2008 Tax Reform Opinion Survey
Cut Taxes, but Make the Wealthy Pay More
CommonWealth Magazine recently conducted Taiwan's first-ever general survey on how Taiwanese people view the tax system and their expectations for tax reform. Here's what they had to say.
Cut Taxes, but Make the Wealthy Pay MoreBy Yi-Shan Chen, Jerry Lai
From CommonWealth Magazine (vol. 406 )
"The most important thing, citizens, is why are you angry? What do you hope for? What do you want to believe in? Anybody who doesn't know the answers to these questions is not a real prime minister," asserts main character Keita Asakura in an episode of "Change," the highly popular Japanese TV drama that satirizes Japan's political culture.
The issue of tax reform has a direct impact on the finances of every household. Since July, when the Executive Yuan Tax Reform Committee began meeting to discuss revisions in Taiwan's tax system, businessmen, scholars, officials and the media have all offered their visions of reform that they insisted were fair and just. But nobody during that time has taken the words of the Japanese TV character to heart and seriously asked average citizens what their ideal tax system would look like.
To give the people a voice on the issue, CommonWealth Magazine conducted Taiwan's first public opinion survey on the tax system, randomly selecting 1,088 eligible voters 20 years of age or older from around Taiwan and interviewing them by telephone.
The survey found that Taiwan's people believe the three most pressing problems with the country's tax system are, in order, tax avoidance by the wealthy and an excessively big gap between rich and poor (61%); high tax rates and an economy that lacks competitiveness (32%); and tax evasion (22%). (Table 1)
Analyzing respondents' answers based on their income levels, those with monthly household incomes between NT$100,000 and NT$200,000 believed more than any other income bracket that tax avoidance by the wealthy and the growing divide between rich and poor was a serious issue, with 72 percent pinpointing it as the biggest problem with the existing tax system. Those earning between NT$60,000 and NT$100,000 were not far behind, with 68 percent citing tax avoidance as the major problem.
Even among wealthy households earning over NT$200,000, 56 percent identified the growing income divide as a serious problem requiring immediate attention, far more than those who cited the biggest problems as being high tax rates and an uncompetitive economy, or tax evasion.
"Regardless of income level, everybody agrees the growing income gap is an important issue. The tax reform initiative must resolve people's concerns in this regard," asserts Academia Sinica research fellow Wu Chung-shu.
Lee Zong-rong, an assistant research fellow in Academia Sinica's Institute of Sociology, said concern over the income gap and a psychological sense of relative deprivation have become more obvious in Taiwanese society in recent years. In Academia Sinica's Taiwan Social Change Survey, less than 30 percent of Taiwanese thought the gap between rich and poor was serious in 1992, but that number had risen to 70 percent by 2005.
Backing Rate Cuts in Inheritance, Income Taxes
Paradoxically, though many respondents believed that narrowing the divide between rich and poor should be given top priority, when it came to their own pocketbooks, a majority backed cutting the highest marginal inheritance and income tax rates.
When respondents were asked what they thought the ideal maximum marginal inheritance tax rate should be (it currently stands at 50 percent), more than half supported cutting it to below 30 percent. The finding suggests the existence of a growing consensus that inheritance tax rates are too high. (Table 2)
In terms of aggregate income tax rates, over half (52 percent) believed income tax rates should be reduced. Indeed, 34 percent of respondents advocated adjusting marginal rates to between 11 percent and 30 percent. Nevertheless, 29 percent also said marginal income tax rates should remain the same or be raised. (Table 3)
Academia Sinica's Wu Chung-shu attributed the dichotomy of opinion to the role people see taxes playing in the overall economy. Some Taiwanese oppose cutting taxes out of fear that doing so would only exacerbate the rich-poor divide. Others support tax cuts, and believe they need to be deep if they are to have a positive impact, Wu says.
Lee views the conflicting opinions more as a clash between people's worldviews and their own interests. He suggests that within a framework emphasizing the good of the group, people hope the country will be able to boost tax revenues to better finance underfunded education and social welfare budgets. When considering their personal interests, however, they do not want taxes to become a burden on their own lives.
It may also be that many people realize that salaried workers pay a huge share of the government's income tax revenues and feel that income from "hard work" should not be taxed as heavily as in the past or that the burden of added taxes should not fall on the shoulders of the middle class.
No Consensus on Lowering Corporate Rates
This sense that the middle class feels it is already bearing enough of a tax burden was also hinted at when respondents were asked their views on changes in corporate income tax rates. In contrast to the Tax Reform Committee's general consensus to cut corporate tax rates, the survey found that more than 64 percent of respondents favored maintaining the current 25 percent tax rate or raising it.
According to Tseng Chu-wei, a professor in National Chengchi University's Department of Public Finance and vice convener of the Tax Reform Committee, the survey reflects the common tendency to equate corporate income taxes with taxes on the wealthy. A number of respondents complained directly to their interviewers that, "Not many companies pay taxes. Salaried workers are carrying most of the burden." The average person seems to believe that corporate profits are for the shareholders and are not necessarily shared with employees.
Majority Back Capital Gains Tax on Stocks
Sentiment that salaried workers are carrying a disproportionate share of the overall tax burden may have also influenced how respondents viewed reinstating the capital gains tax on income from stock transactions. Ever since the benchmark Taiex lost more than 40 percent of its value in late 1988 after then-finance minister Shirley Kuo proposed reinstating a capital gains tax on stocks, forcing her to eventually withdraw the idea, politicians have feared the idea like the plague. But surprisingly, the survey's respondents actually backed such a tax by a wide margin of 54 percent to 30 percent.
