Taxing the rich more is not the solution to income divide

Dr Edmund Lam is mistaken if he believes that taxing high income earners even more will reduce the income divide substantially (Reduce income gap, ensure good social mix in schools; Jan 2).

Raising taxes will simply act as a disincentive for business owners to work hard and search for new ventures.

The wealthy may leave Singapore - which is already among the most expensive cities in the world - to do business elsewhere where the taxes are lower if they believe that they are being punished for earning high incomes.

Redistributing wealth also removes the incentive for lower income workers to acquire new skills and enter the job market.

Based on past experience, higher taxation simply slows the economy down and shifts it towards stagnation.

There are other consequences. Plans to expand businesses may be put on hold, often resulting in the economy taking a substantial hit.

When small- and medium-sized companies are saddled with increased operating costs from a hike in raw materials, fuel prices or taxation, the burden of these costs eventually hurt lower income workers the most.

This is because businesses would pass on higher costs to consumers.

Higher taxes have consequences that may affect the lower- and mid-range income brackets more than the wealthy that such taxation is aimed at.

When the rich have less money, they cut back on personal services, products as well as luxury items, and the working class in sectors that sell private homes, luxury cars or branded goods will be affected.

Increased taxation just makes businesses cut back on investment and spending.

Businessmen will find ways to cut their tax expenditure, resulting in an overall decrease in revenue for the Government.

The consequences of less investment are a reduction in businesses and an upsurge in unemployment.

As more workers get laid off, they have less money to spend, leading to the economy spiralling downwards.

It is generally accepted that raising taxes on high net worth individuals does not have much impact on lowering deficits, plugging funding gaps or propping up the economy.

Edmund Khoo Kim Hock