[ashokrajagopal]

Not directly connected with Economics theory, but a very valid information for India.

There is a very strong misconception about taxes in India, where people go so far as to say that the whole system is a wastage of money by government and it would be much more beneficial if government lets go of taxes. There are some very prominent people in politics who just go on to say that tax should be abolished because the cost is too much in collecting.
Here is the cost of collection in a time series. Available from https://www.incometaxindia.gov.in/Pa...axes-Data.aspx



Even if you double or triple that cost of collection, it does not look significant.

[carboy]

Originally Posted by ashokrajagopal

Even if you double or triple that cost of collection, it does not look significant.

There is a even bigger reason for not abolishing Direct Taxes. Direct taxes are progressive. If there are only indirect consumption taxes and no direct taxes, then taxation becomes the opposite of progressive.


For e.g. take 3 kinds of population
- Poor
- Middle Class
- The Rich

Poor people spend a majority of their income, while the rich spend very little of their income & middle class somewhere in between.

A poor person spends nearly 100% of their income. OTOH, a very rich person spends may be 5-10% of their income. So, for simplicity, if we assume a 25% indirect tax on all spending, then the poor person pays 25% of their income as tax. While the rich person spending just 10% of his income will pay only 2.5% of his total income as taxes. Which is just not progressive.

[ashokrajagopal]

Originally Posted by carboy

Poor people spend a majority of their income, while the rich spend very little of their income & middle class somewhere in between.

A poor person spends nearly 100% of their income. OTOH, a very rich person spends may be 5-10% of their income. So, for simplicity, if we assume a 25% indirect tax on all spending, then the poor person pays 25% of their income as tax. While the rich person spending just 10% of his income will pay only 2.5% of his total income as taxes. Which is just not progressive.

No contention there.
But beware of examples like Monaco to come up, when you raise that argument. Those "city-countries" which charge no income tax and have a single indirect tax (aka GST) and work very well. Social media is full of literature that does logical jumps like comparing the cities with large countries like India and landing at evil government by prorating taxes.

[DigitalOne]

Originally Posted by carboy

A poor person spends nearly 100% of their income. OTOH, a very rich person spends may be 5-10% of their income. So, for simplicity, if we assume a 25% indirect tax on all spending, then the poor person pays 25% of their income as tax. While the rich person spending just 10% of his income will pay only 2.5% of his total income as taxes. Which is just not progressive.

Extreme Libertarians consider taxes as theft or as a form of slavery.

But ignoring such extreme positions, I am ambivalent about progressive taxes.

First, it is punishing the hard-working. A poor person who progresses from being poor to Middle class to rich just keeps paying more of her labor.

Second, it gives a sense of entitlement to the higher tax payers. For e.g. "<insert favorite city here> contributes xx% of income taxes; so should have better infrastructure", or a rich guy demanding to be treated better in a police station (for example).

[carboy]

Originally Posted by DigitalOne

But ignoring such extreme positions, I am ambivalent about progressive taxes. First, it is punishing the hard-working.

I agree & that's why I won't be happy with just progressive income taxes without any indirect taxes. You also need non-progressive indirect taxes to even it out a little bit. The rich person pays more of his income as direct taxes if income taxes are progressive. However, with indirect taxes, he pays a lower amount of his income as taxes. The net result of these 2 taxes ensures that a rich person is not unduly punished.

[swissknife]

Rich or poor, a salaried person ends up being the one who bears the brunt, at least in terms of percentage. Direct taxes (TDS in which cost of money isn't factored) and by way of indirect taxes on almost everything. In effect, taxes are paid for goods and services, using money that was already taxed.

It's quite taxing to be a salaried person in India.

[V.Narayan]

The GDP growth is said to be at a 15-year low, rural retail consumption has declined after 4 decades and unemployment they say is at a 45- year high. Would like to hear the opinions of the experts on the causes of our economic slowdown and the solutions for it.

Is all this because of a global slow down; or the enthusiasm of tax authorities; or DeMo; or because at long last the Govt is acting against known economic offenders like Essar etc; or is it the trio of CAG, CVC, & Supreme Court which have paralyzed bureaucrats from taking decisions?

The first almost for decades of my life lived through the so termed Hindu rate of growth that never ever seemed to get past 5% and loved the 4% mark. Are we going back to those days?

[Samurai]

Originally Posted by V.Narayan

The GDP growth is said to be at a 15-year low, rural retail consumption has declined after 4 decades and unemployment they say is at a 45- year high. Would like to hear the opinions of the experts on the causes of our economic slowdown and the solutions for it.

You'll have to wait for someone with access of load of data and has done extensive analysis on it. Someone working for the RBI perhaps...

