“The avoidance of taxes is the only intellectual pursuit that carries any reward” John Keynes
John Keynes, the erstwhile great economist, did not envision a country riddled with corruption and black markets. The advent of Mr Modi in India however is a game-changer. The global slowdown has dwindled the coffers of the Indian government, especially for boosting both economic stimulus and protection of our motherland through fortification of arms.
In this note, I argue the importance of progressive taxation as a key social enabler.
Modi’s government should increase taxation for the rich. Example increasing tax on individuals above $5M plus. Scandinavians and selected European countries follow a progressive tax structure which aids the best way forward for addressing inequalities within the societies. The effect is well documented in the Global Financial Stability Report, which favours direct taxation over indirect taxation — lowering indirect taxes esp. GST slab and structuring it to two categories will help in boosting a seamless process in invigorating startup culture esp. in the micro and medium sector. Scandinavians, French, Dutch, Japanese have not only built equitable societies but also are harbingers of innovation, growth and productivity.
An increase in short term capital gains tax in India will curb speculation and promote a longer-term horizon esp. equities. However, the best bet is to increase direct taxation for the rich. Further, its time to take a re look at wealth tax and find the inflection point where taxing wealth is profitable. This can be worked through a Monte Carlo simulation process to set up a framework of data points to figure out wherein the marginal revenue is higher than marginal cost of implementing the taxation policy. Trick is to find where MR=MC i.e. marginal cost equal to marginal revenue, the break even point for implementation of wealth taxation. Increasing estate planning taxation is another critical prospect something which Democrats in the US are planning to propose.