Raising income taxes for Superich

The budget session has arrived. Suggestions are coming to the Finance Minister from all directions. Latest suggestion doing the rounds is that the Finance Minister may include a new Income Tax Slab in the Current Budget, the Tax slab for the super rich. Suggested tax rate ranges from 40% to as high as 75%. Some have even suggested tax rates in line with the tax regime with the US i.e. 39.6% marginal tax rates for single households earning $400,000 or married couples earning $450,000. This translates to 200 (L) or 225 (L) in Indian Rupees if Dollar is assumed to be 50. Following the US blindly has led to serious repercussions in the past and the global economy is still recovering from the damages caused by the US and the French domination. The lower 99% of the society have always blamed the government for showering all benefits to the rich 1%.

They complain that favourism has led to deeper holes in the pockets of the 99% and the tummies of the rich 1% have grown fatter and fatter. For them the current scenario is the right time to redistribute wealth in an otherwise unequal society we live in. The point to look here is that will merely raising taxes solve this issue of the rich not paying taxes as high as the poor in relative terms. The issue may not be so simple. For this rich class, there are numerous tax havens where money could be parked without paying a single penny in taxes. It could be assumed that new tax slabs may make them transfer their money from our economy to a tax haven leading to flight to capital which our economy so badly needs now.

However, this threat, if we put it this way, should not be a deterrent for raising taxes. Rich should not get richer by making the poor poorer. One of the ways to redistribute wealth is taxing the high net worth individually directly. So this suggestion may not be ineffective. India is a growing economy and one of the favorite investment destinations in the world. Major investments are expected from world over in the coming years. For the country to achieve a growth rate of 7-8% consistently, the government should have funds so that money could be invested in infrastructure projects and other welfare schemes. This high growth rate would not be possible merely by taxing the rich more. Expanding the tax base should also be considered an important step in increasing disposable money with the government. Past results have shown that raising number of taxpayers have raised more money to the government than collecting money from a few. Why are those rich zamindars in the rural areas having several acres of land are not taxed properly? They escape taxes by showing agricultural income and continue with their atrocities on the illiterate poor.

Policy making is never a simple process and therefore should not be made in haste. Merely raising voices and putting dharnas will never solve a problem at hand. Let us analyse the issue first and find its costs and benefits and then come to a conclusion. The government was elected by us and we have provided suggestions to it. Let Mr. Chidambaram, who is considered an expert in his job, take his call.