Are The Rich Taxed Enough?

During this pandemic period, of just about 15 months so far, while on the one hand, the wealth of billionaires has gone up multifold and many new billionaires have been minted in the shortest possible time, on the other, there has been a record rise in global poverty, most of it in India.

One of the most worrying impacts of the COVID-19 pandemic, which will take many years of determined government policies to resolve, is the huge increase in inequality in income and wealth, not just in India, but the world over. During this pandemic period, of just about 15 months so far, while on the one hand, the wealth of billionaires has gone up multifold and many new billionaires have been minted in the shortest possible time, on the other, there has been a record rise in global poverty, most of it in India.

During this period, as per a recent Pew Report, one third of India’s middle class has slid into poverty, consumption and incomes have fallen so sharply, that about 10 MN MSME units have closed down and 230 MN Indians today earn less than the average minimum wage of Rs 375 per day. The steep increase in joblessness has further added to the rising inequality of income and wealth in India.

An Oxfam report in January 2021, on this rising inequality, said that India’s top 100 billionaires saw their fortunes increase by about Rs 13 lakh cr since March last year, when the covid crisis hit India. It has increased even more, since the January report of Oxfam, to now. The report titled ‘The Inequality Virus’, says that it would take an unskilled Indian worker 10000 years to earn, what Mukesh Ambani earned during an hour during the pandemic and three years to earn, what he made in a second.

It says that a survey of 295 economists in 79 countries including India, revealed that 87% of them expected an increase or a major increase in income inequality in their nation, due to the pandemic. Oxfam says that while the rich were able to escape the the worst impact of the pandemic and the white collared ones isolated themselves and worked from home, a majority of the not so fortunate Indians lost their livelihood, giving a big rise to inequality in India.

The report further says that the wealth of Indian billionaires increased by 35% during the lockdown last year and by over 90% since 2009 to $422.90 bn. It has further shot up thereafter due to the continuing stock market boom. Oxfam says that if India’s top 11 billionaires are taxed at just 1% on the increase in their wealth during the pandemic, it will be enough to increase by 140 times, the fund allocation for the government’s Jan Aushadhi Scheme, which provides affordable medicines to the poor and the marginalised in India.

In the US alone, 650 billionaires were created in 2020 and the wealth of the American mega billionaires only multiplied further. It says that in September 2020 Jeff Bezos could have paid all the 876,000 employees of Amazon a one time bonus of USD 105,000 per person and still be as wealthy as he was before the pandemic hit and ironically, multiplied his wealth.

While on the one hand, the middle class and the poor have grown poorer due to lack of employment and livelihood, the rich on the other hand have grown richer, because they control the global levers of finance, business and livelihood and also because as many now allege, that they are not taxed enough and very little as compared to the enormous proportion of taxes paid by the salaried, the middle class and the small time entrepreneurs. The veracity of this widely held perception, that the rich are taxed lightly and do not pay enough taxes is not quite known , since the data on income tax returns and taxes paid is confidential and is not available in public domain.

A recent report by American the media house ProPublica, prepared on the basis of income tax returns filed by the billionaires there, says that the rich there are taxed little and that confirms their build up of wealth and the rising inequalities in USA, due to the sharp disparities in the levy of tax upon the rich and the not so rich. The ProPublica report is based on authentic and confidential, but what appears to be hacked data, and has the following highlights:-

1. The wealthiest Americans, including Warren Buffett, Elon Musk, Jeff Bezos etc., have paid little in income tax despite soaring income and wealth.
2. The report says that the American billionaires are able to reduce their taxes legally and that in the matter of payment of taxes, the ordinary wage earners are hit much harder, than these richest ones.
3. The wealth of the billionaires is tied up in stocks and real estate and therefore no taxes are levied on the unrealised gains. To fund their lifestyle, they borrow against these assets and pay interest, which too is an expenditure deductible from their incomes.
4. It says that the actual tax rate, for taxes paid by these super rich is upto a mere 3.7% and as low as zero.

   

The basic premise and assumption of this ProPublica report is flawed, in as much as that the average tax rate has been calculated by it with reference to the build up of unsold wealth of these mega billionaires, tied up in unrealised gains of stocks and real estate and does not calculate it with reference to their income earned and the taxes paid thereon. Income tax is a tax on realised income and not on wealth and thus unrealised gains are not subject to tax. For example the report says with reference to the wealth build up of $ 99bn of Jeff Bezos, that he paid income tax at a mere rate of .98%, even though he paid taxes of $ 973 MN on reported income of $ 4.22 bn, which is an effective tax rate of 23%.

Irrespective of the fact that it is income that is subjected to tax and not unrealised and unsold build up of wealth, that ProPublica has erroneously used to calculate the average of tax paid by the billionaires, the fact is that as compared to the rich, as a proportion of income earned, the wage earners pay much more tax on much lesser income earned. That’s because while income earned from salary, interest and dividend, which constitute the normal incomes of the middle class wage earners are taxed at source, with no rebates or exemptions whatsoever, that’s not the case with the business income of the rich, which is earned by their companies and can be easily planned and reduced, on account of tax holidays, rebates, exemptions, deductions, concessions, losses and a wide range of expenses that their companies claim.

Also Read: “Won’t Give Up”: Denmark Footballer Christian Eriksen Releases Statement After Cardiac Arrest On Pitch

Moreover these Indian companies now pay corporate tax at the standard rate of 15% or 22%, as against a maximum tax rate of 30% applicable to individuals in India. And when it comes to the promoter owners of these companies, a large part of their income comes from capital gains on the sale of shares etc, which are not just taxed at a concessional tax rate, but are also eligible for various investment options, to reduce such taxable gains to zero.

While the likes of Warren Buffet in the USA, publicly admit that the rich are not taxed enough in the US, none of the fat billionaires of India say so. They ignore the reality, that it is in the interest of their own businesses and fortunes that the consumer spending remains robust and upbeat, which is not possible, if there is such a dangerous rise in inequalities of wealth and income in society, as we see today. The rising inequality will prove to be not just a massive economic and political problem, but a huge social one too. The world needs to take it seriously.