September 19, 2011

A Sane Tax Policy

In any modern nation that has a taxation system, the poor don't pay taxes. In India, more than 90 percent do not pay taxes.

But that makes sense. The poor in India do not use as much of the infrastructure. The poor in India do not use airports. The poor in America do not use private planes.

One should be taxed at a rate commensurate with one's level of income. This is obvious and does not need debating. When the super rich have to pay taxes at a lower rate as Warren Buffett has reiterated so often, it's clearly unfair.

Millionaires need to be taxed at a higher but fair rate. A 90 percent rate of income tax is clearly unfair. But a 30 percent or 35 percent rate of tax seems fair enough.

Those in the 10 million to 50 million bracket can correspondingly be charged at a higher rate than the mere single-digit millionaires.

Those in the 50 million to 100 million bracket need to pay even higher taxes.

The tax rate can increase by 5 percentage points for every tax bracket.

The other brackets should be: 100 - 200 million, 200 - 300, and so on.

I won't mind if the tax rate reaches 90 percent at some point.

What's the harm?

A multi-billionaire is essentially a winner of a lottery. A Bill Gates or Sergey Brin or Buffett or Zuckerberg is not necessarily a 1,000 times or a million times smarter than the average person who might be earning 1,000 times less or a million times less. Same goes for the hedge fund guys and the bank and other CEOs.

Many billionaires (the saner ones) are making their pledges to donate back most of their wealth. What would be different if they were paying a higher rate of tax?

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