Piketty's tax advice for India should provoke thought

The country all but embraced Reaganomics but it may be time to address worsening inequality

- SATYA NARAYAN MISRA

Speaking at an event recently, Thomas Piketty, author of Capital in the Twenty-First Century (2013), recommended an ambitious plan for tax justice in India, asking the richest Indians who have gained the most from economic liberalization to part with some of their wealth accumulation to pay for higher investment in public services such as education and health.

The very rich, in his view, do not report much income, but a wealth tax of 2% on billionaires would raise a lot of money to fund India's rickety social infrastructure. He also urged India to raise its tax revenue as a proportion of GDP. There is a strong case for setting a target of 25% in the coming decade, for which a mix of wealth tax and more progressive taxation on the super-rich "should be the direction India should go."

India's chief economic advisor, V. Anantha Nageswaran, who participated in the event, was of the view that such a tax regime would drive capital away.

Globally, contrasting perspectives rooted in ideological differences grew sharp when Milton Friedman, an American advocate of neo-liberalism, contended that "inequality is inevitable and may even be beneficial." He added, "Social levelling leads to economic stagnation by removing incentives for hard work."

Arthur Laffer, economic advisor to Ronald Reagan, proposed that a tax cut can increase tax collections if the initial tax rate is above its optimal level. In 1981, Reagan brought down the highest marginal tax rate in the US from 70% to 50%.