Two months after releasing a pathbreaking report on income and wealth inequality in India, the Paris-based World Inequality Lab has published a follow-up note making the case for a “comprehensive wealth tax package on the ultra rich”. The March report had said that “the ‘billionaire raj’ (a term used to define the post-2010s rapid rise of billionaires in the country, at odds with lives of millions, popularised by James Crabtree’s book of the same name) is now more unequal than the British colonial raj”.
Highlighting the extent of income inequality, the new report states:
“According to our latest estimates, it takes just 2.9 lakhs per year to make it to the top 10% of income earners and 20.7 lakhs to make it to the top 1%. By contrast, the median adult earns only around 1 lakh, while the poorest of the poor have virtually no incomes. The bottom half of the distribution (50% of the population) earns only 15% of the total national income (see Table 1). To get a sense of just how skewed the income distribution is, one would have to be very close to the 90th percentile to earn the average income.
Looking at wealth, we find that an adult needs to own 21 lakhs to belong to the wealthiest 10% and 82 lakhs to break into the top 1%. The median adult holds about 4.3 lakh worth of wealth. A significant share of adults own close to no wealth at all. The bottom 50% of the population holds only 6.4% of the total wealth (see Table 2). On the other hand, we observe extreme concentration at the very top with shockingly high top shares. The top 1% owns 40.1% of the total wealth, the top 0.1% hold 30%, the top 0.01% own 22%, and finally, a whopping 17% is controlled by the top 0.001% alone. In other words, the total wealth of the top 0.001% (fewer than 10,000 persons) is nearly 3 times the total wealth held by the entire bottom 50% (46 crore individuals).”
In this situation of extreme inequality, the authors of the note – economists Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty and Anmol Somanchi – argue that a progressive wealth tax and an inheritance tax “would be an important step towards a more equitable growth path for India”.
The caste-economic inequality link
The authors have highlighted how the caste system plays a large role in how inequality functions in India. “Let’s be clear: Indian billionaires are largely an upper caste club. A progressive wealth tax package of the kind we propose is most likely to benefit lower castes and the middle classes at the detriment of only a tiny number of ultra-wealthy upper caste families. In that respect, besides addressing extreme wealth inequality, such taxes could also play a small role in weakening the rigid link between social and economic inequalities in India,” Somanchi has said.
Explaining this point, the reports notes that “a large chunk – nearly 90% – of the billionaire wealth in 2022-23 is held by UCs. At the other end of the spectrum, STs find absolutely no representation among the wealthiest Indians. OBCs own a little less than 10% of the billionaire wealth while SCs only a meagre 2.6%. Not surprisingly, this suggests that UCs are significantly over-represented among the ultra-wealthy.”
And things are changing, but not for the better: “Interestingly, during the Modi years between 2014 and 2022, the OBC share in billionaire wealth fell from 20% to below 10% while the UC share rose from 80% to 90%.”
The plan: Tax the 0.04%
The note contains a comprehensive plan for an annual wealth and inheritance tax; one that would “involve taxing only the very wealthy”. “We recommend that these taxes kick-in only for those with net wealth exceeding INR 10 crores in 2022-23 – roughly EUR 3.4 million at purchasing power parity (PPP) or EUR 1.2 million at market exchange rates (MER). Based on our latest estimates, only the top 0.04% of adults would fall above this threshold,” the write. For 99.96% of the population, then, nothing would change – except that the government would have much more revenue to spend on welfare and other schemes, in a bid to better lives and reduce inequalities.
“The magnitude of potential revenues from such proposals is phenomenally large despite taxing only 0.04% of the adults, that is, leaving 99.96% of the population unaffected by the tax. What makes this possible? The extreme concentration of wealth at the very top. The top 0.04% (i.e. roughly those with net wealth exceeding INR 10 crore) alone hold over a quarter of the total wealth. Their total wealth amounts to a whopping 125% of India’s GDP. In other words, the total wealth of the top 0.04% is 25% larger than India’s entire economy. It is then no surprise that a flat 2% wealth tax on just the top 0.04%, as in the baseline variant, could alone yield nearly 2.5% of GDP in revenues. While we stress that these numbers should be interpreted with care, the orders of magnitude are likely to be largely robust.”
Such a package would, according to the authors:
Include an annual wealth tax and an inheritance tax for those with net wealth exceeding INR 10 crores (roughly EUR 3.4 million PPP or EUR 1.2 million MER), equivalent to the top 0.04% of the adult population (~ 370,000 adults), who currently hold over a quarter of the total wealth.
Raise phenomenally large tax revenues while leaving 99.96% of the adults unaffected by the tax. In a baseline scenario, a 2% annual tax on net wealth exceeding 10 crore and a 33% inheritance tax on estates exceeding 10 crores in valuation would generate a massive 2.73% of Gross Domestic Product (GDP) in revenues.
Need to be accompanied by explicit redistributive policies to support the poor, lower castes, and middle classes. For example, the baseline scenario would allow nearly doubling the current public spending on education, which has stagnated at 2.9% of GDP over the past 15 years, well below – less than half – the 6% target set by the government’s own National Education Policy 2020 (NEP 2020).
Need to be extensively debated, with a consensus on specific details of the design emerging from a broader democratic debate on tax justice and wealth redistribution in India.
This article was originally published by The Wire and has been republished with permission