Saturday, September 26, 2015

Will taxing the rich make Singapore richer?

Reference: S'pore's total tax collection hits record high of $43.4b

So there are now 4,557 people earning more than $1 million each.

Their combined income came to $8.63 billion and they paid about $1.6 billion in income tax.

That works out to be 18.5% tax rate.

Singapore's total tax revenue recorded the 12 months before March 31 is $43.4 billion.

Those 4,557 high earners are only contributing 3% of the total tax revenue.

Say for example if we were to tax the hell out of those rich people at various tax rates below
30% - 2.59b in tax - 44.39b tax revenue - 5.8% of total
40% - 3.45b in tax - 45.39b tax revenue - 7.6% of total
50% - 4.32b in tax - 46.12b tax revenue - 9.3% of total

The rest of the so-called lower earners contributed $41.8b.

Say we increase the tax of the rest by 1%. That will give us an additional $4.18b.

To get that amount with high earners, we had to increase the tax level of high earners to you're-going-to-piss-them-off 50% level.

That's the law of large number. You will get a more significant result when you increase a small percentage that affects a large number.

1 comment:

  1. Total tax revenues does not mean income tax alone. An increase in tax for the lower 50% may raise income tax revenues but result in reduction in things like GST, stamp duties. That's because the reduction in disposable income from the tax increase reduces personal consumption. Whereas a tax reduction for the lower 50% and an increase in tax for top 10% put more money into a lot more people, therefore increasing aggregate personal consumption. In other words, given the relatively low top rate tax in SG, an increase in tax for the top 10% is more economically beneficial than an increase in tax for the lower 50%.