The minimum income guarantee scheme announced by Congress President Rahul Gandhi promising Rs 72,000 income per annum to 20% families in poorest of the poor category can be financed by taxing the rich, the World Inequality Lab has said in its report
The report suggests several options the Congress government can look at if it comes to power in the Lok Sabha elections to fund the scheme. The main option could be imposing taxes on the top income group, according to the report.
"There are several options to finance an increase in social transfers. The best way to do so in order to tackle rising inequality at the top of the distribution is to implement progressive taxes on income and wealth," the report says.
Firstly, it suggests that a 2% tax on total wealth on households owning more than Rs 2.5 crore of wealth (top 0.1% of households) would yield Rs 2.3 lakh crore or 1.1% of GDP. Such a tax would not affect 99.9% of households in the country.
The second option is to impose a 2% tax on only land and building above Rs 2 crore which would yield Rs 2.6 lakh crore (1.2% of GDP), impacting just the top 1% of the households.
Another way, the reports suggests is to identify new tax brackets for the super rich. "Another complementary way to finance such redistributive schemes is through the implementation of new income tax brackets on top income groups. There are, again many solid economic arguments to tax top income in a highly progressive manner," the report highlights.
New income tax brackets on top income groups (top 0.1% of population) by 20% points could generate Rs 1.36 lakh crore (0.6% of GDP), the report says.
"Top income tax rates reduce post-tax income inequality levels but also limit the rising concentration of capital, and hence pretax income inequality which is largely due to rising capital incomes at the top. Perhaps more fundamentally, top income (and wealth) tax rates protect democracy from being captured by the wealthiest," it adds.
The analysis, however, flags the concern of such a wealth tax not being progressive at the top of the distribution since richest individuals tend to own more financial assets than land and buildings.
The report also underscores the importance of transparency on income and wealth in India as there is a lack of clear and independent data. India does not have a comprehensive income database neither at individual level nor at household level, the report points out.
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