Wednesday, September 07, 2011

Taxes, Income Inequality and the fallacy of trickle down economics...



Someone brought my attention to this interesting video in the comments section.

The only other developed country with comparable income inequality as Singapore is the USA.  They have numerous social programmes to mitigate the effects of the income gap such as Medicaid for sick, unemployment benefits for the jobless, social security for the aged etc. Unfortunately, over the years the tax rate was cut as the income gap grew and the US govt borrowed heavily to spend on defense and these entitlement programmes. The American society became a divided one with the top 1% controlling 25% of the wealth and the top 25% controlling 84% of the wealth. The rich assert their political control and influence through donations to right wing politicians who promote tax cuts, cuts in social spending and increase in defense spending to appease the military industrial complex. Under George Bush, a series of tax cuts was implemented for the rich and that caused a cut in govt The one redeeming aspect of the American system is that it is a democracy and they elect people from the other side to get some balance in place. Unfortunately, the division in American society has run so deep extremist groups such as the Tea Party has emerged who sole interest is small govt and low taxes...and they did not hesitate to take the country to the brink to get what they want during the debt ceiling negotiations.

Singapore like America has also become a divided nation. During the PE, one common theme that the candidates adopted was they aspired to be a "uniter" if elected to office. The political divide is ultimately linked to the economic divisions that has deepened in our society. It does not help that we have a govt that subscribes to an ideology that generate policies that will drive this society further apart/ President Tony Tan says he is independent and will heal the rift in our society by reaching out to everyone. Does anyone know what "reaching out" means? If he does not have influence to change divisive policies how is he going to play the role of "uniter"?

21 comments:

Anonymous said...

In the event of Cabinet wishing to ride roughshod over the President's views and refusing to refer a particular matter, there would be considerable public pressure exerted on the Government to so refer.

Anonymous said...

Maybe we should study the French Revolution 1789 - hyperinflation, despotic, corrupt regime and massive debts. Debts are debts, does not matter if it is internal or external. They have to be repaid from the same funds.....we are walking on eggs globally.

Anonymous said...

The only segments of S'pore society that TT managed to unite are the PAP elites, the top 20% and the companies, becoz all these jokers know that to continue having multi-million dollar salaries, bonuses and to squeeze out billion dollar profits requires status quo to remain. They all know that to keep their District 9, 10, 11 properties sky-rocketing, to continue depressing wages for the masses to keep costs low for their companies, to continue having younger and cheaper foreigners to choose from, means that PAP policies must continue.

As for S'pore's public debt equivalent to over 100% of our GDP, only 10%-15% are owed to foreigners and companies. These foreigners and companies will be paid in full and on-time, no problem about that. What I worry is the other 85%-90% of the creditors, becoz you and me are in this group. We are the only creditors in the whole world where the debtor (PAP) has more power than us. PAP can unilaterally decide to extend the date to pay us (from 55 to now 65), can change the interest to pay us (next year from 4% to 3%), can decide on a big amount that they don't need to pay us (minimum sum + minimum medisave sum), can decide to return our money in small amounts instead of lumpsum (CPF Life and minimum sum scheme).

Leong Sze Hian has already calculated that those who turn 55 in 2013 must have at least $185,000 in their CPF, otherwise they won't be able to withdraw anything. Those of us who are younger and will turn 55 in 10 yrs or 20 yrs time, we will need $300K to $500K minimum in CPF, otherwise cannot withdraw a single cent. And just wait until 65 or 68 to get $500 each month.

Anonymous said...

Whether inequality, rift or what not, what is most important is that a strong and better alternative does not emerge. Therefore PAP, despite lots of imperfections, will continue to be regarded as the best available party to govern by 60-70% of voters.

In the recent Presidential Elections, the only candidate which was linked to the opposition managed to get only 25% of the votes nationwide, much less than the 40% who voted opposition during GE, even though his credentials are quite OK.

And a total of 70% voted for PAP linked candidates!

Rift? What rift? PAP will still be PAP, although leaders may change.

Anonymous said...

Take care of yourself

No one else will look after you or your family ( if you have one )

Your employer will not look after you
Their job is to extract all your knowledge, skill and attitude.

