By Raffique Shah
March 01, 2009
FOR too many years we have haggled over what the minimum wage should be in this country: should we pay the poor buggers $9 an hour, or $10? That would amount to less than $2,000 a month, but it’s worth fighting over. For those trapped in this gloomy underworld-not so hidden, since we shop at groceries and stores where they labour every day-it could mean being able to afford an extra “doubles” for lunch, or buying their children the toys they so covet. As far as I am concerned, what we call a minimum wage is in fact starvation wage, a kind of semi-slavery endured only by those who have no other options, except perhaps to turn to crime.
The global financial and economic crises, with the attendant big names and big-bucks scandals-Allen Stanford, Lawrence Duprey, Harry Harnarine-give us the opportunity to address the issue of maximum salaries, bonuses, perks, call them what you will. I am not suggesting we ignore the plight of the poor. But if we focus more on those who command six-to-seven-digit “packages”, we may well find some answers to our current and future financial challenges.
US President Barack Obama has no qualms about confronting those who award themselves salaries and bonuses that boggle the mind. Last week when he addressed Congress for the first time, Obama made it clear that the mitigating measures he had in mind to put those on the breadline back to work, deliver better healthcare, did not apply to those who make more than US$250,000 a year. He signalled to the big-bucks-brigade that feeding trough will henceforth be laced with tax-laxatives that will flush some of the fat from their bloated systems. My hope is that he has the fortitude to implement the egalitarian measures he suggested he would.
We may think that we do not have such problems here, that our executives are more reasonable. That may be true of a few who, like the banker Barack referred to, share their corporations’ fortunes with the people who make it possible. Over the past 10 to 15 years, however, we have witnessed some of the worst excesses coming from corporate executive suites. And the taxation system in place, while it has been simplified, has also allowed for the widening of the rich-poor gap.
The new system is simple, making it easier for Inland Revenue to keep track of and collect more tax revenue. But it is also unfair. Let me explain. Fudging figures from PricewaterhouseCoopers annual Budget Memorandum (2007-2008), an individual who earned $376,000 in 2008, and who maintains children at universities abroad ($60,000 deductible) as well as an annuity of over $25,000 a year, will pay the BIR $57,750 (effective rate 17.2 per cent). Someone who earns $180,000 per year with a similar annuity but no child attending a foreign university pays $23,750 (effective rate 13.2 per cent).
So far, so good. But let us examine the case of a person who makes $100,000 per month (oh, there are a few thousand in this bracket), which will amount to $1.2 million a year. He or she will pay $263,750 in tax (effective rate 22%). Let’s fly somewhat higher, where the big boys and girls pay themselves $1 million a month or more. That’s a cool $12 million a year, and since they own the businesses, they can award themselves what they believe is just reward for their investments or hard work.
But guess what? With similar deductibles to his $376,000/yr counterpart, he will pay $2,963,752 in income tax. That’s 24.6 per cent of his gross income, and he will pocket $8,891,250! Lest readers think I am over-dramatising the income-differentials in this country, what if I tell them there’s a handful of very wealthy executives who pay themselves up to $60 million a year?
Suffice it to say that maybe 50 per cent of the workforce in this country earn less than $60,000 a year (hence have no tax liabilities), with another 30 per cent making less than $100,000. At the latter level-mainly young professionals-many insist on living beyond their means. They see the well-heeled flocking bars where beer is sold at $20 and a plate of food costs $150, and these relative paupers join the conga-line.
Bad spending habits aside, government cannot continue to turn a blind eye to this horrendous income-disparity.
You cannot tax the young professional 13 per cent (effective rate) while the super-rich get away with paying below 25 per cent of their multi-million-dollar packages. I am prepared to concede up to $100,000 a month for those who, by virtue of hard work and years of experience, deserve such packages. But $12 million a year? Sixty million?
What does a man do with so much money anyway? I would go “bazodee” if I saw a million smackers. Seriously, there must be some disincentive to stem this executive-tsunami. Impose a tax rate of 50 per cent on “packages” over $1 million a year and 75 per cent over $3 million. You pay yourself big, the Treasury benefits bigger. Maybe draconian measures like these would curb the greed among those who wallow in the pork barrel.