itself which policy is more urgent. Policy implementation always involves priorities.
A determined government will stick to its ideals and demand reform. It will stress fairness and justice. But the purpose of reform is to achieve one's ideals. Fairness and justice is not socialism. This is the anniversary of the luxury tax. This is the eve of the capital gains tax. Have administration officials considered the pros and cons? Do not allow leadership theory to override leadership practice. Do not allow empty rhetoric to replace hard reality.