The Government will not look after you. Their job is to tax whatever they can from you.

Your school will not help you to learn
Their job is to force you to recall and reproduce what can be assessed and examined.

Your neighbour will not help you.
he is too worried about his own problems ( which is same as yours)

Your brother will not help you. He has gone off to do NS in Brunei

Your sister will not help you. She has gone off to work 2 shifts to pay for her own private education.

Your parents cannot help you
they suffer from ailments that require you to help them.

Take care of yourself
Decide for yourself
Think for yourself
Work for yourself
Save for yourself
Spend for yourself
Live by yourself
Die by tourself

Your Facenook friends are too busy engaged in Farming, World of Warcraft,CounterStrike....and twitter..

Anonymous said...

HIGH COST from RENTAL has brought BORDER down

It had closed down its wheellock branch.

Do you know what had caused this to happen?

One main cause is the high cost, but where the high cost comes from?

Border wheellock branch is charged $540000/month of rental cost as reported in the liquidation process.

Let's look at labour cost.
Border operates from 10am to 12am daily, a 14 hours duration everyday.
In a week, a staff works on 6 days/week shift of 7 hours each.
(6X7=42hours/week is the normal working hours for a typical full time staff)

There are 2 shifts.
In a shift,
let say there are about 30 divisions within the border wheellock branch to be manned by one staff each and there are 3 cashiers.
There are also about 34 staffs on normal shift working in management and support areas.
For a given shift,
Total number of staffs in the wheellock branch is about 100.

As majority number of staffs are in front line and they are normally paid quite low, the average salary per month per staff is $2000.
Total labour cost is 100X$2000=$200000.

We clearly see that labour cost is 200000/540000 = 37% of the rental cost.

We talk about cut cost, which cost should we cut?

It very obvious that rental cost should be the one to be cut and rental cost should be significantly be brought down to a reasonable level.

Yet, large number of cheap foreigners are imported to Singapore to depress Singaporean wages. This hurts the low to middle income Singaporeans which are feeling the pain of high inflation.
There is only so much to bring down the salary of Singaporeans by having cheap foreigners around unless businesses are thinking of paying beggar equivalent salaries to Singaporeans.
Of course, if that happens one day, there will be more Singaporeans beggars than the number of foreigners here.

As we reasons, labour cost is not the main cost in a business.
In reality, it is the high rental cost that need to be retrained.
By purposely keeping rental cost high, only the property owners and property developers benefit.

So, HIGH COST from RENTAL has to be brought down substantially.

Anonymous said...

"So, HIGH COST from RENTAL has to be brought down substantially."
Anon 7/9/11 14:18

How?

They will tell you, "High rental? Then don't rent lah. Or close down lah. Because there are others who are willing and waiting to rent it."

Anonymous said...

@ Anonymous said...HIGH COST from RENTAL has brought BORDER down

"As we reasons, labour cost is not the main cost in a business.
In reality, it is the high rental cost that need to be retrained.
By purposely keeping rental cost high, only the property owners and property developers benefit."

High rents benefit them.
Low wages benefit them.
What is Tony Tan for if they don't mind rent comes down and wages go up? They might as well let Tan Jee Say or Tan Cheng Bock win the election.
The day when wages go up and rent comes down is when voters do not let Ho Ching runs Temasek and Lee Hsien Loong heads GIC. Let us repent until 2016.

Anonymous said...

But if rental cost is not kept high, then how can I continue to earn at least 6% return from my REITs?

How can I earn more money unless I take money away from other people, which includes slashing their salaries or replacing them with cheaper workers from 3rd World Countries?

Anonymous said...

in the next half year or so, singaporeans will see lots of 'borders', unemployment will fly, property prices will drop, savings will be plundered. however,the EP and MP will continue to sit in their tall ivory towers and draw their millions dollar salary.

Anonymous said...

Property prices will not drop.
Since interest rates will be less than 0.1 percent, and it will remain below 1% for the next 5 years.

Gold will go above US$2000 per oz.

If you got nothing better to do, just sit and watch for the next 5 years.

Anonymous said...

