An inheritance tax can help alleviate inequality

  • Sam Pitroda, Chairman of the Indian Overseas Congress, made a comment on imposing an inheritance tax as a measure for wealth redistribution, sparking much debate.

The Negative Effects of Inequality:

  • Growth impacted: Inequality stifles growth in the medium to long term by lowering company productivity, cutting labour income, and diverting resources away from vital rights such as education.
  • Inequal Opportunity: In unequal nations such as India, where one is born has a significant impact on lifetime results, accounting for over one-third of consumption variance.
  • Wealth Concentration: The fact that the top 1% owns 40% of India’s wealth highlights the massive wealth inequalities that fuel inequality.
  • Research shows that the advantages from India’s growth over the previous two decades have disproportionately benefited high-income urban inhabitants, worsening inequality.

How may an inheritance tax help reduce inequality?

The Constitution demands equal status and opportunity, requiring the government to take action to alleviate gaps caused by birth accidents. 

  • Reduction of Wealth Concentration: By taxing large inheritances, a bequest tax serves to transfer wealth from the richest people and families to the rest of society.
  • Inheritance taxes might encourage affluent people to invest their fortune in productive enterprises rather than merely handing it along to their descendants.
  • Critics may claim that inheritance taxes discourage innovation by lowering the motivation to acquire wealth for future generations.
  • Funding for Public Expenditure: The proceeds from inheritance taxes can be used to support critical public services and social programmes such as education, healthcare, infrastructure, and poverty alleviation projects.
  • Historical Effectiveness: Examples include the estate duty in India from 1953 to 1985. It cut the top 1%’s personal wealth share from 16% to 6% between 1966 and 1985. 

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