Why a Billionaire Tax Doesn’t Make Any Sense for Politicians


In the end everything boils down to it.

In the run up to the annual budget of the union government presented by the finance minister Nirmala Sitharaman, on February 1, many economic commentators suggested that the government should resort to a one-time billionaire tax.

The idea being that the stock market has rallied big time during the course of this financial year. Hence, while the income of the average Indian has fallen thanks to the economy contracting, the super-rich have become richer.

This one-time tax could fund a lot of extra expenditure in the budget in 2021-22, as the government tried to act as the spender of the last resort in an environment where private spending has slowed down and industrial expansion isn’t happening at the same pace as it was.

If you are the kind who practices first level kind of thinking, this makes perfect sense. The rich have grown richer. So, let’s take money from them and give it to those who need it. It also leads to greater equality, at least in your head. This kind of Robinhood thinking has prevailed for centuries. Hence, there is no reason for it to go away in 2021.

Nevertheless, if you are the kind who practices second level thinking and at the same time thinks about the incentives on offer, you would know that something like this doesn’t make sense and is also unlikely to happen.

Let’s try and understand this pointwise.

1) It is important to understand that billionaires don’t have cash lying around to pay this tax. So, one way they would have raised cash to pay this tax would have been to sell some of their shares. Of course, given the sudden increase in supply of shares in the market could have led to the stock prices falling.

2) Actually, more than the billionaires selling their stake to pay up the tax, the stock market would have seen this move of the government in a negative way and sold off, even before billionaires would have started thinking about how to pay the tax. In fact, in the run up to the budget, the stock market did worry about new taxes and there was a sell off last week. This was its way of telling the government, please, no new taxes. It has been rising this week, since it realized that no news on the tax front is good news.

3) Currently, the government needs the stock market on its side, with its plans to raise Rs 1.75 lakh crore through the disinvestment route next year. And that is only possible if the stock prices continue to remain at high levels. Hence, it would have made no sense for the government to disturb the status quo. If the market would have fallen, it would have impacted the ability of the government to raise the amount of money it wants to through disinvestment. This would have, in turn, impacted its ability to spend.

4) These were the near-term reasons. But there are more issues at play here. Most Indian billionaires finance political parties both on record and off record. In their eyes they are already paying a billionaire tax. A lot of this money finds its way into the economy and is spent, during election time. In that sense, billionaire money is pump priming some part of the Indian economy all the time, given that elections to state governments happen every year.

Of course, no billionaire does this as a social service. They are looking for a quid-pro-quo from the government. That needs to be kept in mind as well.

5) It’s important to look at this entire idea from the point of view of the incentive at play for a politician as well. Politicians exist to win elections. For this they need money, a massive amount of it. They can’t win elections by spending money within the limits set by the Election Commission. Where does this money come from? To a large extent from billionaire businessmen who operate in spaces where they need to deal with government all the time. Hence, why would any politician in his or her right mind try to disturb this equation by irritating the main funders through a high one-time income tax. It just doesn’t make any sense.

6) Finally, a high-income tax, one-time or otherwise, is always a bad idea. One it leads to a narrative of inconsistent tax policy, which the Indian government anyway suffers from. Two, it also leads to high income earners, who can leave the country to leave the country, and move to tax havens. The highest income tax rate in the country currently is greater than 40%. Hence, not surprisingly, a whole bunch of high-income earners have moved or want to move to places like Dubai. This obviously means they no longer pay their income tax in India.

Given these reasons a billionaire tax didn’t make any sense. Having said that, there is a case for clear rationalization of tax rates that is needed. You can’t have a small proportion of the salaried paying the highest marginal rate of more than 40% or even 30%, whereas those who can use the benefit of indexation while paying income tax, not paying any tax at all or a very low rate of tax. This needs to be corrected.