Originally Posted by Samurai

So the company executives working with closely with private equity investors, offer to buy all the public stock by overpaying the shareholders. The purchase is funded with 10% funds from the PE investors, 60% from bank loans, and 30% from high risk junk bonds. That is like a guy who has $1 million, buying a company by paying $10 million, while borrowing $9 million. Who pays the monthly EMI? The company revenue will be used to pay the interest. They will also cut cost royally, sell assets of the company, close down or sell entire divisions of the company to enable paying the interest.

I had talked about LBOs a while ago. One of the recent victims is Toys'R'Us.

https://theweek.com/articles/761124/...sts-ate-toys-r
https://www.bloomberg.com/news/artic...bt-laden-deals

The wall street wrote off the demise of Toy'R'Us as the result of not having the right strategy to counter online retailers like Amazon. But the real beast that killed Toys'R'Us is the interest payment of half billion every year.

Yet another example of Private Equity killing healthy companies.

[rrsteer]

Originally Posted by V.Narayan

The GDP growth is said to be at a 15-year low, rural retail consumption has declined after 4 decades and unemployment they say is at a 45- year high. Would like to hear the opinions of the experts on the causes of our economic slowdown and the solutions for it.

Not an expert, but with regards to experts am reminded of a quote by George Bernard Shaw - "If all economists were laid end to end, they still would not reach a conclusion."

I do have a mental model to interpret economic conditions--> Economy is nothing but human activity. A slowdown is a slowdown in human activity. We can attribute this to many factors. But I feel one of the core factors that drove activity in India was the establishment and the growth of the IT sector. Now this sector is plateauing and hence we are seeing a slowdown in activity.

Is all this because of a global slow down; or the enthusiasm of tax authorities; or DeMo; or because at long last the Govt is acting against known economic offenders like Essar etc; or is it the trio of CAG, CVC, & Supreme Court which have paralyzed bureaucrats from taking decisions?

I could never attribute the economic growth in the last 25 years to government actions (primarily). Similarly I wouldn't attribute the slowdown to government actions. But, I do think that a fertile environment for economic activities to take place is one where economic actors are aided by autonomous institutions. For reasons that are debatable, I do feel strongly that in the last 5 years many of our institutions have been weakened in terms of them wielding independent authority (e.g. RBI).

[vrprabhu]

Onion is selling at ~200 / kg. There are supply constraints.

Petrol has crossed 78 Rupees a litre (Oil prices are moving around USD 60 a barrel) - production is cut to keep the prices at this level?

Whichever way you look at it - Economics doesn't make a sense here. Especially, when these kind of price rise keep happening at frequent intervals.....

Originally Posted by Chetan_Rao

... Economics has to look at both supply & demand, but it's a common problem with supply-side economics failing to account for demand, and the social aspects of it ...

[Chetan_Rao]

Originally Posted by vrprabhu

....
Petrol has crossed 78 Rupees a litre (Oil prices are moving around USD 60 a barrel) - production is cut to keep the prices at this level?

Whichever way you look at it - Economics doesn't make a sense here. Especially, when these kind of price rise keep happening at frequent intervals.....

Won't comment on this in detail, but suffices to say our petroleum prices are also driven by supply and demand, just not of the commodity itself, but of balancing the books variety.

[vrprabhu]

Originally Posted by Chetan_Rao

....but of balancing the books variety

Good one there, Rao mam!

The lesser you say, the more I understand

Suffice to say, us taxpayers are milch animals - without the benefit being passed on the intended beneficiaries.

[Chetan_Rao]

Originally Posted by vrprabhu

...Rao mam!..

I'm all for gender equality, but that's a SAAR last I checked

[carboy]

Originally Posted by vrprabhu

Petrol has crossed 78 Rupees a litre (Oil prices are moving around USD 60 a barrel) - production is cut to keep the prices at this level?

It's not the oil price which is causing Petrol to cross 78. It's our taxes. There is some 120% tax on petrol. Taxes on fuel have increased a lot.

[vrprabhu]

Originally Posted by carboy

It's not the oil price which is causing Petrol to cross 78. It's our taxes.

Exactly. That's the point - when the prices go up, tax collection go up proportionately. So if consumers need to get relief, Govt. can adjust the tax rates on fuel (which is outside the purview of GST) and manage the prices. But, obviously, as Mr. Rao succinctly put it, there are 'other' considerations managing the price - which no economic theory can predict / support!

Originally Posted by Chetan_Rao

I'm all for gender equality, but that's a SAAR last I checked

He he he - you have to read it in Kannada / Konkani (for those who are unable to follow, the word implies respect to an elder person. It's my way of expressing my respect to his views )