Taxes

Nadiraji Wants Your Money

This is the 44th installment of my weekly column for Mint, Thinking it Through.

A few days ago, the respected theatre artist Nadira Babbar spoke to the newspaper DNA about the state of theatre in Mumbai. She felt that there weren’t enough good auditoriums in the city. “My appeal to the government is to build small, simple auditoriums with basic infrastructure,” she said. “I am seriously thinking of meeting the chief minister and put before him certain stark realities of the state of theatre. Some of my proposals are to subsidize the rates of the halls. Secondly, it would be of great help if they subsidize the rates of placing advertisements in newspapers; not only for the theatre events, but also for other cultural events.”

Most of us would sympathize with her. The arts are essential to a civilized society, and deserve our support. And there are many neglected areas of it, besides theatre, where an infusion of funds would help. Traditional folk arts are dying out, literature in regional languages gets a raw deal, and so on. So, naturally, many of us turn to the state.

But should we?

We appeal for government spending much as children appeal to their parents. “Dad, I’m thinking of taking guitar classes, it costs X.” Or “Mom, I want to learn Bharatanatyam, the fees are Y.” And Mom and Dad evaluate if it’s good for us and fork out the money.

But parents spend their own money, money honestly earned. It’s not so simple when it comes to the government.

The money that our government spends does not come from the skies. It is taken, forcibly, from millions of ordinary citizens in this country. Those include not just you and I, who are effectively slaves of the government for three or four months of every year, depending on what percentage of our income our total taxes come to. They also include my maidservant, your building chaprasi and the girl who sells flowers at the Haji Ali traffic signal, all of whom contribute to the government coffers when they purchase a bar of soap or a chappal.

I’m not taking the extreme view that the government should not tax us. We need a government to protect our rights, and for a handful of essential purposes. For these, taxes are a necessary evil. But we should question its use beyond these necessities, for taxes come at a high cost.

The French writer Frédéric Bastiat had once asked, “Does the right of the legislator extend to abridging the wages of the artisan, for the sake of adding to the profits of the artist?”

Let me paraphrase that question in the context of Mrs Babbar: “Does the right of the legislator extend to abridging the wages of my maidservant, your building chaprasi and the girl who sells flowers at the Haji Ali traffic signal, for the sake of adding to the profits of the theatre groups of Mumbai?”

Ah, I can already hear the protests. “But theatre is a worthy cause, and deserves to be promoted,” the howls come. Indeed, but my maid may find uses for her money that she thinks are worthier. Her tax burden—and ours— could be eased considerably if the government stopped taking from Peter to give to Paul. And even if you insist on parting her from that money, it could be argued that the government itself could do worthier things with it. After all, tens of millions of people in India still lack access to clean drinking water.

I am reminded here of something the American Congressman Ron Paul once suggested. Paul was the sole dissenting vote when the US Congress voted to give the Congressional Gold Medal to Rosa Parks, and also voted against giving it to Mother Teresa and the Pope. His point was not that they did not deserve it. He simply saw no reason why the taxpayer should cough up the $30,000 each medal is estimated to cost. Instead, he proposed that every member of Congress who supported the award pay $100 from his or her own pocket towards the cost of the medal.

Similarly, I suggest that those who support all sorts of worthy causes should consider funding it themselves instead of demanding it of me, my maid or your chaprasi. It is easy to ask for other people’s money to be spent to support causes you support—but is it moral? Also, such short cuts to nobility are often hypocritical—if everybody who supported government funding for Mumbai theatre actually went and watched some plays, my guess is that there would be no need for a subsidy.

There are all kinds of good causes in this world that deserve our support, and we should not hesitate to support them if we feel strongly about it. But we should be careful of what we ask from the government, for it involves other people’s money. Instead, we should put our own money where our mouth is, and have the self-respect to refrain from demanding other people’s dosh.

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You can browse through all my columns for Mint in my Thinking it Through archives.

And my occasional series: Where your taxes go: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25. Also see: 1, 2, 3, 4, 5, 6, 7.

Should Entrepreneurial Geniuses Pay a Higher Tax Rate?

If so, so should tall men, argues a new study by Greg Mankiw and Matthew Weinzierl.

