The BBC’s Justin Rowlatt wrote that India published income tax data this year showing that only 1% of Indians paid tax in 2013, while 2% filed a tax return. He quoted Indian Prime Minister Narendra Modi saying:
publishing the data was a “big step towards transparency and informed policy-making”.
…Just six individuals were in the top-earning tax bracket – declaring an average income of $10.4m (£7.1m).
However, India has at least 84 billionaires, according to Forbes magazine, suggesting a huge shortfall in the amount of income tax paid by the very rich in India.
This amount of tax evasion is a symptom of the pervasive corruption in India. So much of the economy is below the table using cash to avoid taxes that the government announced a few weeks ago that it banned 86% of the cash in circulation! This economic experiment isn’t going well so far, but it is a massive problem and if this really solves it, then it could be worthwhile.
Imagine if only 1% of Americans paid taxes on their income. Although only about 50% pay what we traditionally call the “income tax”, all Americans who get a paycheck pay a tax on their income that is also paid to the IRS that we call the payroll tax even though it is just another kind of income tax. If only 1% of Americans paid these taxes on income, we would have no Social Security and Medicare. The defense budget would be shrunken to… well to the kind of amount that India can afford; a tiny fraction of the amount that America spends, and every government program would have to shrink, from education, to police to road maintenance.
Although these kinds of cuts would be very unpopular politically, it would produce a libertarian paradise for the 3% of Americans who voted libertarian!