Tseng Chu-wei—Never-Say-Die Advocate for Tax Reform

Tseng, who has taught for more than 20 years in the Department of Public Finance at National Chengchi University, commands immense respect in the academic community, and has been involved in virtually every government tax reform initiative for many years now.

An English phrase printed on Tseng’s name card—“Tax Me Harder”—gives pithy expression to his unwavering commitment to progressive tax rates. In his own words: “If the people expect the government to do things, then taxes have a rightful place in society.”

Calling upon the wealthy and corporations to pay more in taxes, as Tseng has done for years, inevitably elicits a backlash from vested interests. This makes tax reform difficult to achieve, so it was quite a success when an alternative minimum tax for rich people and corporations was finally adopted.

The wealth gap in Taiwan grows continuously wider. Wage earners are taxed heavily, while the rich get off without paying so much, which causes big problems for the nation’s fiscal situation. Shown here is a march against poverty, led by labor organizations last year.

Tseng first put forward his call for an alternative minimum tax system during the 2004 presidential election campaign, when he was recruited to write the financial white paper for the KMT candidate. His thinking was very much influenced by experience in the US, where the government in 1969 publicized the names of 155 individuals who owed no taxes despite earning more than US$200,000. The revelation provoked a furious reaction from the public, and the Congress quickly adopted an alternative minimum tax system that established minimum tax rates of 26% for people with adjusted gross income of less than US$175,000, and 28% for those above the cutoff.

In 2005, with the Democratic Progressive Party in power, an alternative minimum tax system was adopted in Taiwan by Minister of Finance Lin ­Chuan in response to calls for tax reform put forward by Tseng and the Alliance of Fairness and Justice. The system enabled the government to at last collect alternative minimum tax of 20% from eight tycoons earning in excess of NT$300 million per year.

Tseng was also deeply involved in the decades-long movement to repeal the tax-free status of income earned by military and education personnel. The effort finally succeeded, and taxation of such income was reinstated just this year. The dozens of tax reform articles that Tseng authored during his time as an opinion writer at the Commercial Times won him a Vivian Wu Journalism Award for editorial writing in 2005.

After taking office in 2008, President Ma Ying-jeou established a Tax Reform Committee, on which Tseng served as vice chairman. But then the global financial crisis broke out, prompting the government to call for lower estate and gift taxes to entice citizens with funds parked overseas to move their money back to Taiwan. This came as a bitter disappointment to Tseng. In an editorial entitled “Tax Reform Committee—Rest in Peace,” he lamented: “Government policy must not be rooted solely in the crass thinking of interest groups. It should seek to safeguard the greater good of society as a whole, and demonstrate a commitment to fairness.” Unwilling to rubberstamp the government’s action, he called on the Executive Yuan to “euthanize” the committee.

In a speech at National Tai­pei University in late April 2012, Tseng stated that, in order to identify the proper path for reform, taxation in Taiwan must be analyzed from the perspective of the nation’s fiscal health.

He pointed out that the growth of fiscal revenues in Taiwan has long been outpaced by growth in expenditures, which has forced the government to continually take on debt to make up the difference. The ratio of debt to GDP, which stood at 25% in 1996, is set to hit 40% in 2012.

How serious a problem is this ratio?

“The government always tries to calm concerns by pointing out that debt-to-GDP is at 90% in the US and 200% in Japan, but the key here is that Taiwan doesn’t have sufficient debt servicing capacity,” notes Tseng, adding that the government’s fiscal revenues come primarily from taxes, which were equivalent to 20% of GDP in 1990 but are now down to 12%. If you pile up a big national debt while allowing your tax revenues to dwindle, says Tseng, you’ve naturally got a big problem on your hands.

“And there’s more to fiscal policy than just fiscal revenues and expenditures. Income distribution is also an issue.” Tseng explains that unfair tax policy affects income distribution, and the ratio between different types of social welfare payouts affects expenditure distributions.

Gini coefficients are frequently used as an indicator of wealth distribution inequality. A higher coefficient means greater inequality, while a lower coefficient means less inequality and a more stable society.

Taiwan’s Gini coefficient has risen from 0.18 over a decade ago to 0.35 today, indicating a widening wealth gap. On top of that, Taiwan has suffered along with the rest of the world through sluggish economic conditions in recent years. When the economic pie is not growing fast enough, popular discontent grows more acute.

According to Tseng, there are two tools for addressing the problem of unequal wealth distribution. One is to “rob from the rich,” i.e. tax the rich a bit more. The other is to “give to the poor,” i.e. use public assistance and social welfare to care for those in need.

However, for more than 20 years now, the government has done “too much helping of the poor” and “not enough robbing from the rich.” It hasn’t made balanced use of the tools at its disposal. If the current pattern continues, the next generation will be saddled with enormous debt from the moment they’re born, making for an unfair intergenerational distribution of resources.

Though knowing full well how difficult the reform battle is, Tseng still hopes to see the government act with self-confidence to achieve it. “They’ve got to come out quickly with effective policies to restore market order. The government has to make good on its promises.”