Bloomberg has a good article a few months ago on re-thinking wealth. They highlight 3 suggestions that may be explored to re-distribute wealth in a fair manner.
These articles may end up behind a paywall so I want to share this over here at Investment Moats. I will add my interpretation as well.
Two of them are rather interesting to me. More because of the way they were suggested because one involves retirement withdrawal. The other feels like a conversation on financial independence.
So here are the suggestions.
The gap between a median white family and median black family is wide. The white family has $171,000 in wealth while the black family have $17,600. We include home equity here.
If we use average instead, the white family will have $800,000 more than the black ones.
Baby Bonds – This establish a universal birthright to capital.
This was the brainchild of Senator Cory Booker.
- The government will put $1,000 in a federally managed, interest bearing trust account
- This account will only be accessible at adulthood
- The government will add money to this account based on family income over time. This with lower income will wish to be benefited more
- According to the math, children from the poorest family can have almost $50,000 at 18 years old
Tax Big Spenders – Financial Independence Folks are Safe!
The VAT or GST in Singapore, should tax the rich. If wealth inequality is a problem than we should tax the rich. The rich tends to spend more, so a goods and services tax should be a way that we can tax them.
But the goods and services tax affects the poor as well.
Unless you implement it like other countries. In other countries those staples, which constitute a large proportion of the expenses of the lower income are not taxed.
Laurence Kotlikoff , an economics professor at Boston University suggest we scale up the tax:
- Tax consumption above $100,000 per year starting at 5% rate
- This taxes goes up
- If you consume $1 mil or more annually, you are taxed 30%
- Consumption is calculated as all income (cash flow or what a household takes in during the year minus all the money the household invests)
If you look at the formula (#4), it seems real conducive for those folks pursing financial independence.
Imagine a couple that earns $200,000 a year (according to Singapore statistics this is not far off. This couple decides to pursue this radical, niche lifestyle call saving 70% of their income.
So they spend $60,000 a year and save $140,000 a year. The consumption tax will be on $60,000. Of course this is only consumption tax, and there might be additional income tax. The high earning couple may not be able to escape that.
Now if the couple were not aware of this financial independence movement, and do the normal stuff were they just save 25% of their income, their consumption tax will be on $150,000!
This looks to be a tax not just on those earning well, but less prudent with their money.
Index Socialism – What if we all become Temasek’s shareholders and we get a Dividend?
The article uses American wealth. However, I decide to use Singaporean wealth, since this is so close to our National Day.
Credit Suisse Research Institute 2018 Global Wealth Report puts Singaporean’s total wealth at US$1.3 trillion. Our current population is 5.7 million.
- If we divide this amount equally, each Singaporean will have a net worth of $228,070.
- At a 5% rate of return, each of us will earn an investment income of $11,403 a year
- Pool our resources, invest the money, make every one a shareholder
- Under this collective ownership, everyone gets paid a universal dividend
This is not a new concept. If you look at your Blackrock, Vanguard, they manage trillions of dollars for a lot of clients. The difference is that these are the folks who can afford it.
A suggestion would be for the country to create a government operated unit trust. All Singaporeans own an equal, non-transferable share.
Use the tax to fill up the fund with return-generating assets.
Then pay out an annual dividend to Singaporeans.
This sounds very much like our sovereign wealth fund Temasek. Their shareholders are the government of Singapore.
Would it make sense for a Singapore government managed unit trust?
One thing Kyith will say is that distributing a constant 5%… or a constant percentage 5% of the value, is a very good way to deplete all our money.
There is every chance for the assets to grow a lot. There are equal chances that the money will not last as well.
Compared to the Americans, who can divide such that every Americans owned US$300,000, maybe we are just not that rich.
I invested in a diversified portfolio of exchange-traded funds (ETF) and stocks listed in the US, Hong Kong and London.
My preferred broker to trade and custodize my investments is Interactive Brokers. Interactive Brokers allow you to trade in the US, UK, Europe, Singapore, Hong Kong and many other markets. Options as well. There are no minimum monthly charges, very low forex fees for currency exchange, very low commissions for various markets.
To find out more visit Interactive Brokers today.
Join the Investment Moats Telegram channel here. I will share the materials, research, investment data, deals that I come across that enable me to run Investment Moats.
Do Like Me on Facebook. I share some tidbits that are not on the blog post there often. You can also choose to subscribe to my content via the email below.
I break down my resources according to these topics:
- Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
- Active Investing – For active stock investors. My deeper thoughts from my stock investing experience
- Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
- Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
- Free Stock Portfolio Tracking Google Sheets that many love
- Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
- Providend – Where I used to work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works
- Havend – Where I currently work. We wish to deliver commission-based insurance advice in a better way.
- Have the World or Emerging Market Healthcare Stocks Outperform the World and EM Index? - November 26, 2023
- Retirement Spending Can Vary from 25% to 100%. Not your usual 2% to 3% a Year. - November 23, 2023
- If I Earn 10% Yearly On Average, and Inflation Averages 3% Yearly, I can Safely Spend 7% Yearly Right? - November 18, 2023