The wrong policies for the wrong reasons
The government could face a backlash against its economic strategy unless it addresses the main issue of increasing inequality
On Wednesday, the US Congress voted to approve a tax code to avoid falling off a "fiscal cliff" into a mix of tax increases and spending cuts that could have sent the world's largest economy back into recession.
Congress backed a deal by a 257-167 vote. The bill will prevent expiration of extended unemployment benefits for an estimated 2 million jobless, and renew tax breaks for businesses and renewable energy purposes, among others. Congress' action was welcomed by international markets and economists, who see the crisis as having been averted, albeit temporarily.
The US economy is faced with a massive deficit, prompting the Barack Obama administration to raise taxes and cut spending. The agreement might provide relief, but it is no long-term solution: Congress will renegotiate the deal in March. In addition, while the bill increases taxes, it does not touch on spending cuts or the rising debt that triggered the crisis.
There is also a fundamental problem contributing to the US's economic woes - unequal opportunity between rich and poor. The new economy has opened up tremendous opportunities for the rich while the poor have been left out. The same situation is found in Thailand, where a wealthy minority is getting richer, the poor are getting poorer, and the middle class is squeezed between.
In America, President Obama has been trying to address the issue by using the new tax code to create more justice in the system. For instance, tax rates will be raised to 39.6 per cent on income over $400,000 for individuals and $450,000 for jointly filing couples. Capital gains tax will be increased from 15 to 20 per cent. Estate tax is set at 40 per cent on properties over $5 million. The bill has other elements, such as a measure to prevent a sharp increase in milk prices.
In Thailand, the government of Prime Minister Yingluck Shinawatra late last year also announced tax reforms. Personal income tax for people earning Bt4 million or more was reduced to 35 per cent. The government did not touch on land taxes at all, in spite of a growing call to use land and estate taxes to address the widening gap in income between rich and poor. Worse, the Thai government earlier provided an unnecessary tax subsidy for first-car purchases. Many of these car buyers are affluent people who use a proxy's name to enjoy the Bt100,000 tax benefit to acquire a second or third car.
Simmering public resentment over unequal opportunity in the US exploded during the US subprime crisis in 2008, which set off global economic repercussions. The Occupy Wall Street campaign drew mass support because of public anger towards the greed and corruption of people in power.
Unequal access to good education is another factor in creating income disparity. People with resources can afford to send their children to the best schools, while low-income earners are stuck with state schools with bad learning environments. President Obama has vowed to fix such problems in his second term. He addressed economic justice by proposing tax reform and curbing government spending. Meanwhile, a campaign to improve the US education system kicked off in Obama's first term.
Prime Minister Yingluck's government has done the opposite, however. Taxation was reformed not to create economic justice. The money was not spent to create sustainable opportunities for a majority of people but to finance short-term populism. Education standards are getting worse as the government focuses on wasteful give-away computer tablets instead of lowering class sizes or upgrading the quality of teachers to provide children with the best learning experience.
In good times, unequal economic opportunity can be swept under the carpet by high export income or foreign revenue from a booming tourism industry. Thailand, however, can no longer push its luck. Exports this year are set to grow by only single-digit figures due to the global economic slowdown. Thais have seen a sharp increase in debt burden due to the government's programme to inflate consumption to boost economic figures.
Unless the government addresses the issue of injustice, it will be just a matter of time before the problem explodes. Our leaders should realise that the term "double standard" - which red-shirt politicians and leaders have successfully framed - is in fact a result of "unequal opportunity".