No, they’re not being facetious. The abstract of the paper states:

Should the income tax system include a tax credit for short taxpayers and a tax surcharge for tall ones? This paper shows that the standard utilitarian framework for tax policy analysis answers this question in the affirmative. This result has two possible interpretations. One interpretation is that individual attributes correlated with wages, such as height, should be considered more widely for determining tax liabilities.

Alternatively, if policies such as a tax on height are rejected, then the standard utilitarian framework must in some way fail to capture our intuitive notions of distributive justice.

You can download the paper here (pdf link).

(NY Times link via email from Ravi Venkatesh.)

Listen To Our Honourable MPs

Check out this entertaining excerpt of a recent question hour at the Rajya Sabha. My favourite bit comes at the end:

Mr Chairman: The Question Hour is over.

Dr V Maitreyan: Sir, it is very unfortunate that you are giving opportunity to ask questions only…(Interruptions). I am raising my hand for half an hour. This is very unfair. I want to protest against this. Only Members from Congress and BJP do not exist in this House. From tomorrow, I will disrupt the Question Hour…(Interruptions).

Apropos of nothing, I remember school.

(Link via Prem Panicker, who points out that “this is what is costing all us taxpayers Rs 26,000 per minute.” My happiness knows no bounds.)

The Republic of Apathy

This essay of mine was published today in the Independence Day special issue of Lounge, the weekend edition of Mint, as “Those Songs of Freedom.”

Just thinking of it sends a chill up my spine. On 12 March 1930, at the Sabarmati Ashram in Gujarat, 79 men went for a walk. For 23 days they marched, covering four districts, 48 villages, 400 kilometres. On the way they picked up thousands of other ordinary people, animated by a cause so much bigger than themselves. Then, on 6 April, by the sea at the coastal village of Dandi, Mahatma Gandhi picked up a handful of salty earth and said, “With this, I am shaking the foundations of the British Empire.” 

The empire shook. The purpose of Gandhi’s march was to protest the oppressive and unfair salt tax, and across the country people joined the battle. They made their own salt. They bought illegal salt. That year, 60,000 Indians were arrested during these protests. The Salt Law was not repealed. And yet, “the first stage in … the final struggle of freedom,” as Gandhi described it, had made an impact.

More than 77 years have passed. We have been free of the British empire for 60 of them. If we were to get inside a time machine, go back to 1930, pull in some of the men and women who marched to Dandi, and bring them to this present time, how would they react? Would they think that they were finally in the India that they had fought to achieve? 

Or would they set off on another walk?

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The story of our freedom struggle was not the story of a Gandhi here or a Nehru there – it was about millions of people who rose up because they wanted to be masters of their own destiny. The British empire was naturally the focus of that struggle, and when we were rid of them in 1947, the relief must have been enormous. The tragedy is that for most Indians, political independence was freedom enough. What else was there to fight for?

Well, plenty. The oppressive empire from a continent away was gradually replaced by an oppressive, omnipresent state, and we did not protest. The lack of economic freedom kept India poor for decades, and we did not protest. Personal freedoms were routinely denied to us, and we did not protest.  In parts of our country people are treated worse than the British treated us, and we do not protest. As a nation, we stopped caring for freedom once we gained independence.

It is ironic that we celebrate the Dandi March so much. The taxes that weigh us down today are no less unjust that the infamous salt tax being protested then. Do some math: Calculate the percentage of your income that you pay as tax. Then apply that figure to a year, and see how many months it comes to. (For example, 25% tax would come to three months.) For that much time every year, you work not for yourself, but for the government. Add to that an approximation of the other taxes that you pay – everything you buy is taxed, so you are taxed not just while earning money, but also while spending it. You might just find that your ‘tax-freedom day,” when you actually start working for yourself, comes in May every year, or even later. Do taxes not cause a kind of part-time slavery, then?

It is not my case that taxes are unnecessary. We need a government to maintain law and order, to protect individual rights and so on, but our government is a bloated beast that goes far beyond that. Rajiv Gandhi once said that only 15 paise of every rupee that the government spent reached its intended recepient, and the planning commission later found him to be optimistic. More than 90% of our taxes are probably wasted – middle-class people like the readers of this article may not feel the pinch (unless we fantasize about what we could have done with that money), but think of our maidservants and sabzi sellers, whose every purchase feels the weight of government greed. The salt tax Gandhi protested was no worse.