//Anonymous said...
HIGH COST from RENTAL has brought BORDER down//

well, well, well. now we know that the cost of rental (space) is the problem. not that people are not hardworking.

Anonymous said...

//In the recent Presidential Elections, the only candidate which was linked to the opposition managed to get only 25% of the votes nationwide, much less than the 40% who voted opposition during GE, even though his credentials are quite OK.

And a total of 70% voted for PAP linked candidates!//


TT obtained only 35.19% of total votes shows that majority (2 out of 3)of Singaporean don't support LHL's government.

TJS receiced only 25% shows that he only has the support of those die-hard anti-PAP voters.

TCB received 34.85% shows that most of the "swing voters" prefer a candidate who appeared to be unhappy with the current government and dare to speak up against the government.

Anonymous said...

The 70% who voted PAP-linked candidates are those who believe that the PAP can change and that change can be brought about without rocking the boat. These are the ones who have kissed their own brains goodbye and trusted the PAP to think for them. They are the ones that believe a leopard can change its spots and that you can built a ten-storey building over an existing one-storey house without redesigning the foundation.

Anonymous said...

And that was why Warren himself called on taxing the rich starting with himself.
http://www.bloomberg.com/news/2011-08-15/buffett-urges-congress-to-raise-taxes-on-coddled-billionaires.html
at least he understands economics 101 where you have to feed your goose to lay eggs. poor americans mean poor business for him.
However do remember tax well spent is better than tax well collected but wasted on meaningless war and unlawful occupation.

Winking Doll said...

Somebody just showed me this NY Times graphics speak volumes.
http://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html

Anonymous said...

Lucky,

No doubt you are very insightful on the political developments in Singapore and I do read and respect your commentaries on Singapore. But that DOES NOT mean that you are equally insightful on what is happening in the US and I strongly disagree with your statement that US is a divided society. I know that because I am an ex-Singaporean living in the United States for more than 14 years and I know what is happening here. To say that the Tea Party is an extremist group is analogous to saying that the PAP or SDP is an extremist group and it clearly shows your utter lack of understanding of the political situation here in the US. Please just keep your political comments to Singapore as this is the reason why I read your blog. If I want to read commentaries about US politics, I would read them in the NYT etc. Of course I do understand it is your rights to express your views since this is your blog and I respect it though I may disagree.

Anonymous said...

@anonymous 17/9/11 14:08
If you actually read the NYTIMES, I don't understand how you can possibly be sympathetic to the Tea Party ideology.

Anonymous said...

Anonymous, if I may extend your logic, that means that if I read the Straits Times editorial, it would imply that I'm a PAP supporter or sympathiser? So everyone who reads the Straits Times is also a PAP supporter then. Am I right to say that?

Jack said...

The only segments of S'pore society that TT managed to unite are the PAP elites, the top 20% and the companies, becoz all these jokers know that to continue having multi-million dollar salaries, bonuses and to squeeze out billion dollar profits requires status quo to remain. They all know that to keep their District 9, 10, 11 properties sky-rocketing, to continue depressing wages for the masses to keep costs low for their companies, to continue having younger and cheaper foreigners to choose from, means that PAP policies must continue. As for S'pore's public debt equivalent to over 100% of our GDP, only 10%-15% are owed to foreigners and companies. These foreigners and companies will be paid in full and on-time, no problem about that. What I worry is the other 85%-90% of the creditors, becoz you and me are in this group. We are the only creditors in the whole world where the debtor (PAP) has more power than us. PAP can unilaterally decide to extend the date to pay us (from 55 to now 65), can change the interest to pay us (next year from 4% to 3%), can decide on a big amount that they don't need to pay us (minimum sum + minimum medisave sum), can decide to return our money in small amounts instead of lumpsum (CPF Life and minimum sum scheme). Leong Sze Hian has already calculated that those who turn 55 in 2013 must have at least $185,000 in their CPF, otherwise they won't be able to withdraw anything. Those of us who are younger and will turn 55 in 10 yrs or 20 yrs time, we will need $300K to $500K minimum in CPF, otherwise cannot withdraw a single cent. And just wait until 65 or 68 to get $500 each month.

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