A cap on capitalism: Is it time for India to debate one?
The idea of a wealth ceiling might seem unworkable and outdated but it should join our discourse
Growing income disparity in an economy like India, with over 800 million people deemed in need of free food from the government, does not augur well for its developmental ambitions. India’s top 1% own 40% of its total wealth, by one estimate, while the bottom half own just 3%. A recent UN report said the poor in India are unable to afford even basic necessities. Meanwhile, the wealth of the richest individuals has risen sharply in recent years.
Uncontrolled capitalism is failing the world’s largest democracy, just as socialism did. And just as the Land Ceiling Act of the 1970s was implemented to limit the size of landholdings and redistribute land, could a wealth ceiling law help reduce this gap?
This is a complex proposition with potential benefits and challenges. An income or wealth ceiling would set a maximum limit on the income or wealth of an individual or household, aiming to narrow the gap by redistributing wealth. But its efficacy and feasibility warrant careful consideration.
An income cap could possibly curb excessive wealth accumulation among the ultrarich and address extreme income disparity. By capping income at the top end and redistributing the excess funds through taxation or other mechanisms, the government could fund social welfare programmes, education, healthcare, etc. Further, a 2% wealth tax on India’s billionaires could support our nutrition programme for the poor for at least three years, while a 1% tax could fund the PM-Jan Arogya Yojana medical insurance scheme for 18 months. A narrower income gap would also reduce feelings of resentment or alienation among those who feel left behind, leading to better social cohesion.
Critics argue that any income ceiling would disincentivize entrepreneurship and hard work, and that individuals may be less motivated to excel or invest in businesses, potentially stifling economic growth. They may also argue that foreign investment will dry up or talent migration will occur, impacting the economy’s competitiveness and growth potential. They are right, but such problems can be resolved if ceilings and taxation rates are judiciously picked and only individuals are brought under this net.
Indeed, there will be administrative challenges like determining thresholds, monicompliance, preventing evasion and devoting resources for the same. Any drastic measure like the 2016 demonetization to cap income or wealth could lead to unintended consequences such as capital flight or migration of high net-worth individuals (HNIs). Arguments against a wealth cap often centre on questions of fairness and liberty infringement.
But does it really penalize success? Also, what is the purpose of having more and more wealth?
Here is how we could go about it.
First, establish a framework for a wealth ceiling. Determine the maximum allowable wealth for the top 1% of individuals or households by using data analysis and economic modelling. Perhaps look at per capita GDP and income distribution data to arrive at a ceiling based on a multiple of the country’s average income or wealth.
Second, frame a policy for sharply progressive taxation. High taxes can be imposed on assets exceeding a set limit. Consider higher capital gains, inheritance or wealth taxes aimed at the ultra-wealthy. The revenue generated should be directed at social welfare programmes for the needy.
Third, improve monitoring and enforcement. Use artificial intelligence to predict and track individuals’ assets and wealth accumulation, including benami (identity disguised) deals such as those seen with corporate social responsibility spending, to ensure compliance with the set limits. Also use financial and forensic audits, asset declarations and severe penalties for non-compliance, as some developed nations do.
Fourth, address various challenges and potential impacts that can be anticipated well in advance, such as the following: One, as introducing a wealth cap may adversely impact economic incentives for investment, entrepreneurship and innovation, use data analysis to weigh the potential effects on economic growth and productivity. Two, as implementing and administering such a policy requires significant resources and administrative capabiltoring ities, ensure accuracy in wealth assessments and the prevention of evasion. Three, any concern over the potential impact on international competitiveness and the potential migration of HNIs and businesses to other countries with relatively favourable tax environments should be evaluated and acted upon accordingly. Four ,doan analysis of the impact of a wealth cap on social cohesion, income mobility and wealth distribution. Data on income and wealth inequality trends, poverty rates and social indicators should be considered and closely monitored.
Fifth, invest in educating the 1% at the top of the pyramid and mobilizing the support of the rest. It would be crucial for the public to understand the rationale behind a wealth ceiling. To garner popular support, provide data-driven explanations and appeal to the social conscience of people on matters of income inequality, wealth distribution and the potential benefits of such a policy.
Lastly, but most importantly, have a heart and the political will to walk the talk on poverty alleviation and corruption elimination that has graced Indian elections down the decades with an almost fairy-tale-like presence. It is time to start heeding the voice of the 99%.