This is not the first time Thomas Piketty has argued for a tax on wealth rather than on just income. He has, over the years, written on how inequality would only worsen and not only in the world’s poorer nations. A research paper put out earlier this year by Piketty and three other economists estimated that inequality in India started rising in the early 1980s and has skyrocketed since the early 2000s. They found that between 2014-15 and 2022-23, the rise of top-end inequality had been particularly pronounced in terms of wealth concentration. By 2022-23, the richest 1% of the population, or about 9.2 million people, owned 40% of the country’s wealth and 22.5% of the income, their highest historical levels. The growth, the paper said, came mainly at the expense of the middle class. Moreover, India’s income inequality was among the very highest in the world, behind only Peru, Yemen and a few other small countries.
In India last week, the renowned economist once again spoke of the need to impose a 2% wealth tax on India’s ultra-rich. The levy imposed on some 167 billionaires, Piketty estimated, could help the government mop up resources amounting to 0.5% of GDP. These resources could then be put to use to improve public services, health and so on. There is no doubt, as he has pointed out, that these wealthy individuals have all cashed in on the country’s infrastructure, education and legal systems to earn the money; some have also made use of political connections. So, now, it’s payback time.
While it’s clear that the gap between the haves and the have-nots is widening, a wealth tax might not be the best way to tax the rich. Globally, top economists have argued against a wealth tax saying it is not feasible; most have expressed the view that taxes are best levied on flows of money, not stocks of wealth. An income tax can be levied easily while wealth is not always seen and not easy to measure. Valuing assets can be tricky, especially in the case of real estate and shareholding in unlisted ventures. Back home, in line with the recommendations of the Chelliah Committee (1993) and the Kelkar Committee (2002), the wealth tax was abolished in the Union Budget 2016–2017 and was replaced with an additional surcharge of 2 % on those with a taxable annual income of over Rs 1 crore.
No one can deny that the government needs to collect more by way of taxes so as to be able to spend more on health and education. One way to do this could be by raising the personal income tax (PIT) rate for the super-rich. To be sure, the highest rate is already 43%—including the cesses and surcharges—and it might seem unfair to raise this further. However, some kind of redistribution of wealth is required to improve the living standards of those at the bottom of the pyramid. There may have been an improvement in the living standards in that few go hungry today but can that be enough for a country which prides itself on becoming Viksit Bharat? Even today, even basic health and education facilities are beyond the reach of many. So a higher income tax rate for the wealthy is a good option; in any case, it’s better than reintroducing a wealth tax which can lead to harassment.