Wu Chung-shu suggests that with the market having declined steeply over the past three months, small investors may support the idea, thinking they could use their losses in the local bourse to offset other tax liabilities. Support for the idea also came, Wu says, from individuals without exposure in the stock market who believe that income on stock trades is like any other form of income and should be taxed as a matter of fairness.
Even some members of the wealthy class acknowledge they should pay more in taxes. In a speech in late July, Taiwan Semiconductor Manufacturing Co. chairman Morris Chang said that in today's knowledge-based economy, the winners needed to care for the disadvantaged in society, and he urged the government to consider raising taxes on households with incomes above NT$3 million a year.
How much do people in Taiwanese society need to earn in a year before their compatriots consider them wealthy? According to the survey, more than 39 percent of respondents agreed with Chang that households with monthly incomes of at least NT$250,000 or yearly incomes of at least NT$3 million (slightly under US$94,000) should be considered wealthy. Another 24 percent felt an annual income of only NT$1.5 million was needed to enter the elite class, while 15 percent believed an annual household income of NT$5 million warranted the "wealthy" tag. (Table 6)
Not surprisingly, the perception of wealth and high incomes varied with income brackets. Among those with monthly wages below NT$30,000, 36 percent said households with annual incomes of at least NT$1.5 million were wealthy, while the standard in the minds of higher income earners rose the more they earned.
Since Taiwan started down the path of democratization, raising taxes has always been considered political suicide, with politicians competing with each other to give away money and cut taxes. Those trends, some say, are at the root of the country's dysfunctional tax system and its generally weakened state.
"When it comes to taxes, Taiwan's political system does not have a left wing or a right wing. It has only one wing, the one that goes all out to increase social welfare and public works, and goes all out to cut taxes," avers Taoyuan county commissioner Eric Liluan Chu.
What kind of government do the Taiwanese people really want? Big government? Small government? To find out the answer, the survey specifically asked them about their expectations.
Leaning toward Bigger Government
Among the results, 48 percent of the respondents felt the government should collect more in taxes to invest in public works and education and spend more on social welfare to help the underprivileged.
Only 34 percent believed the government should collect less in taxes, leaving more in the pockets of taxpayers. They did not feel there was a big need for too much infrastructure development or social welfare spending. (Table 7)
Yung-tai Hung, a professor in National Taiwan University's Department of Political Science and a veteran pollster who has long tracked the attitudes of Taiwan's citizens, said the taxation issue is one of the few in the country through which it is possible to discern if locals lean politically to the left or the right (those inclined toward a larger government would lean to the left, while those favoring smaller government would lean to the right). Over the past 20 years, Taiwan's "blue" camp (led by the Chinese Nationalist Party, or KMT) and "green" camp (led by the Democratic Progressive Party, or DPP) have differed mainly in their attitudes toward China and toward Taiwan's identity, but both have courted the support of deep-pocketed capitalists, leaving the average citizen hoping that the government could expand its role in society. This result also serves as another reminder of the concern people have over the rich-poor divide.
"The wealthy have confidence they can take care of themselves and don't need to rely on the state. Most members of the public, however, are not that wealthy and are uncertain about the future, so in fact they have higher expectations of the government," explains National Chengchi University's Tseng.
This explanation is backed up by how people of different income brackets saw the role of government. In the highest income bracket in the survey, those in households with monthly incomes of more than NT$200,000 per month, only 44 percent said the government's role should expand while 41 percent said it should diminish.
Cutting Taxes Seen as Favoring the Wealthy, Hurting the Poor
What would be the consequences of cutting taxes? Would reducing taxes increase the private sector's incentive to invest, boost the economy and increase tax revenues, or would it simply make the wealthy wealthier?
The survey found a deep sense of distrust among the Taiwanese people, with 47 percent believing a tax cut would only benefit the wealthy while leaving the poor poorer.
Only 34 percent believed the assertion made in a recent television advertisement by an undisclosed sponsor that cutting taxes would save the economy. (Table 8)
Academia Sinica's Lee summarized the survey's findings as revealing that Taiwan's citizens have more expectations of their country than their American counterparts. That could be the result of the patriarchal system inherent in Chinese cultural tradition, Lee speculates, with people having a fixed impression of government as capable of considerable achievement. When politicians are considering policy issues, they cannot only consider competing with Singapore and Hong Kong, but must also take into account the feelings of the Taiwanese people, Lee opines.
Lee argues, however, that the clearest message to be taken from the survey's findings is that people have grown increasingly dissatisfied over the past 10 years with Taiwan's two main parties' leaning toward big business and their inability to deal with the segmentation of Taiwanese society.
"I want to use the same eyes, ears, feet and hands that everybody else has to find the path the country should follow... I must give my all to being the same as everybody else," promises Keita Asakura in another stirring speech in the Japanese TV drama "Change."
But have Taiwan's politicians really heard the people's voices? At election time, each person has a vote, and when it comes to tax reform, public opinion should carry the same weight.
Translated from the Chinese by Luke Sabatier
About the Survey:
The CommonWealth Magazine "2008 Tax Reform Opinion Survey" targeted citizens of Taiwan aged 20 or older, who were chosen by stratified random sampling and interviewed by phone. The survey was conducted from August 27 to August 31, 2008, with 1,099 valid responses collected. The survey has a confidence level of 95 percent and a margin of error of plus/minus 3 percent.
Chinese Version: 不反對降稅 但有錢人應多繳稅