Tax the rich? That’s a mistake.

Let’s dissect the topic inequality shall we? Why is inequality a problem?

For a start, some say it is about how they spend. When the very rich spend, they move markets. They make things expensive. 

Or do they?

Let’s look at property for example. What sort of property do the rich buy? Public housing? Common condos? Or would they rather put their money into mid-to-top end condos and landed houses? If you have investment dollars set aside, it is quite foolish to be putting this money into an asset class that doesn’t grow well, or is artificially held down by the government. 

So no, inequality does not affect property. 

Dyson billionaire buys US$54m Singapore penthouse, setting new record

What about food? 

No one person, or family will be able to buy so much food as to cause an imbalance to society. It is typically extraordinary events that cause spikes in food prices. Disease, bad weather and so on.

So no, inequality does not affect food.

Transport would be an interesting analysis. Because we live in a land scarce place, transport is affectedly scarce too. So in economics, we know that if something is scarce, it usually also becomes expensive. That’s why it is important to have an affordable and highly connected transport system. 

So what is the problem with inequality? Why is it so popular to enact policies that attack the rich? Why do we want to tax them? Why do we want to limit their enjoyment of their resource and property? Why are they looked at as the enemy of society? 

Don’t the rich have merits too? 

When the rich spend, when they buy their properties, expensive cars, expensive goods and fine dining, they send their money gushing into society. When money moves, people get paid, goods and services get bought and jobs are created (or sustained).

Even if the rich doesn’t do anything with their money, when they simply leave it sitting in the bank or in an investment asset, this money provides opportunities for the rest of society. Banks are empowered to give loans. Bankers can use this money to make more money. If you have a good idea, you can go to an angel investor or venture capitalist and convince them to give you money to do your business.

The rich, just by virtue of their daily activities, are doing a lot to keep the economy buzzing. 

They cause the economic tide to rise and in turn, all the boats rise also. 

When they pull out, the tide falls…all the boats fall too.

So it does not make sense to increase the tax on them, when their capital is put to so much better use. 

At a recent speech at NUS, Minister Indranee Rajah said that “We want an enabling meritocracy. We don’t want to cap the top but rather to uplift bottom.”

This is how Singapore needs to be run: to tackle inequality by strengthening support for disadvantaged and then to build opportunities for all. 

It is silly and very primitive thinking to call for taxes to be increased to the wealthy, so that these taxes are artificially re-distributed to the poor. Why do that? Why do you want to hurt one to help another, when you can help one to help ten thousand more?

It is the tax-and-redistribute mindset that has kept some countries in poverty for such a long time. And I’d say that the “problem” of inequality, is really a problem of jealousy. Look beyond the jealousy and you’ll see why it is better to have more rich people in a society rather than less.

Singapore understands this. But do its citizens? Will we fall into the political trap that has ensnared other countries in poverty for extended periods of time? 

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