A Puerile Cacophony Over Progressive Inheritance Tax

The Left has been making the case for a wealth and inheritance tax in addition to remaking corporate and income tax along more progressive lines in order to bring them in line with international standards. As part of the campaign for the 2024 Lok Sabha elections, Sam Pitroda of the Indian National Congress also flagged this issue.

 This mention of reintroducing the inheritance tax was criticised along two lines. First, denizens of the neo-fascist dispensation sought to misrepresent this demand for an inheritance tax along Islamophobic communal lines. This has been the reaction of the neo-fascist forces toward any suggested policy measure that seeks to decelerate the neoliberal project in India.

 However, this type of opposition to the demand for an inheritance tax tries to make up in terms of puerile cacophony what it lacks in terms of intellectual substance. Moreover, this type of opposition is one component of the neoliberal project that seeks to further the hegemony of this project by inculcating cleavages among different segments of the working people. The opposition INDIA bloc parties need to deal with this effectively in the course of the ongoing election campaign and beyond.

 However, the second type of opposition to the demand for an inheritance tax arises from other supporters of the neoliberal project who are present both in the neo-fascist dispensation as well as among some members of the INDIA bloc. Those who belong to this second oppositional trend argue first that this inheritance tax will disproportionately impact adversely the upward mobility of the "middle class'. The second argument is that it will result in the setting up of ostensibly unproductive non-profit organisations by the wealthy in order to evade inheritance tax. Let us examine these arguments in terms of logic and relevance.

 To begin with, the "middle class" deliberately remains undefined by the opponents of the progressive inheritance tax so that concerns about the ostensible threat toward upward social mobility may be felt by the maximum possible number of people. Those who advocate for an inheritance tax need to point out that this tax will be a progressive one.

 If we define the "middle class" as small and medium business owners in addition to the upper reaches of the salariat, then a sufficiently high threshold level for the progressive inheritance will not only leave the working people untouched but also almost all among this “middle class”. 

 If income tax is currently paid by about 1-2% of the population, then such a progressive inheritance tax will be paid by an even smaller proportion of the population, given the astronomical levels of wealth and income inequalities in India. However, there remains the challenge to tackle tax evasion by the wealthy, which requires a solution in terms of political economy.

 Such a progressive inheritance tax, which will disproportionately impinge on the ‘super rich’ (billionaires and multimillionaires) will actually reduce the wealth gap between the super-rich and the rest of the "middle class". A progressive inheritance tax will also reduce the wealth gap between billionaires and multimillionaires!

 The mode of utilisation of the revenue from a progressive inheritance tax will also impact the wealth gap between the “middle class” and the super-rich. The revenue from a progressive in inheritance  tax could be used to implement policies, such as extending employment guarantee to urban areas while expanding it in rural areas, enhancing the system of public education and public health, instituting a guaranteed minimum support price for agricultural produce and public support for small and medium-scale enterprises.

 An extension of the employment guarantee programme will enhance the income of the “middle class” even if none of them avail work under this programme for the following reasons. To begin with a largish fraction of both the wages and the non-labour input costs of the projects under the employment guarantee will be spent on output produced by small and medium enterprises. Thereby the profits of the owners of such enterprises will go up.

 As the positive multiplier effect of this progressive inheritance tax financed expenditure diffuses through the entire economy, employment for the salariat will rise. Besides, the decrease in unemployment that is caused by the employment guarantee programme will increase the bargaining power of all workers including the salariat and, therefore, their wages. Attempts by big business to pass on these higher wages as higher prices may be dealt with through a combination of price controls and public sector intervention.

 All the other suggested policy measures will also work on these lines and, therefore, it will be apposite for the sake of brevity to dwell briefly on the additional impacts that the other three policy measures will have on the economy and the “middle class”.

 In the first place, an expansion of public health and public education will reduce the burden of both educational loan service as well as debt service incurred to deal with health crises, especially by the “middle class”. Besides, an expanded public education system will allow any sectoral mismatch between demand and supply of specific types of labour power to be overcome relatively rapidly.

 Likewise, the institution of  guaranteed minimum support prices can be used to both enhance the volume of agricultural produce to meet the needs (and not merely the demand) of all, but also where required, change the crop composition of agricultural produce to overcome crop-specific shortages (for pulses, for instance) that would otherwise drive inflation, as is the case in India.

 The deployment of revenue from a progressive inheritance tax to support small and medium enterprises (whose production process is relatively labour intensive) could take a number of forms.  First, it could fund public procurement quotas for small and medium enterprises.  Second, it could be used to provide subsidies to such enterprises.

 To the extent that these measures increase output and employment in the economy, a part of this increased employment will involve new jobs for the salariat. By setting suitably both the degree of progressivity of the inheritance tax and the composition of the use of the resulting revenue it should be possible to iteratively ensure that owners of small and medium owners are not impacted negatively by the progressive inheritance tax.

 Turning to the macroeconomics of all tax financed government expenditure, it can be rigorously demonstrated that equivalent changes in government expenditure and tax revenue will leave aggregate profits unchanged but increase output in a demand constrained economy. Moreover if a part of the revenue from a progressive inheritance tax crowds in aggregate investment (either by decreasing the cost of new projects or by increasing the degree of capacity utilisation or both) then aggregate profits will actually rise. 

 Thus, a progressive inheritance tax cannot decrease aggregate profits but may increase it (if the afore-mentioned crowding in transpires). Moreover, since the net wealth of society identically equals the capital stock (since all other assets of some entity are liabilities of another entity and therefore will be netted out of the magnitude of net wealth of society), a progressive inheritance tax cannot decrease society’s net wealth but may increase it (if the afore-mentioned crowding in transpires).

Consider next, the assertion of denizens of the neo-fascist ruling dispensation that the rich will set up non-profit organisations to evade inheritance tax. This can be dealt with by stipulating that the income of these non-profit organisation may be utilised in domains that are of policy interest. If for-profit corporate enterprises are legally required to spend a (small) fraction of their profits on corporate social responsibility activities, then surely non-profit organisations set up by the wealthy to evade the progressive inheritance tax can be mandated by law to spend a large fraction of their income on activities that are of policy interest.  

 Last, it may not be out of place to point out that neoliberal rhetoric persistently idolises enterprise involving innovation a la Schumpeter and animal spirits (“spontaneous urge to action rather than inaction’”) a la Keynes. Surely, relying on inheritance is contrary to neoliberal rhetoric but not the actual conduct of the corporate financial oligarchy. It is, therefore, not surprising that opponents of the progressive inheritance tax maintain a deafening silence on the adverse impact of the goods and service tax on small and medium enterprises.

 More generally, an inclusive neoliberalism is a contradiction in terms since the neoliberal project itself engenders neo-fascism. Neo-fascism cannot be combatted unless the neoliberal project itself is combatted.

The writer is professor, department of economics, Satyawati College, University of Delhi. The views are personal.