The Tax Rate Rhetoric

Recently the Democratic Party ads have been harping on the fact that Romney has not paid taxes or paid few taxes for the past few years. While it is a perfectly legitimate argument and probably a good marketing  move from the Democrats, I feel it is dumb in a literal sense. Let's dig a bit deeper shall we?

The US tax code is one of the most complex ones one can imagine. It has 71,684 pages. I found an interesting article on how many hours it would take a hypothetical business to file taxes in different countries. US ranks 66th in complexity. So why the complexity? I am no expert on taxes. But in a capitalist economy, most of the industries are supposed to be driven by the private sector. So one of the most potent levers that the government can pull to influence behavior within a sector is tax breaks. So commoners like you and me would get a break if we buy a hybrid instead of a gas guzzler. Business owners would be rewarded for innovation in the new energy initiatives. Sometimes one gets a tax refund to spend more and boost the economy. As much of this makes sense, one has to be aware that for every 10 people who are worthy of or have the right credentials for such an incentive, there is one person who would be using this break as a loophole to cut his or her taxes. It is completely unavoidable. And in most cases it would be someone who has the means to hire a top notch tax attorney to do so.

In business school, I did a course in corporate finance. One of the important aspects it dealt with choices that would minimize the tax paid by the firm. Sounds intuitive right. Well why would anyone pay the government more money than they should. There is a whole industry that feeds off of this function. The sexy term being Tax planning. And this is true not only in the US but all over the world. Accenture moved it's headquarters from Cayman Islands to Ireland not because it is a better place for talent but because Obama cracked down on Cayman as a tax haven.

The other side of the argument does not hold water either. Would someone not work hard enough if the government taxed say 20% instead of 15% of your income? As long as the income from this tax builds infrastructure and supports a stable business environment, it should not be a deterrent. At the end if an entrepreneur wants to sell his goods or services, he would want the roads to be fixed on time, his school district to be good and his customers to have the economic well being to afford his offerings. The behavior would change if this rate goes to an absurd number like 40%. So what does it boil down to?

Should people who earn more provide for someone who does not? Flipping it around, would the top 1% hurt themselves in the long run by not paying for lower income groups which in turn hurts the economy and society in general. It depends on what we are talking about. For Education - Yes and this system is already in place when you look at how scholarships in higher education work, Healthcare - Can of worms....don't know. Auto industry, Financial Services, the list goes on. All in all move beyond the rhetoric on either side and have an honest conversation with what you believe in to get the answer to those questions.

Politics!!! Phew!!!

Currently looking at the presidential battle in the US makes me compare it to the situation back home. How different is India from the US politically? Is the politics played out better or worse? Is anything different at all?

Politicians, no matter which place they are from, have an innate ability to convince people that trivial inconsequential matters drive their day to day business. In any place with moderates and extremists in equal number, promises made about controversial issues during the elections are more often than not put on the back-burner post-elections. BJP cannot go against the law and build a Ram Mandir in Ayodhya without consensus. Neither can the GOP overturn Roe vs Wade without getting buy-in from people across the table. And even if they do so, well we are not gonna see the basic problems plaguing the respective countries go away.

The one thing I think will help India, is to have a Presidential system. The current parliamentary system acts as a good deterrent to unpopular or partisan policies. But the multi-party system is stifling democracy and giving horse-traders the opportunity to be king-makers. Every election the number of parties in the fray seems to have doubled. As a result, there is no clear path that a ruling party can take to mitigate a coup of sorts midway through its term. Every now and then, there are people like Deve Gowda propped up to the hot seat due to coalition politics rather than their capability. This not only cripples the country's image but also is a big impediment to a stable leadership.

Having said that, its a wonder that a country can exist with so many diverse languages, cultures, mentalities and classes of people. Even so, every political party in India is set-up to celebrate or counter a single thread of these diversities. None of them have embraced a multi-ethnicity mission to celebrate India's diversity. You have Telugu Desam for Andhra Pradesh, Bahujan Samaj Party for Dalits, Shiv Sena for Maharashtrians, J&K National Conference for Jammu Kashmir and the Commmunist Parties for the insane. This has made it very difficult for any new leader to make it to the national scene before he\she is a septuagenarian. Decades go by before the person is popular in the district, state and country. The only way that has changed over time is when there is a generational passing of the Baton from the popular old leader to his/her kin. Initially, I thought its pretty plain and simple in the US: Republicans and Democrats. Well guess not, there is pro-life, pro-choice, liberal, right, center, left, right centrist, libertarian and what not. The only divergence is that the lack of linguistic differences helps politicians transcend geographical boundaries. But, it is still rare for someone non-mainstream to get elected. The one thing that gives India an edge over the US in some way is the lack or weakness of the glass ceiling for women in the political space. India has had women governing various levels of the government, including the highest office.

What I have realized is human beings tend to connect with someone from their clan instantly. Every citizen wants someone with a common thread connecting him or her with the leader he or she elects. For Indians, the leader being Indian is last on the list of commonalities. Ideology has little to do with this decision. People just want someone who looks and acts like they do. Laloo Yadav has made a living out of acting like a village bumpkin all his political life so as to be accepted by his base. In the US as well, people want someone just like them. Its a sin being elite. Why would one want someone with a higher intellectual capability in the most important office in the country? Wouldn't it be better to support someone who knows how to tend to cows or ride horses? Well, people everywhere work the same way I guess.