Saturday 21 September 2013

Personal Exertion, Capital Gains and Corruption

Personal exertion, capital gains and corruption, what do they have in common? They enable people to obtain or generate wealth, legally or otherwise. Personal exertion is about generation wealth through personal efforts, physically or through our brain power. 

One could also gain wealth through capital gains where the returns come from the investment we make such as when the house we own goes up in value and we capture the value through sales. Another example is when we buy and sell shares, whenever the amount sold exceeds the cost of buying the shares then a capital gain is made.

Corruption is a straight forward criminal act. This is when somebody with certain power get paid to exercise the power in favour of the payer. However, many people who are involved in this despicable act may not necessarily agree with this statement. Some may argue that corruption is their birthrights and enshrined in the constitution, while others would justify such acts using higher causes such as to level the playing field. Many Muslims in this country will be outrages whenever there is an accusation about certain food sold in the market is doubtful in terms of its Halal status. However, the same people may not be worried about engaging in the acts of corruption and use the ill gotten wealth to feed their flesh and blood.

So much about the definition, why are we discussing this issue here. Well, in the past few months, many people are discussing about distribution of income. Many solutions have been explored and considered. We may see some new initiatives being introduced soon, perhaps. Let us step back and see how many of those in the low income category are able to consider one of the above means to earn their living.

If they do not have money to invest, capital gain will not be viable option. If they do not have the power to abuse, they can't even be corrupt although out of desperation they may be tempted to sell their soles to the devil. The only possible way for them to make money is through personal exertion. 

Those who have wealth will have more opportunity to rely on capital gains. They can invest in property or stocks and many had made millions out of these activities.

While personal exertion would expose the income to taxation, most of the capital gains are free of tax. This is where our system may not favour those who has less wealth. The smarter of the capitalists will structure their investments so that most returns would be capital in nature, thus reducing their tax exposure. 

If we are really serious about wealth distribution, capital gains tax, whether on property or financial assets could be a viable option. This would certainly be very unpopular to the wealthy as their main sources of wealth will be exposed to taxation, and the amount could be very large! They have the means to raise their views to the media and could use their wealth to lobby. Realistically, in an environment where those in leadership are scared to make right decisions, this option is highly impossible.

What about the crooks? Are they in the scheme of thing in re-distributing wealth? Yes, just put as many of them in prison. The amount of corruption will automatically be reduced and wealth will be channeled back into the formal system and will be available for the honest citizens to capture. How much is this possible? I am sure you will be smiling when this option is proposed.

Hope the above will provide us with some idea about possibilities in wealth re-distribution. Have a great weekend.

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