Wednesday, August 11, 2010

Who is Rich?

The philosophical answer to the question "those who have more than they need" was always disconcerting. I never related with it. But looking at the situation of developed markets today, I have rediscovered the wisdom in the words. 

An indebted rich nation is not rich
By all counts, average American household is indebted. Those with high income but still indebted to the hilt cannot be considered rich. These households need to scale down their spending. To add to their woes, these households are facing an increasing tax burden.

Tax burden on households is based on incomes not profits
And this is a critical difference between corporates and individuals. When corporates face higher taxes, they increase their costs by investing in assets, paying higher salaries, etc. Thus, in my view taxing corporates is a better alternative than taxing individuals.

Taxing rich is better than taxing poor
Though this is obvious, rich often use corporations to park their earnings and thus get taxed lower. There should be differential rates for different income slabs - particularly at high income levels. Here the size of population is small but the value of tax collect is large.