Freedom for a country should mean every person being free to live their lives as they please, as long as they do not interfere with the similar freedoms of others. But our mai-baap state has long treated us as subjects, not citizens, and these freedoms have been denied to us. 

Take trade, for example. When two people make a transaction, they only do so because both are better off. Prosperity is the result of a chain of such win-win transactions between people profiting by fulfilling each other’s needs. But Jawaharlal Nehru once described profit as a “dirty word”, and gave in to the fatal conceit, to use Friedrich Hayek’s phrase, of imagining that the economy, and the lives of people, could be planned. 

Given India’s natural strengths, we should have excelled in labour-intensive manufacture and been a manufacturing superpower, but the license-and-inspection raj and our labour laws did not allow that to happen. The draconian restrictions on economic freedom introduced by Nehru and strengthened by Indira Gandhi meant that entrenched big businesses were protected from competition, and cronies of the government enriched themselves. Despite some liberalisation, most of these shackles still exist, and much of our country remains poor.

The benefits of economic freedom are unintuitive, and popular outrage has rarely been expressed on its behalf. But what about personal freedom? The Indian Penal Code, drafted by our imperial overlords in the 19th century to keep us natives in place, and tailored on Victorian morality, is filled with archaic laws that should have been repealed 60 years ago. Section 377 effectively outlaws homosexuality. Section 295(a), that makes it illegal to “outrage religious feelings,” is routinely used by bigots, from all religions, to stifle free expression. It is filled with laws that criminalise the act of giving offence, outlaw victimless crimes and treat women as the property of men.

Our constitution, written by freedom fighters, allows caveats to free speech like “public order” and “decency and morality” that are open to the interpretation of babus and judges. This has led to a culture of censorship and banning that spreads across the arts, as if Indian adults are in a special class of imbecility, and must be told what to think. Perhaps that is indeed so, for why else would we not feel aggrieved at that notion?

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In some parts of the country, remote from our cities and our consciousness, the government treats the people as the empire once treated us. Do you remember a photograph from three years ago, of a group of Manipuri women outside the entrance of the Kangla Fort, which was occupied by the Indian army? They were protesting the gang rape and murder of a 32-year-old woman named Thangjam Manorama, who had been picked up from her house in the middle of the night by the army. Frustrated that no one cared to listen to them, that the law-and-order mechanism existed only for the rich and powerful, 12 of these women stripped naked, and held in front of them a banner that said, “Indian Army, Rape Us.”

I suspect had that image been taken in 1930, and had that banner said “British Army, Rape Us,” it would have been one of the defining images of our struggle for freedom. Today, no one cares. Across the country, law and order is a joke, and our government fattens itself on the sweat of a billion people. Free speech is endangered, and censorship thrives. Honest men wishing to start a business that will fulfil the needs of others – as all businesses must in order to survive – find themselves having to deal with licenses and inspectors.

The price of freedom, it is often said, is eternal vigilance. We let our guard down 60 years ago. Perhaps it’s time to fight back?

Licensed to toast

This is the 22nd installment of my weekly column for Mint, Thinking it Through.

“You may now need licence to own toaster,” read the headline of a news report this Tuesday in the Hindustan Times. The article began: “You do not use the Toast Authority of India’s toasting services, but may soon have to pay a one-time licence fee for the toaster you own and an additional tax on any new toaster you buy in the future. Why? To support the Toast Authority of India and its employees.”

“Wait a minute,” you tell me, “you’re pulling a fast one on us. This is way too absurd to believe. Our gentle, compassionate government would never do something like that.”

Right. Well, I did make some of that up. The headline actually said, “You may now need license to own TV.” And in the para I quoted, replace “TAI’s toasting services” with Doordarshan, “toaster” with “TV” and “TAI” with “Prasar Bharati”, and there you have it.

Now tell me, is that any less absurd?

This gives me a bad sense of déjà vu. A few weeks ago I read Doordarshan Days, Bhaskar Ghose’s memoir of his days as director general of Doordarshan in the 1980s. In that, he bemoaned the scrapping of a similar license fee.

