What do critics of the idea say?
4 Is there a need for more redistribution?
No—it’s already in play. Those earning more pay higher tax. The tax revenue is used to fund welfare measures, subsidies and direct cash transfers to the needy. State governments levy property tax. In the past, India had estate duty (a form of inheritance tax), wealth tax and gift tax. They were abolished as the cost of administering them was more than revenue generated.
The wealth gap has widened in India in the recent years. According to a study published by The World Inequality Lab, the richest 1% of Indians now own as much as 40% of the country’s wealth. Researchers say that this gap will not close on its own and needs specific policy interventions such as a super tax on billionaires and millionaires. They also say, their income apart, wealth of the rich must also be taxed. According to them, this is needed as wealthy people are not paying their fair share of taxes.
5
Germany 57.6
Why is it a hot topic today?
The Congress election manifesto promises a nationwide socioeconomic and caste census to strengthen affirmative action for bridging inequality. While this statement in itself is benign, speeches of its leaders have hinted at a greater redistribution of wealth. Rahul Gandhi has talked of “historic assignment to distribute wealth of India, jobs and other welfare schemes” post census. Sam Pitroda has cited inheritance tax as a tool to redistribute wealth. The Bharatiya Janata Party has portrayed this idea as an attempt by the Congress party to grab people’s wealth and redistribute it, especially to minorities.
Is redistribution a new concept?
Redistribution of wealth, they argue, will smother innovation and hit productivity, eventually causing the economy to slow. Inequality is inevitable in a growing economy as holders of capital reap the maximum benefit. Wealth creators contribute to economic prosperity and should not be penalized. Also, inequality is not a major concern as long as people’s lives improve. Zimbabwe and Venezuela tried large scale redistribution and failed. India once had income tax rates of 97.75% plus wealth tax but failed to end poverty, they say.
Director, South & South East Asia, S&P Global Ratings