'Loot after death' tax is not Congress idea, as Modi says, but CPM's

Prime Minister Narendra Modi on April 24 used a stray comment on inheritance tax by the largely rusticated Congress tech guru Sam Pitroda to strike fear about the Congress in the minds of the people. Suggesting that the Congress was determined to implement the inheritance tax, Modi said the party's loot would continue in death as in life.

And he broadcast this anti-Congress message using pop culture elements: By remixing the popular LIC slogan, "Zindagi ke saath bhi, zindagi ke baad bhi". The Congress was quick to debunk the charge. "There is no mention of Inheritance Tax in our manifesto, it is not our agenda," Congress spokesperson Jairam Ramesh said.

Nonetheless, the PM could still have demonised the INDIA Bloc as a whole on the ‘inheritance tax’ issue without having to face the charge of misrepresentation. The Congress manifesto might have been silent about the ‘inheritance tax’ but not the CPM’s.

Here's what is stated on page 10 of the CPM's 68-page manifesto, and that too in bold to emphasise the importance of the policy: "The CPI(M) is committed to policies to protect India’s economic sovereignty. It holds that privatization of the public sector must be revisited and reversed. A tax on the super-rich along with a general wealth tax and an inheritance tax must be legislated…” The introduction of 'inheritance tax' was in the CPM's 2017 manifesto, too.

The CPM, like all socialists including Jawaharlal Nehru, considers 'inheritance tax' an effective tool for the redistribution of wealth. The utter failure of Jawaharlal Nehru's 'estate tax', a synonym for 'inheritance tax', had seemingly chastised the Left in the 80s. However, the Left-leaning French economist Thomas Piketty seems to have whetted the appetite of Indian communists for ‘inheritance tax’ after 2010.

The Piketty theory is that inherited wealth proliferates faster than earned wealth; if inherited wealth grows at 3-5%, the wealth generated by individual hard work grows only by around 1%. Therefore, to reduce inequality, Piketty recommended the compulsory transfer of private property to public ownership without compensation.

But the Laffer Curve stands in the way of Piketty’s brainwave. This fiscal construct, which illustrates a theoretical relationship between rates of taxation and the corresponding tax revenue, says that taxation beyond 50% could be counterproductive, and could reduce revenues for the government. It meant that when taxes became intimidatingly high, the rich would exploit loopholes in the system and devise ways like shifting money to offshore accounts to hold on to their wealth.

This is exactly what happened in India, forcing the Congress government under Rajiv Gandhi to do away with the ‘estate tax’ that was introduced by the Jawaharlal Nehru government in 1953.

Listen to Rajiv's finance minister V P Singh during his 1985 Budget speech. "I am of the view that estate duty has not achieved the twin objectives with which it was introduced, namely, to reduce unequal distribution of wealth and assist the States in financing their development schemes. While the yield from estate duty is only about Rs.20 crores, its cost of administration is relatively high. I, therefore, propose to abolish the levy of estate duty in respect of estates passing on deaths occurring on or after 16th March 1985."

In other words, the cost of implementation exceeded receipts from such a taxation.

Interestingly, it is not just the CPM that has toyed with the redistributive tax. Modi's BJP, too, was on the same page with the CPM.

In 2018, the then BJP finance minister Arun Jaitley had said that hospitals and universities in the West were nourished by the 'inheritance tax', hinting, like Pitroda, that it was an interesting idea. Jaitley’s deputy Jayant Sinha, too, had spoken of taxing inherited wealth. Curiously, the CPM has not come in defence of its pet taxation proposal.