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Taxes: Why do the super-rich crib so much?

Being rich is good. Being rich is no offence. But being rich without putting in any effort raises moral questions. Because riches ultimately translate into better advantages, better opportunities and better access to community resources for its holder. These make the equation between the person who works hard for it and the one who does not unequal. These queer what should be a level playing field in the economic sphere.

The concept of legacy, from this perspective, has unfairness built into it. This applies to politics as well as economy. The family-centric political parties in India leave the heirs of the leaders with a unique advantage. They ease into the leadership positions without competition from within. However, in case of politics the legacy issue is far more intricate than meets the eye. In case of the economy, it's rather straightforward. It's akin to someone winning a lottery.

 Taxes: Why do the super-rich crib so much?

Tax talk. Andrew Midddleton/Flickr

While no one can grudge the rights of a man to win a lottery or holding on to the money, it is only fair that a small amount of the money earned by stroke of luck be claimed by the state for redistribution among the less lucky ones. Governments do that and there's hardly any opposition. Taxation, aimed at redistribution of wealth, has a moral purpose too. Morality is precisely the reason why inherited wealth must be taxed too. That's what makes the opposition to the inheritance tax proposed by economists untenable.

"I believe in stable tax rates. However, I must concede that there is an argument, underline the word argument, that when the economy requires, when the government requires more resources and the very rich should willingly pay a little more,'' said Finance Minister P Chidambaram today. It was almost a plea to the super-rich to contribute a bit more to the country, if not by way of inheritance tax, by way of something else.

Not long ago, he had dropped the inheritance tax idea softly, triggering a debate on it. "...Have we paid little attention to accumulation of wealth in few hands? I am still hesitant to talk about inter-generational equity and therefore inheritance tax. I think these are the questions we should debate," he had said, addressing a National Institute for Public Finance and Policy (NIPFP) function.

The reaction to it was sharp from the super-rich and there were hints of blackmail too. Industry captains tried to forestall any such move by cautioning the government that such a move would discourage entrepreneurship and businessmen would be forced to move their wealth to tax havens abroad. They claimed the move would dent the confidence of the investor community in India besides encouraging generation of black money.

The reaction was similar when the the government tried to introduce GAAR (General Anti Avoidance Rules) with a view to increasing tax collections and curtail circulation of black money in the economy. The GAAR norms introduced by the then finance minister Pranab Mukherjee targeted at the foreign investors and companies routing money through tax havens like Mauritius and evading taxes. Industry captains were livid at the proposal. The argument followed the usual theme: investors would get scared away, and there would harassment of investors by tax authorities. The opposition forced Finance Minister P Chidambaram to push implementation of GAAR to 2016.

Interestingly, inheritance tax is not about the entire business class. It is about a miniscule section comprising the super-rich. Why wouldn't this section pay a bit more? And, why would investment in the country be treated as a tool of blackmail whenever the government proposes to tax the rich? Coming back to the morality question, while others are working hard to make their millions, why should one section be allowed feed off the success of their parents and have an unequal advantage?

The process of growth in the last two decades has led to levels of inequality in the country that is unacceptable. There disparity in wealth between the rich and the others has just gone bigger. It has grave social consequences. The government has to be mindful of that. It cannot be seen as the partner of the rich in wealth accumulation. To appear more even-handed, Finance Minister Chidambaram must go ahead with the inheritance tax.

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Updated Date: Dec 20, 2014 15:27:31 IST

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