Cong needs to study 1936 US Election before seeking ban on opinion poll

digvijay-singh-313-devilsVivek Kaul  
A few days back the Congress party wrote to the Election Commission that lotuses in full bloom in various regions of Madhya Pradesh should be hidden, so that voters aren’t drawn towards the Bhartiya Janata Party (BJP). The state goes to the polls later this month. Lotus is the electoral symbol of the BJP.
If one were to extend the argument a little further, other parties could demand that Indians hide their hands when in public, before elections are due to happen. Hand is the electoral symbol of the Congress party.
Also, when elections are due, elephants should be hidden, given that they are the electoral symbol of the Bahujan Samaj Party and Asom Gana Parishad. People should not be allowed to move around in cycles because they are the electoral symbol of Samajwadi Party. Large parts of India where electricity is non existent should not be using the lantern because it is the electoral symbol of the Rashtriya Janata Dal. People should stop looking at their clocks because it is the electoral symbol of the Nationalst Congress Party. And this list can go on.
The Election Commission rejected the unreasonable demand of the Madhya Pradesh unit of the Congress party to hide lotuses. It termed the demand “absurd” and “an insult to the intelligence of the voter”.
After this, the Congress party has made another such absurd demand. It wants opinion polls to be banned. The position of the party is well summarised 
in a statement made by the party general secretary Digvijay Singh. As he put it “These have become a farce. They should be banned altogether. The kind of complaints, information that I have got, show that anybody can pay and get a survey as desired…Wondering how a few thousand people could predict election trends for a country of 1.2 billion people…It has become a racket. So many groups have sprung up.”
This statement needs to be examined threadbare.
A straightforward reason for the Congress party wanting opinion polls to be banned is the fact that all the opinion polls expect the party to perform badly in the forthcoming state assembly elections, as well as the Lok Sabha elections, due next year. 
Other parties like BSP and JD(U), which are similarly on a weak wicket, want the opinion polls to be banned as well.
A part of Singh’s statement was that “ The kind of complaints, information that I have got, show that anybody can pay and get a survey as desired.” This is a very serious charge. If Singh has any such information he should bring it to the attention of the nation, instead of just making vague statements. If there is any truth to the accusations, the Election Commission can investigate it and then make a reasonable decision.
Singh further wondered how “how a few thousand people could predict election trends for a country of 1.2 billion people.” Even the most sophisticated opinion polls do not have a sample size more than a few thousand people.
Take the case of opinion polls which happen in the United States before a Presidential election to predict to who is likely to be the next President. The sample size of most such surveys is less than 1500. This can be clearly seen 
from the following link.
Also, there is a great story from the 1936 US Presidential elections which is very relevant in the context what Singh said. The election had the incumbent President Franklin D Roosevelt, belonging to the Democratic Party, facing Alfred Landon of the Republican Party, who was also the governor of the state of Kansas.
Literary Digest one of the most well respected magazines of that era predicted that Landon would get 57% of the vote whereas Roosevelt would get 43%. Roosevelt got 62% of the vote whereas Landon got only 38%. The survey was way off the mark. Roosevelt got 19% more vote than the survey had predicted. This is believed to the largest ever sampling error in a major opinion poll.
The Literary Digest poll had a sample size of around 2.4 million people. At the same point of time George Gallup predicted a victory for Roosevelt using a much smaller sample size of 50,000 people.
There were problems with the way Literary Digest had chosen its sample. The sample was not a representation of the population. 
As a University of Pennsylvania Case Study on the issue points out “The first major problem with the poll was in the selection process for the names on the mailing list, which were taken from telephone directories, club membership lists, lists of magazine subscibers, etc. Such a list is guaranteed to be slanted toward middle- and upper-class voters, and by default to exclude lower-income voters. One must remember that in 1936, telephones were much more of a luxury than they are today. Furthermore, at a time when there were still 9 million people unemployed, the names of a significant segment of the population would not show up on lists of club memberships and magazine subscribers.”
Hence, the sample was skewed towards Republicans. In the United States, the upper class typically tends to support the Republican Party, whereas the poor largely go with the Democratic Party. Given this, it predicted a victory for the Republican candidate Landon.
Thus, it is important to ensure that the chosen sample is a good representation of the population as a whole. Small samples can be very effective as long as they are not riddled with sampling errors. “A badly chosen big sample is much worse than a well-chosen small sample,” concludes the University of Pennsylvania cited earlier.
Another article 
on the website of Constitution Rights Foundation makes a similar point “It is important to point out that large, national polling organizations have small national samples of under 2,000 that predict quite accurately for the entire electorate.” As statistical techniques have evolved samples much smaller than the sample of 50,000 people used by Gallup, to predict the 1936 elections, can give good results. The moral of the story is that bigger is not necessarily better. Something that Digivijay Singh needs to understand.
Opinion polls are also a very important part of the democratic process. People have a right to know what a state, a region or the nation as a whole is thinking on a particular issue, at a given point of time.
But Congress and democracy do not go together. In 1959, the then Congress prime minister Jawahar Lal Nehru dismissed the government of Kerala led by the communist chief minister EMS Namboodiripad, by invoking the controversial article 356. Namboodiripad’s government was the first democratically elected Communist government anywhere in the world.
This set the precedence for Nehru’s daughter Indira Gandhi and she turned dismissing democratically elected non Congress governments into an art form. Estimates suggest that she dismissed nearly 59 state governments during her several tenures as the Prime Minister of the nation.
She, egged by her younger son, Sanjay, declared a state of internal emergency on June 26, 1975. It stayed till March 21, 1977. During this period the leaders of opposition parties were put into jail and the fundamental rights of the citizens of this country remained suspended. The newspapers were heavily censored. Democracy came to a standstill during the period of nearly 19 months the country was in a state of emergency.
The senior most posts in the Congress party have been perpetually reserved for the Gandhi family and there have been no elections for the same. Given this, it is hardly surprising that the leaders of the Congress party are making demands for opinion polls to be suspended. They go against the party’s idea of democracy.
The article originally appeared on www.firstpost.com on November 5, 2013

(Vivek Kaul is a writer. He tweets @kaul_vivek)