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Innovative Wealth Strategies to Redistribute Nation’s Wealth

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.

Baby Bonds

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.

  1. The government will put $1,000 in a federally managed, interest bearing trust account
  2. This account will only be accessible at adulthood
  3. The government will add money to this account based on family income over time. This with lower income will wish to be benefited more
  4. 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:

  1. Tax consumption above $100,000 per year starting at 5% rate
  2. This taxes goes up
  3. If you consume $1 mil or more annually, you are taxed 30%
  4. 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.

  1. If we divide this amount equally, each Singaporean will have a net worth of $228,070.
  2. At a 5% rate of return, each of us will earn an investment income of $11,403 a year
  3. Pool our resources, invest the money, make every one a shareholder
  4. 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.

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Sinkie

Friday 16th of August 2019

Think that is gross national debts, not net (i.e. haven't taken into account assets).

Also people don't bother to factor in govt-owned lands / property / infrastructure when talking about US national assets.

Compared to S'pore, where a huge portion of our reserves include every square inch of govt-owned land (which is 90% of S'pore liao).

Kyith

Sunday 18th of August 2019

Hi Sinkie, good Sunday to you. I think you might dispute the assets, but the assets are there. It is just like a company can jack up the company with a lot of debts, but the assets will go up. It is just what is the true value of the assets.

John Tan

Saturday 10th of August 2019

Good ideas but a mistake in your calculations on wealth per Singaporean. Need to divide by number of Singaporeans, not 5.7M.

Also, US has huge national debt not national reserves. Every US citizen owes money as result and is not due money.

Kyith

Saturday 10th of August 2019

You are wrong. It cannot be the debt is more than assets.

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