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Wednesday, 13 February 2013
Sound Familiar?

It seems that the United States is not the only country with officials on the left who believe that they can continue their uncontrolled spending so long as they define their wealthy citizens’ “fair share” high enough.  Writing in the Times of India, columnist Lubna Kably, calls that “democratic theft.”  Her piece, “Don’t Punish High Earners,” is a response to Finance Minister P. Chidambaram’s suggestion of a higher tax burden on “high net worth individuals (HNIs).”  Suggestions like these in India are either trial balloons or more likely preludes to government dicta already in the works.

Kably reminds readers that India’s top one percent already carries a heavier personal tax burden, 63 percent, than their cohorts in other countries who pay 50 percent in the UK, 40 percent in the US, and only 22 percent in Canada. The arguments she advances against the higher tax, specifically that it will retard economic growth and actually harm the tax base should be familiar to Americans. To support them, she refers to a rather unlikely source: the tax administration authority for left-leaning Britain. A 2012 study ­­by Her Majesty’s Revenue and Customs of the UK’s 2009 tax increase on HNIs determined  “that the negative fallout of this higher tax was far-reaching and the underlying yield from the higher tax was much lower than forecast.” And based on that, it recommended lowering the tax rate.

She also refers to evidence that increased tax rates “encourage migration by HNIs—which includes migration of highly skilled workers—to more tax favourable countries.” Americans see this in movement from one state to another and also in offshore efforts and the re-opening of closed US plants in places like Mexico; in other words, the out migration of businesses and jobs. Labny, who is also an accountant and therefore familiar with numbers, also talks about how reduced disposable income means reduced expenditures resulting in less indirect tax receipts (something that was not even included in the British study); and cautions that these forces pose a grave threat to India’s fragile five percent growth rate. India never experienced the same dislocation of the worldwide recession that other nations did but has been living with declining economic conditions for the past year. In anecdotal support, I have been coming to India for years, and every year since 2008, the dollar fetched fewer Indian Rupees than it did the year before. This year, however, the Rupee has slipped to pre-2008 rates.

Kably argues that “even a casual glance at the Comptroller and Auditor General of India’s reports for any year, pertaining to any ministry or department, shows wasteful expenditure.”  She identifies that problem as the culprit for India’s budget woes and concludes, “Imposition of a higher tax burden on HNIs will not solve the problems plaguing India. It is inefficiency in utilization of taxpayer’s money that needs to be curbed and not growth.”

The upcoming Indian elections are shaping up as a monumental battle between “pro-growth” advocates who agree with Kably, represented by Gujarat Chief Minister Narendra Modi; and the left-leaning Congress Party whose minions still believe that taking more from the top earners will pay for their profligate ways.

Sound familiar?

Posted on 02/13/2013 12:51 PM by Richard L. Benkin
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