‘Luxury tax’ on the wealthy will backfire

Always eager for more revenue, the Taiwanese government is now seeking to take from the rich with a proposed new “luxury tax.” Estimated to be capable of generating NT$15 billion ($511 million) a year, the proposed new tax is intended to close the ever-widening wealth gap and curb real property speculation, which has been rampant since Taiwan’s economic fortunes began turning around last year.

The planned tax, which still requires approval from the Legislative Yuan, will attempt to cool down property speculation by charging real estate speculators 15 percent of the transaction value when they sell a property within one year of purchasing. The tax will be lowered to 10 percent in the event real estate purchasers sell properties within two years of buying them. The government will also collect an extra 10 percent sales tax on high-value items such as automobiles, yachts and private airplanes with a price tag of at least NT$3 million ($102,218), as well as club memberships valued over NT$500,000 ($17,036).

The idea of bleeding the rich to collect more money for government coffers has been tossed around for a long time. Whenever politicians look for someone to blame, it seems the rich are always first to go on the chopping block.

The trouble is that no one, including the government, has given serious thought to the long-term consequences of punishing wealthy people on the basis of their consumption. The idea that such a tax would generate NT$15 billion every year is a bureaucrat’s fantasy. Punishing the rich for consumption will only curb consumption in Taiwan by the rich and nothing else.

When the government imposes a hefty tax on purchases of yachts, for example, many wealthy people will react by declining to purchase yachts here. And since many yachts and yacht components are manufactured right here in Taiwan, the end result of such a policy will be to cause workers in this high-value sector to lose their jobs.

While politicians are eager to point out that expensive cars worth more than NT$3 million are usually imported, they fail to remember that many of the parts inside of those cars are also made here in Taiwan, or in mainland China by Taiwanese businessmen with factories on the other side of the strait.

The curb on property speculation has also thrown a monkey wrench in the construction and real estate property development sector, which was already reeling from a long cold spell dating back to the days of former President Chen Shui-bian and his failed economic policies.

In the end, this amounts to a poorly-thought-out waging of class warfare against the wealthy. If every citizen had NT$10 ($0.34) for every idea the government produced without seriously thinking about the consequences, we would all be millionaires by now.

Discouraging consumption by the wealthy might be popular when politicians face the voters or when know-it-all analysts run their mouths on nightly TV talk shows, but this will certainly wreak havoc on our sensitive economy, which has only just started to emerge from the shadows.

Rather than punish the rich on the grounds that they are rich, the government should come up with ways to stimulate overall economic development so that people earning less money can gain access to better employment opportunities. Increasing development of value-added production, such as making NT$3 million cars in Taiwan, is one way to do this.

A better way to stop rampant property speculation would be for the government to resume construction of subsidized housing and continue improving the public transportation infrastructure so that homes in the suburbs become affordable and easier to reach the city center from.

Deputy finance minister Chang Sheng-ford described the proposed new luxury tax as a “selective sales tax.” That amounts to deliberately punishing people merely because they are consuming, which is precisely the thing the government should want to see them do. Those at the very top of the income tax brackets will either purchase their luxury items abroad, or merely decide not to purchase them at all.

For decades, the rich have already been avoiding taxes by moving their assets offshore or declining to bring assets earned abroad into Taiwan, such as profits from their factories and shops in mainland China.

Imposing this punishment against the wealthy will do nothing to make the poor rich, and will most likely have the opposite effect of costing the poor even more jobs.

(The China Post, March 6)