This refers to Rajiv Kumar’s article “Taxing the super-rich is lazy policy” (January 15). Taxing the super-rich will reduce investment by the private sector and increase evasion. The Hindu rate of growth coincided with the period when the income tax rate was far too high. John Maynard Keynes famously said the marginal propensity to consume of the super-rich is zero. They invest 100 per cent of their extra income. But in the case of the government, the marginal propensity to consume is quite high. It consists of (a) cost of collection, (b) bureaucratic waste owing to not knowing where to invest, (c) waste in unsustainable projects, (d) uncontrolled expenditure in populist projects (e) greater propensity to increase subsidy when more money is available, and so on. What remains, that is the net amount, is much less than what a private investor would have invested. The government is much less efficient as an entrepreneur than the private investor. The spectre of fiscal deficit should not mislead the government to ruin the growth perspective. So long as there is growth, the fear of the fiscal deficits should not be so unnerving. Joseph Stiglitz is on our side to support this. Fiscal deficit has to be bridged by various methods like tax reform in the shape of withdrawing exemptions, broadening the tax base by bringing more tax payers and detecting “stop-filers”, checking evasion of tax , checking unproductive expenditure, among others. Increasing taxes on the super-rich is not the solution. It is counterproductive.
Sukumar Mukhopadhyay New Delhi
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