“Given that today there are at least 8 crore television sets in the country and at least 15 crore radio sets,” Ghose bombasted, “an annual fee of, say, Rs 1000 for a television set and Rs 100 for a radio set would have brought in Rs 4000 crore. Even after paying for the cost of collection and for an inevitable shortfall in collection, the amount left over would meet a truly professional public broadcasting network’s operational expenses, costs of upgrading equipment and expansion plans.”

Leave aside the questionable math and the small matter of why “a truly professional” network would need to look beyond its revenues to manage its costs. Ghose’s statement is revelatory because it reveals the sheer arrogance of power that the government displays, the assumption it makes that it is our lord and master, and can charge us whatever it wants for the facilities it kindly allows us to enjoy. It is as if we owe our existence to the government, and exist at its mercy. Should it not be the other way around?

I assumed while reading Ghose’s book that such thinking was a remnant of the past. Well, silly me. That HT news report states that there might be a levy of between 5-10% on every TV set we buy. (At the time of writing, on Wednesday morning, the meetings to decide these are a few hours away.) Another proposal being considered is to make TV channels pay a “public broadcast fee” of 5% of gross revenue to Prasar Bharati. Along with this fee, they will have to send an Archie’s card to the government saying, “Thank you for letting us exist, my honourable mai-baap. Slobber slobber.”

Other publicly funded broadcasters exist around the world, but that is no justification for such blatant theft. It takes remarkable ineptness for Doordarshan, with its large reach and low quality of programming, to remain unprofitable. This is not surprising: If its existence depends on subsidies, there are no incentives for it to respond to competition and raise its standards. Spending other people’s money when there is no accountability is hardly likely to lead to responsible behaviour.

Consider one thing, though: it is easy to feel outraged at the prospect of this licence fee because we know exactly what’s happening to that money, and can see the waste. But I would argue that most of our taxes are similarly wasted. Most of our ministries should not exist. Ditto most public sector companies. Ditto most of what the government does. This wastage would be more apparent if the government gave us a neatly itemized report of where exactly our money goes. But our taxes, so inevitable that we do not question them, go into this vast hellhole called government – who among us has the time or energy to bother about what happens after that?

Note that the amount of taxation on us goes beyond the taxes that we pay. Anything that interferes with market processes imposes costs on us, and has the same impact as a tax. Protectionist tariffs raise prices to beyond what we would pay in a competitive market. So do regulations and licences, either by imposing higher costs on companies or by deterring them from entering markets, thus reducing competition. In the 1980s, when there was a government monopoly on telecom, people had to wait up to five years to get a telephone – that time, and all that you could have done with a phone, was effectively a tax.

And yes, you pay taxes on your toaster, not just when you buy it but for every use, for bread and electricity don’t come free of taxes. And where do they go? Mostly towards uses quite as absurd as the Toast Authority of India.

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You can browse through all my columns for Mint in my Thinking it Through archives. My thanks to Gautam, Sumeet and Sruthijith for their inputs for this piece.

Also read: “Your Maid Funds Unani.” “A Beast Called Government.”

Where America’s taxes go

Nandz writes in to point me to an excellent graphic representation of where America’s taxes go. He wonders if I could do one for India.

Well, I’d actually once contemplated building a “Where Your Taxes Go” calculator, where you could feed in the amount you pay as tax, and get an itemized breakup of where that money is spent. It would be personal and easy to relate to, and would illustrate beautifully the extent to which our taxes are wasted. Sadly, I don’t think there is enough public data to be able to do this accurately. If you think otherwise, and believe that it can be built, feel free to write to me.

(Where your taxes go: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21. Also see: 1, 2, 3.

My essays on taxes and government: Your maid funds Unani, A beast called government.)

Where your taxes go: 21

Building malls.

