Biden’s billionaire levies must not cue bad ideas

Synopsis: The US plan to impose a tax on the super-rich, will not work in India.

Introduction

US President Joe Biden has promised to finance the social-spending plan by taxing only the super-rich.

About the wealth inequality

Globally, wealth inequality is getting sharper. Easy-money policies and asset inflation have sharpened the divergence. For example, the number billionaires in the US has risen from 614 to 745 since the Covid Pandemic. So, many economists like Thomas Piketty called for imposing wealth taxes on the Super rich.

Who are Super rich and How the US plans to tax them?

Super rich include persons having above $1 billion in wealth or earning $100 million as income for three years at a trot. The US tries to tax them in 2 ways. 1. Impose a levy on marked-to-market ‘capital gains’ made by them on their investment portfolios, even if nothing is traded or liquidated. 2. Imposing an inheritance tax.

Why does taxing the super-rich will not work in India?

1. Inheritance tax will tax the future heirs, not the past inheritors. This is against inter-generational equity.
2. Further, wealthy families might emigrate or stash money offshore and decrease tax compliance in the economy.
3. Unlike the US, few of our wealthiest made their fortunes themselves. So, levy on marked-to-market ‘capital gains’ will lead to a sudden flight of capital to Tax heavens.

Source: This post is based on the article “Biden’s billionaire levies must not cue bad ideas” published in Livemint on 1st November 2021.