Biden's billionaire income tax has a lesson for India

At a time when socialism for the corporate is the reigning mantra, the US President Joe Biden showed tremendous political courage to ensure that the billionaires pay their fair share in taxes. After publicly denouncing the Trickle Down theory a few weeks back, which as we all know forms the very basis of the floundering neoliberal economics, this is also the first time that an American President has made an effort to bring the billionaire's within a reasonable tax ambit.

President Biden's monumental initiative I hope triggers the G-20 leadership to suitably amend the tax laws within their countries. Since a disproportionate tax code adds to growing inequality, which leads to the death of one person every four seconds while the 10 richest people globally were adding $1.3 billion to their wealth every day as an Oxfam report had brought out, the immediate need to tame the tax laws becomes obvious.

The Billionaire Minimum Income Tax as it is called was part of the budget proposals for the next fiscal that the US President delivered. It proposes a minimum of 20 per cent tax on the wealthiest American households whose worth exceeds $100 million. "The 20 per cent minimum tax applies to only top one-hundredth of the top 1 per cent," President Biden said in his budget speech, adding: "The Billionaire Minimum Tax is fair and it raises $360 billion that can be used to lower costs of families and cut the deficit."

Taxing the billionaire wealth has always been considered impermissible and treated more like a taboo. All previous attempts to impose a tax code on the Richie rich, including a Democrat-backed proposal in October last, fell through. Even now it is not sure whether President Biden's proposal will sail through the US Congress, but one has to admire the audacity and fearlessness demonstrated by the US President who, setting aside the political ramifications that may arise, has decided to take the bull by the horn.

"The tax code currently offers special treatment for the types of income that wealthy people enjoy," the President remarked. And let's not forget; sometimes back billionaire investor Warren Buffet had pointed to the glaring anomaly in tax laws that makes his secretary pay twice the tax than what he paid. He himself paid an effective tax of 0.1 per cent between 2014 and 2018. Even now, workers pay more than twice the tax on their incomes compared to the wealthy. This is not simply an aberration but in reality is unjust and cruel to the millions who somehow struggle to survive and still pay their tax dues. To give you an example of the economic inequality that these abnormal tax laws lead to: During the first 19 months of the pandemic almost 89 million American had lost their jobs. And yet, the top 1 per cent of the Americans in Oct 2021 had as much wealth as the middle class, comprising 60 per cent of the population.

According to Forbes magazine quoting the White House Office of Management and Budget and the Council of Economic Advisors the top 400 billionaires paid an average tax of 8.2 per cent on their income, which was far less than what an average American citizen paid. Another estimate by the US Department of the Treasury works out that last year alone $163 billion in taxes was unpaid by the top 1 per cent.

The wealthiest don't live on a fat pay check every month. Their income is from stocks. But since the government doesn't tax the increase in value of stock holding until these are sold, meaning taxing the capital gains, the Billionaire Minimum Tax will include unrealised gains from stocks and bonds. But as Americans for Tax Fairness (ATF) explains: "Billionaires don't need to sell assets to benefit from their increased value: they can live off money borrowed at cheap rates secured against their rising fortunes. And when all those wealth gains are passed along to the next generation, they entirely disappear for tax purposes." The new tax regime will hopefully target this loophole. Effectively, the Billionaire Minimum Tax will cover 0.01 per cent of the top 1 per cent of the wealthiest Americans. Even this is sure to raise a chorus with many calling it punitive.

Nevertheless, the ATF has worked out that ever since the pandemic began, the collective wealth of billionaires soared by $1.7 trillion, a steep jump of 57 per cent but they paid almost nothing by way of tax. To illustrate, take a look at how billionaire Jeff Bezos continues to amass wealth without paying his rightful share in taxes. According to Senator Bernie Sanders, Bezos owns a $500 million yacht, a $23 million mansion with 35 bathrooms and a rocket ship to blast a comedian in outer space. While Bezos gained $ 81 billion in wealth during the pandemic, the new tax code will make him fork out $35 billion as per preliminary estimates.

Let's shift to India. The World Inequality Report 2022 rates India amongst the most unequal countries in the world. It finds that the top 10 per cent in India holding 57 per cent of the national income whiles the top 1 per cent has 22 per cent. To make it a little more understandable, the report finds that the top 10 per cent earns 96 times more income than the average of the bottom 50 per cent. As I said earlier, one factor that plays a significant role in accumulating wealth at the top is the favourable tax structure for the rich.

In his book 'An Unkept Promise: What derailed the Indian Economy' journalist and researcher Prasanna Mohanty says that corporations with higher profits exceeding Rs 500 crore pay less effective tax compared with companies making profits in the range of Rs 50 crore to Rs 100 crore. This is in addition to the huge stimulus packages, colossal bad debt write-offs and massive incentives in the name of growth.

Further, in Sept 2019, India reduced the corporate tax by Rs 1.45-lakh crore, and that too at a time when Nobel laureate Paul Krugman had clearly explained in his columns that the corporate tax cuts the former US President Donald Trump had brought in earlier had failed to create employment and nor did it boost industrial production. On the contrary, much of these sops were used for stock buyback and for jump in salaries and bonuses for the top management. India therefore has a lot to learn from the way economic policies are undergoing a change in America. This will help reduce fiscal deficits and provide resources for development. I am only hoping that in the years to come, US expands the Billionaire Minimum Tax to cover the entire top 1 per cent, and the G-20 leadership too sees merit and rewrite the domestic tax laws.

(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)