Governments across the globe are trying to reduce their budget deficits by reducing spending and increasing revenues. These are the only options available. Governments must set their strategies by deciding what level of spending reduction, revenue increase or both they want to go for. They then need to use all the tactics at their disposal to achieve their deficit reduction targets with minimal pain.
One tactic, used to some success in India, is to make people want to pay more tax.
For the last few years, lists of those who pay the most tax have been compiled in India. It is an imperfect system – tax systems are complicated and many wealthy people pay little in terms of direct taxes, but may pay a lot in other taxes. However, the list is coveted and usually dominated by Bollywood superstars.
For this tactic to work, the value of being seen to pay a lot of tax has to be greater than the value of the tax paid. It’s no surprise then that in India people working in sectors where reputation and public support are important (such as movies) tend to feature in the list.
Last week, Warren Buffett wrote an opinion piece for The New York Times asking the US Government to increase the tax burden on him and his “super-rich” peers. Today, the FT reports that 16 wealthy French individuals have called for an additional tax on the rich as a gesture of national solidarity.
This shows that not only is it possible to make people want to pay more tax, there are already some wealthy people willing to do so.