Move towards a more progressive taxation system

St Francis of Assisi was well known for his “preferential option for the poor”, eight centuries before our time. When Francis heard a voice telling him repair to the church as it was “falling into ruins”, he took it literally, thinking that the Lord meant him to physically repair ruined churches.

Feb 07, 2020

By Anil Netto
St Francis of Assisi was well known for his “preferential option for the poor”, eight centuries before our time. When Francis heard a voice telling him repair to the church as it was “falling into ruins”, he took it literally, thinking that the Lord meant him to physically repair ruined churches.

Now, Francis’ father was one of the wealthiest cloth merchants in the region, and so Francis took some of his cloth and sold it to raise money for a church that was in disrepair. The priest rightfully refused to accept the money.

By now Francis was dressed in rags, having grown disillusioned with wealth and the “good life”. When his father found him, he received a thrashing for bringing “shame” to the family, and Francis was then dragged before the bishop. Before a shocked crowd, Francis returned whatever he had taken from his father including his own clothes, and then renounced his family inheritance.

Like Jesus, Francis simply could not bear to see the poor and the sick suffering around him. He probably felt that his father had more than enough wealth, and selling some of it for a good cause would not hurt.

These days, we don’t have to resort to such drastic measures for the public good – a progressive taxation system will take care of the welfare of the least, the lost and  the most vulnerable in society.

Unfortunately, a recent report by the UK charity, Oxfam, makes for grim reading: “The world’s 2,153 billionaires have more wealth than the 4.6 billion people who make up 60 per cent of the planet’s population.”

And the inequality is getting worse.

This worsening disparity in wealth is also helped by governments under-taxing super wealthy companies and individuals, including the billionaires.

As a result of insufficient tax income, many governments don’t have enough money to finance essential services such as public healthcare and education.

Some people argue that if you tax the rich more, especially the billionaires, the economy will suffer.

But that is not quite true. In the 1950s, the US thrived even when the top tax rate was 90 per cent for those earning more than US$200,000. Even if we use the effective tax rate (which was 42 per cent) that the top 1 per cent of the population paid dur ing that period, it is still much higher than the effective rate of 36.4 per cent they were paying in 2014 (Jordan Weissmann, 2017, slate.com).

And there are many more wealthier people today who are paying lower effective tax rates.

Let’s look closer at Malaysia. Forty years ago, in the Supply Bill 1980, it was stated that the new top marginal income tax rate would be 55 per cent for those earning more than M$75,000. Compare that to what we have now. The top marginal tax rate is just 30 per cent and that too, only for those earning more than RM2m per year.

On top of that, estate duty used to be 5 per cent for those above RM2m  and 10 per cent on inheritances above RM4m. But that was abolished in 1991.

As in the US in the 1950s, the Malaysian economy actually boomed in the 1970s despite the heavier taxes on the wealthy. Hospitals and schools catered for the majority of the public, at minimal charge, even though they were not as sophisticated  as the private hospitals and international or private schools of today.

Today, with lower taxes for the rich and low wages for the majority, the economy is lethargic. Wealth is even taken out of the country through illicit financial outflows.

The wealthy are also able to hire tax consultants to avoid taxes using legal means. They can also squirrel away their wealth – or money launder their ill-gotten gains – via tax havens, undetected by enforcement agencies.

Instead of paying more taxes, companies prefer “corporate social responsibility” schemes while billionaires revel in philanthropy. The problem with these is that they often don’t reach as many people as money paid through taxes will (provided corruption can be reduced).

As Dutch journalist and historian Rutger Bregman said: “Just stop talking about philanthropy and start talking about taxes. … We can invite Bono once more, but we’ve got to be talking about taxes. That’s it. Taxes, taxes, taxes. All the rest is bull**** in my opinion.”

So we really need to review our taxation system to reduce disparities and raise tax revenue. Our universities, public hospitals and rural schools need more funds, while the lower-income group and vulnerable communities could do with more welfare assistance.

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