How should a country raise money without tearing society apart?

Today I watched a CNBC interview with Jeff Bezos.

One part was quite interesting. Bezos said the lowest-earning 50% of Americans shouldn't pay federal income tax at all. Not a little less, but zero. Because the tax this group pays is only a very small share of total federal income tax, around 3%.

It sounds populist, as if he is trying to please the poor. But if you think about it seriously, it touches on a very practical question: who should a country tax? Who should carry more? And who should be protected?

It reminded me of Malaysia's recent debate on the RON95 petrol subsidy.

The government is studying whether to remove the petrol subsidy for the T20, or at least reduce what high-income groups receive. From a fiscal point of view, that direction makes sense. The biggest problem with a blanket subsidy is that it doesn't only subsidise the poor. It also subsidises the middle class, the rich, big cars and heavy spenders. Someone driving a Myvi to work and someone driving a big SUV pay the same subsidised petrol price. It looks fair on the surface, but it isn't necessarily fair.

Many in the "T20" are just the urban middle class

But this is exactly where the problem lies.

The term T20 sounds like the rich.

But in Malaysia, many so-called T20 households are simply the urban middle class.

A household earning RM12,000 or RM15,000 a month may already count as T20 in the statistics. But if they live in the Klang Valley with a mortgage, a car loan, children, parents, insurance and daily expenses, life isn't nearly as comfortable as people imagine.

They aren't billionaires.

They are just people who work hard, file their taxes steadily, and whose income is visible.

So very often, when policy talks about "tax the rich", it sounds just. But when it is carried out, the first people to get hit are often not the richest, but the most visible.

Well-paid employees, small business owners, companies that file properly, anyone with monthly EPF contributions and a payslip: the system catches all of them easily. The truly asset-rich may hold their wealth in companies, property, shares, trusts and capital gains, and are not necessarily so easy to hit.

That is the most dangerous thing about "tax the rich".

The slogan is simple. Reality is complicated.

GST and SST

Now back to GST.

Malaysia used to have GST at 6%. Its logic was very direct: if you spend, you contribute tax. Locals, foreigners, migrant workers, tourists: anyone buying things in Malaysia was inside the tax net.

From a fiscal point of view, GST is a very efficient tax, because its base is broad and it doesn't depend only on a small number of high earners and companies. A country that relies only on income tax has a problem, because many people are below the filing threshold and a lot of economic activity sits in the informal economy. GST at least lets the whole consumption system contribute a little.

But GST has a high political cost.

Because people see it every day. The receipt says 6% right there, and you feel the government is always taking your money. Low-income families especially spend most of their income, so GST feels particularly heavy to them.

It was later replaced with SST, which is collected mainly at the manufacturing, import and service stages. Ordinary consumers don't feel so clearly that they are paying tax. It is more comfortable politically, but fiscally it isn't as complete as GST. And more importantly, businesses don't simply absorb SST. Much of the cost is still passed on to consumers. They just don't see it on the receipt.

Whoever pays the tax gets the voice

So the question isn't whether GST or SST is better.

The question is that the way a country collects tax shapes its power structure.

If tax comes mainly from consumption, the government has to face the general public. Because everyone feels they are paying, people naturally ask: you took my money, so have hospitals got better? Have schools got better? Has public transport got better? Is there less corruption?

That forces the government to answer to the people.

But if tax comes mainly from big companies, importers, manufacturers and high earners, the government naturally pays more and more attention to those groups. They are where the money comes in from. They contribute tax, jobs, investment and industry. Over time, their voice grows louder.

That isn't necessarily bad. A country needs companies, investment, big factories and capital markets. Without them, the economy won't grow.

But if the balance is wrong, policy slowly becomes pro-big-business instead of pro-competition, pro-capital instead of pro-people, pro-vested-interests instead of pro-new-opportunity.

The real question isn't who should pay a bit more tax, but whether those who pay end up with too much say.

A healthy country shouldn't be one where those who pay the most tax decide policy. Nor should the largest group decide everything. And the government certainly shouldn't keep pushing costs onto one group to win votes.

The poor need to be protected.

The middle class needs to be respected.

The rich and companies need to be asked to carry their share, but not demonised.

Because a society doesn't build fairness by hating the rich, doesn't build security through subsidies, and doesn't stay stable by having a few people keep paying the bill.

What kind of tax system suits Malaysia?

I don't think the right tax system for Malaysia is a single-choice question.

In the long run, we may still need a more complete, more transparent consumption tax with a broader base, perhaps a low-rate GST, combined with targeted cash transfers so that those who really need help get more back. At the same time, high earners and big companies should carry a bit more, but not through crude labels like T20 or T15.

More importantly, Malaysia should discuss asset taxes, capital gains, property speculation and monopoly profits more seriously, instead of always focusing on people whose salaries are a bit higher.

Because a lot of real wealth isn't in salaries.

And many people labelled "rich" are really just the working middle class.

What a tax system fears most isn't complexity. It's people feeling it's unfair.

The poor feel nobody is looking after them.

The middle class feels forever squeezed in between.

The rich feel punished.

Companies feel policy is unstable.

The government feels there is never enough money.

In the end, everyone feels like a victim.

At that point, tax is no longer just tax.

It becomes a social mood.

A class relationship.

A test of trust between the state and its people.

From Jeff Bezos saying "the bottom 50% shouldn't pay federal income tax", to Malaysia's T20 petrol subsidy, to GST versus SST, they are all really about the same thing: