Are the rich responsible for income inequality?

Yes, the more you save for such investment, the more benefits you enjoy. So it’s a pity that not everyone can afford it.

Few people earning less than Bt20,000 a month will benefit from this scheme. How could they, when the daily cost of living keeps rising? Five years ago, a one-dish meal typically cost Bt30. Nowadays, pay Bt35 or Bt40 at any food court and you will barely fill your stomach. So it is unimaginable that labourers on low wages that barely cover their expenses can save any money.

In a broader sense, however, LTF investment helps boost the stock market. It is estimated that as of February, outstanding LTF investments amounted to Bt150 billion. The investment is so huge that each year analysts factor the amount of unit trusts reaching 5-year maturity into their forecast for the SET Index.

That Bt150 billion is enough to finance the investment projects of several companies, and hence provide jobs. More investment draws new listings, and hence increases the stock market’s attraction. That, in turn, draws foreign investment, which guarantees the SET Index’s advance and the prosperity of investors and the entire economy. True, the prosperity is shared by a small group of people, but we all sincerely hope that the wealth trickles down to the majority.

Many have dubbed LTF investment a subsidy for the rich. In a word, they want the rich to pay more tax – which would only be possible if tax breaks such as LTFs are called off. Such a move should increase tax income and help finance government projects for less privileged citizens. This is one route towards helping close the growing income gap between rich and poor.       

In the US, President Barack Obama’s policy to increase the tax burden on the rich is one of the hottest issues. Called the Buffett Rule, it is designed to ensure that people earning more than $1 million per year pay at least 30 per cent of that in tax – the same rate as a middle-class family. The Buffett Rule would raise around $47 billion in government revenue over 11 years. This week, Senate Democrats hope to vote on legislation modelled on Obama’s proposal. Fortunately, the passing of such legislation would not harm Obama’s finances. According to the White House, the Obamas earned $789,674 in 2011 and they paid $162,074 in total tax, or 20.5 per cent of gross income.

The richest 1 per cent of Americans each earned $300,000 or more in 2008. And in 2007, the top 0.1 per cent earned more than 12 per cent of all salary income.

The global Occupy movement accuses the rich of causing widening income inequality. But to be fair, the rich just live their lives the best as they can. True, a humble farmer cannot afford to pay for a fancy education for his children. The rich have all the resources and they spend hugely on education, knowing that the best-educated will get the best salaries. And those salaries will be invested on education for the next generation. According to the National Economic and Social Development Board, in 2009, the averaged-out per-capita disposable income of Thais stood at Bt86,632. That’s income left after daily expenses that can be spared for anything including LTF investment. Meanwhile, most of the poor get by without any savings.

If anyone is to be blamed for the inequality, it is the politicians who for decades have failed to come up with structures to ensure fairer income distribution. Alas, most of them are from above-average-income families. No surprise then that few support higher tax rates or scrapping tax-subsidy programmes like the LTF so as to bring better income distribution for the poor.