You have to wonder what we have learned in the last 60 years. The BMC is reportedly planning to “construct ‘municipal malls’ at various spots in the city,” where “prices of commodities would be regulated … so that they could ‘cater to the masses’.” Mumbai Mirror rightly lashes out:

All this focus on a ‘business enterprise’ comes at a time when hundreds of roads across the city are still dug up, a large part of the Mithi river is yet to be cleaned up though the monsoon is already here, the city’s massive parking problems need urgent solutions, the Jijamata Udyan needs a thorough clean-up, octroi evasion is depriving the BMC of crores of rupees, the question of adequate and 24/7 water supply is still to be resolved, most BMC schools are on the verge of closure, and Mumbaikars on the whole want the city’s crumbling civic services to be improved.

The populist rhetoric accompanying the proposal is startlingly naive. These malls, a ‘civic official’ is quoted as saying, will “accommodate small shops that have been forced to shut because of big malls and also the BMC’s development projects.” The BMC should ask itself a few basic questions: If some small shops have shut down because of big malls, why is that so? When they don’t regulate prices outside those malls (with good reason!), how will regulating them inside the malls help? If those shops could function at a price lower than the market, wouldn’t they have destroyed the big malls, instead of the other way around? Isn’t the whole point of a market to satisfy the needs of the consumer, and is there any point accommodating stores inside government malls that the consumers have rejected outside them?

My prediction: If any such malls come up, they will become vehicles of enrichment for rent-seeking officials. Space within the malls will be allocated to merchants at the discretion of municipal officials, and corruption will be rampant. These malls will not turn a profit. You and I, again, will end up as shmucks. And the roads will still have potholes.

(Where your taxes go: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20. Also see: 1, 2, 3.

My essays on taxes and government: Your maid funds Unani, A beast called government.)

Where your taxes go: 20

Spending thousands to deny Rs 2:

The Department of Posts is prepared to spend thousands of rupees on expensive litigation in the High Court to prevent a 75-year-old pensioner from getting an additional benefit of Rs 2 as part of his pension.

Sigh. And how ironic that every time this gentleman buys something, he is contributing to the thousands of rupees spent to deny him his Rs 2. Such it goes.

(Link via email from Kunal.

Where your taxes go: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19. Also see: 1, 2, 3.

My essays on taxes and government: Your maid funds Unani, A beast called government.)

Where your taxes go: 19

Subsidies for pilgrimages. The Times of India reports:

In its determination to protect Haj subsidies, particularly in view of the ongoing elections in UP, Centre has told Supreme Court that it was ready to offer similar support, at state expense, to pilgrimages organised by other communities.

Positing its offer as being in sync with the “secular ideals” of the Constitution, Centre virtually made a policy announcement by agreeing to provide financial assistance to Hindus, Sikhs, Christians, Jains and other religious communities.

This is not secularism. To me, secularism has two implications:

1 A complete separation of state and religion.

2. Every person in this country having the right to follow a religion of their choice, as long as they don’t impose it on others.

The right to follow a religion of your choice, of course, is completely different from a right to having your religion sponsored by other people’s money, which is nothing short of theft. Do remember, after all, that “state expense” comes from my pockets and your bank account and suchlike. Money does not fall from the skies, and even if the government actually printed money to afford these subsidies, inflation would result, which is an indirect form of taxation.

If Sonia Gandhi or Manmohan Singh genuinely believe that pilgrimages deserve to be funded, I recommend that they shell out their own money for the purpose. There is no justification for taking away our hard-earned money and spending it on building votebanks for themselves.

(Link via SMS from little n.

Where your taxes go: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18. Also see: 1, 2, 3.

My essays on taxes and government: Your maid funds Unani, A beast called government.)

Where your taxes go: 18

Advertising campaigns for governments.

It’s quite possible that Amitabh Bachchan did the ads for UP for free, but my contention is that the government shouldn’t be wasting our tax money in producing and broadcasting advertisements for itself.

(Update: Reader Hemant brings my attention, via his comment below, to an Amitabh quote in the article in which he says that the ads were funded by the SP. If so, then this is clearly a wrong example, as your taxes may not be involved in this particular case. My bad, sorry! My larger point about government advertising, though, remains.)

A government should not need to advertise, its efficiency or inefficiency will be evident to all the people it governs. By all means, let a political party advertise its achievements with its own money, but to spend taxpayers’ money on it is a waste.

(Where your taxes go: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17. Also see: 1, 2, 3.

My essays on taxes and government: Your maid funds Unani, A beast called government.)