Bill Gates and Warren Buffet visited India last week to ask India’s burgeoning ultra-rich to give back to society. As living legends in India, the visit has attracted front-page attention for the duration of their trip. But one component that helps spur giving is missing in India, the estate tax. India stands out as one of the few major countries that does not have one.
For philanthropy to really take off in India the government must reinstate the Estate Tax, better termed in India as “the Equality tax.” In the United States where the equality tax has become a major policy issue, Messrs Gates and Buffet have come out strongly in favour of it. In their India visit, in addition to pressing their billionaire counterparts to join “the Giving Pledge,” they should have urged India to re-institute the equality tax.
Of India’s billionaires, most come from wealth and certainly none come from a family living below the poverty line. Manmohan Singh, the Indian prime minister, has called for inclusive growth. He has spoken out for the need for the wealthy to give back, to lift up the poor and shun the ostentatious lifestyle of the West. The equality tax is a concrete measure to help bridge the growing divide between India’s wealthy and poor. It can raise revenues, encourage an egalitarian society and refresh capitalism.
Wealth creation does not occur in a vacuum. It occurs within a society where soldiers protect a nation, farmers feed it, police keep law and order, teachers educate the young and doctors nurse the sick. There is no doubt hard-working people deserve to enjoy the wealth they create but the role of society in that creation of wealth cannot be ignored. An individual alone doesn’t create wealth, it’s also created by the village or in India’s case, 500,000 villages.
Those villages could use the help of India’s wealthy. Even as the number of India’s billionaires grows, the number of Indians living on less than $2 a day is over 300m. Assuming normal life expectancy, an estate tax would generate more than $100bn in revenue over the next 50 years. These revenues could be used for crucial needs: girls education, health care for the aged, pay hikes for soldiers and teachers, and essential infrastructure.
Equal opportunities for all and redistribution of wealth are important for the cohesiveness of our changing society. People need to believe that the station of their birth does not govern their station in life. Andrew Carnegie, the early 20th century American financier and proponent of the estate tax, said, “each generation should have to start anew with equal opportunities.” As wealth in India grows, disparity grows with it. The horrors of crime-ridden Sao Paulo or Rio De Janeiro can be India’s too, if its policies do not reflect egalitarianism.
Refreshing capitalism is another important benefit. Just as anti-trust laws limit the size, reach and power of companies, estate taxes ensure that individuals do not wield too much influence. American Supreme Court justice Louis Brandies once said, “we can have democracy in this country or we can have great concentrated wealth in the hands of the few”. Though he spoke of the US, his words are applicable to today’s India.
Arguments that the estate tax leads to less savings and investment have little credence. Japan maintains a high savings rate and the most billionaires in Asia, along with a high estate tax. It does not diminish the drive of the world’s richest leaders, all of who would recognize a good upbringing as the truly valuable inheritance.
As the Mr Singh has said: “The time has come for the better off sections of our society to understand the need to make... growth... more inclusive… to care for those who are less privileged; to be role models of probity, moderation and charity.” The estate tax is a proven means of accomplishing just that. Messers Gate and Buffet can help by asking their Indian peers to push the re-adoption of the “equality tax” in India.
The writer is a former management consultant and hedge fund manager. He is based in Mumbai.