Will Rahul Gandhi’s Minimum Income Fraud push Income Tax Rates to 70-80%?

Last updated on Mar 29, 2019

Posted on Mar 29, 2019

In the year 1973–74, there were 11 income tax slabs with rates of 10 to 85%. The top marginal rate was effective 97.75%!  Yes, some were paying as much as 98% tax rate.  This was to fund Indira Gandhi’s Garibi Hatao promise!

After 1971 call for Garibi Hatao, the Income Tax Rates had increased to 98%. Does Rahul Gandhi want to take IT Rates from 35 to 80% ..AGAIN? Read and think..  Click To Tweet

DO you know who made this happen for Indira Gandhi?  Her Chief Economic Adviser.  It was Dr. Manmohan Singh!

At that time, it is said that in a speech, Dr. Manmohan Singh justified this asinine taxation policy by saying that it had the potential to add 2% to India’s GDP growth.

Here is how the Income Tax rates looked during that era from 1950s to 1985 (source).  Compare this to the situation today – where the Maximum Marginal Tax rate is 35-36%.

India Tax Rate trends

So what was the impact of this asinine tax policy so easily justified by Dr. Manmohan Singh?  Black money fueled by massive tax evasions became rampant.  And increase of black money pushed India in the economic mess.  Here is an extract from Understanding the Black Economy and Black Money in India, Arun Kumar, who is considered to be an eminent economist in India.

India’s black economy is estimated to be 62% of GDP – generating about Rs 93 lakh crore of revenue (or USD 14 trillion). It is larger than the income generated by agriculture and industry put together, which is about 39% of GDP. It is larger than the size of the government (Centre plus states) spending, which is about 27% of GDP. Because of its existence, the country’s economy has been losing on an average 5% growth (when compared to official figures) since the mid-1970s when the black economy became significant. I
f we add 5% to the rate of growth over the past four decades or so, the size of our economy would be Rs 1,050 lakh crore (or about USD 15 trillion at the current rate of exchange) instead of Rs 150 lakh crore (or USD 2.2 trillion) as it is now

. We would have become the world’s second largest, behind the US and a middle-income nation. The per capita income of the country would have been Rs 7.4 lakh (or USD 11,000) instead of about Rs 1 lakh (or USD 1,500) as it is at present. In other words, every one of us would have been seven times richer on average. (emphasis added)

So, you see irrespective of how the major economists justify the absurdly high income tax rates in the name of equality or distribution of wealth or whatever fancy nonsense they come up with, the fact is that such high income tax rates fuel the need amongst those who earn high income to evade tax as opposed to spending and growing the economy.  Even the bank savings would be impacted in a bid to evade taxes.

Is Rahul Gandhi’s Minimum Income Fraud a Repeat of 1972-73?

Cut to 2019.

Rahul Gandhi and Congress have resurrected the old wine in a new bottle.  The “Garibi Hatao” pretense remains intact however.

Earlier the architect was Dr. Manmohan Singh and this time people like Raghuram Rajan and Amartya Sen are trying to architect it and justify it.  Shamelessly.

In one interview with Moneycontrol, Raghuram Rajan (whose covert political ambitions we have already surmised about) justifies Rahul Gandhi’s Minimum Income fraud by giving it the veneer of respectability by bringing up “Conditions” like a faithful economist must.  Of course, his real political ideological self is also exposed when he also targets RSS, and by relationship BJP.

In his book, the economist has written at length about the idea of ‘universal basic income’. When asked about the Congress’ ‘minimum income guarantee’ promise for the poor, Rajan said the idea would work if such a scheme is effectively targeted, and is fiscally prudent – that is, other welfare schemes, which are less effective, are rolled back and overall spending is contained.

So, Rajan wants to roll back some welfare schemes – without saying which ones – in a typical Trump fashion to fund Rahul Gandhi’s megalomaniacal “Mexican Wall” type Minimum Income fraud!

Of course, Rahul Gandhi never alluded to this “roll back” of other schemes.  While bestowing respectability to the mischievously presented scheme, Rajan also merely talks about conditions only on the sidelines and in innuendos – won’t spell them out fully or in detail.  Do you see how the symphony of the machinations of Gandhi-Rajan is playing out?

And, if the political compulsions do not allow such a roll-back, then we are looking at a very damning scenario.

A leftist think tank from France has actually done what Rajan is too chicken to do – spell out the details of how the Minimum Income fraud could be perpetrated on India.  Again!

The World Inequality Lab which includes a group of economists based at the Paris School of Economics – have come out with how the outlandish election gimmick of Rahul Gandhi can be made into reality.  Here are four ways they have suggested.

  1. A 2 per cent tax on total wealth on households owning more than Rs 2.5 crore of wealth, which would yield Rs 2.3 lakh crore or 1.1 per cent of GDP. This will affect only the top 0.1 per cent of households and leave out 99.9 per cent households.
  2. A 2 per cent tax only on land and building above Rs 2 crore, which would yield Rs 2.6 lakh crore or 1.2 per cent of GDP. This would impact only the top 1 per cent of households.
  3. A new tax bracket for the top 0.1 per cent of the population by 20 percentage points, which would generate Rs 1.36 lakh crore or 0.6 per cent of GDP. This implies adding a 50 per cent top marginal income tax bracket, from the current level of 30 per cent, for individuals earning more than 50 lakh.
  4. A new tax bracket of 70 per cent tax rate, which is roughly equal to the top tax rate set in the US as well as in India in the 1970s and which is significantly lower than the historical highs observed in the US or the UK in the 20th Century, generating up to 1.2 per cent of GDP.

70% tax bracket in US?  Really?  Amazon is paying zero tax this year and a normal middle class family pays no more than 30-35%.  Where the heck did they get 70%?

But did you see where this is going?  The 1971-72 way!  In fact, one of advisors for this scheme admitted that there will be an increase in Income tax.  One is not sure how great an economist Abhijit Bannerjee is, but the way he handled the question it is sure that he is a lousy politician and liar.  He wanted to suggest that even NDA had funded schemes from taxes but limited increase in taxes meant “lower revenues” for the state.  Really?!  As much as I remember, it was UPA ministers who did not even have money to buy the Rafale fighters that were really needed!  Whereas NDA has created unprecedented amount of infrastructure.  Am I missing something that he wanted to say or is his brain missing a few screws?

One thing is certain though – the days of 80-98% Maximum Marginal Tax rates are here, if India is foolish enough to believe in scoundrels like Rahul Gandhi and Raghuram Rajan, just as the population in 1970s suffered by believing in another scoundrel named Dr. Manmohan Singh!

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