The Financial Times had the following header, “Sugar rush from India’s tax cut starts to wear off” in an article yesterday. The contents were less negative. Stock market euphoria might or might not fade. But, the medium-term positive impact on corporate cashflows and hence on investments will be there. It might take some time.
Abhijit Banerjee, one of the winners of the Swedish Riksbank Prize for Economics, had wanted India to roll back the corporate tax cut. He has argued that the sure way to boost economic growth is to put money in the hands of the people and that the resulting higher demand would boost investments. Fair enough.
But, whether tax cuts for big businesses are an unfair advantage conferred on big businesses are entirely a matter of context. In the Indian context, the tax cut offered seems par for the course. The best response to the point put forward by Abhijit Banerjee came from R. Jagannathan, Editor of Swarajya, through his regular column (‘Arthanomics’) for Mint. He had explained beautifully as to why, in the Indian context, the corporate tax cut was not wrong and that higher taxes would not be welfare-enhancing. It is an important read.
Now, back to the context of this blog. I came across this review of the recent book by Piketty (ht: Ramagopal). The review was somewhat short and ended abruptly but it had an important statistic:
Per capita income growth was 2.2% a year in the U.S. between 1950 and 1990. But when the number of billionaires exploded in the 1990s and 2000s — growing from about 100 in 1990 to around 600 today — per capita income growth fell to 1.1%. [Link]
Piketty has a point about extreme inequality. But, I am not sure if forced redistribution would work simply because political economy forces would not allow the redistribution to happen. There is a moral hazard. Nations can cheat and allow tax arbitrage even if they agree on harmonisation of tax policies and rates.
OECD’s proposal for taxing the income of multinationals would be an important step forward, if it came about. In fact, this could be one of the most far-reaching tax reform to be proposed in recent years. Without that, redistribution of surplus between labour and capital would be a non-starter. However, it is chastening to note that OECD has been at it at least for six years if one went just by the first page hits when one searched for ‘OECD TAX PROPOSAL’
This F&D article (somewhat long) has a very useful overview and a wealth of links to pursue. It links tax-havens and tax-evasion to ‘Too much finance’. In other words, the jurisdictions that are willing to act as tax havens end up suffering from the ‘Finance’ curse.
One wonders if the post-Brexit Britain wants to or can double down on its role as a financial/tax haven?