Bootstrapping ---- Laws/procedures to reduce regressive tax
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Proposed administrative procedure - TX.04
Procedures/Laws   to   reduce   regressive   tax

  1. Govt expenditure and taxes
  2. Regressive taxes
  3. Why Ministers/intellectuals support regressive taxes
  4. Regressive tax breaks
  5. Rejection by Juries : Procedure to reduce regressive
  6. Draft of the act to create procedure TX.04

Govt expenditure and taxes

The four pillars on which a citizenry stands are
  1. military
  2. police
  3. courts
  4. prisons
The citizenry has no option but to spend funds on above 4 pillars of civilization. Weakening of any of these 4 pillars will result in one of the following two events
  1. If police, courts and prisons weaken, it will result into rampant corruption and catastrophic increase in violent crimes and frauds and society will collapse. eg Bihar
  2. If military weakens, there will be a hostile takeover by a foreign nation, and will result into enslavement eg USA taking over Iraq etc.
By improving administration, crimes can be made difficult and expensive, which will demotivate criminals. Thus crimes, frauds etc can be reduced. And thus spending on police, courts and prisons can be reduced. But military expenditure is NOT within citizenry's control, as it depends on an external factor ---- other nations' military expenditure. To be specific wrt India as of today, say Pakistan or USA increase military spending then India will have no option but to increase military spending or face an Iraq-style liberation. In short, there is NO escape from govt-spendings on military, police, courts and prisons.

In addition to spend money to maintain the 4 pillars of civilization, the citizenry also need to spend to
  1. maintain relations with foreign countries, regulate foreign trade
  2. allocate state-owned property
  3. collect rent from users of state-owned property eg. allocate state owned land, mines, bandwidth, fishing rights etc and collect rent from those who are given the rights.
  4. decide how rent collected over state owned property should be used
  5. keep records of citizens' names, name changes, addresses and identification details
  6. keep records of births and deaths
  7. keep records of immigration
  8. keep records of land/buildings ownerships and transfers
  9. keep records of vehicles, ownerships and transfers
  10. keep records of transactions' types and gross amounts to obtain taxes due
  11. keep records of taxes due and taxes paid
  12. keep records of crimes and criminals
  13. protect and expand forests and parks
  14. enforce contracts made by individuals, AND positively stop the enforcement of one-sided or inhuman contracts
  15. run communication channels (print as well as TV-based) to provide news on state-affairs to the citizens
  16. provide class 1-12 education in subjects like Maths, Science, Law, English, Hindi, local languages, Weapon use and Geography
  17. Ensure an over-supply of highly trained scientists, engineers, doctors and other personnels associated with scientific avenues etc
  18. support research needed for defence
  19. Ensure over production of agricultural goods
  20. provide elementary health care, check spread of communicable diseases
  21. maintain statistics of production
  22. manage postal services
  23. manage railways
  24. regulate sectors of economy where supply side is closed namely
    1. TV-cables
    2. electricity distribution and transmission
    3. electricty generation
    4. wire telecommunication
    5. wireless telecommunicatiom
    6. bus tations
    7. ports
    8. airports
    9. highways, roads, streets
    10. water supply, sewage
  25. charter and regulate incorporated entities
  26. charter and regulate associations
  27. community protecion services like emregency health, fire extinguishing,
  28. provide relief during natural disastaters like flood, earthquakes etc
  29. draft and publish laws to manage above activities

    and manage several other activities.
IOW, the citizenry has to spend money on various activities in order to maintain its nation/civilization. Where will the money come from? The Govts have no option but to collect taxes. And hence an additional basic function of govt is to make tax laws, collect taxes and maintain records of taxpayers and taxes paid.

Regressive taxes

What is basically a regressive tax?

Now given a tax, I analayse following aspect of a tax, and classify the taxes in 3 categories --- flat tax, regressive tax and progressibe tax
  1. Say some dept of GoI, like military, police etc needs Rs 5000 cr
  2. Say there are 5 cr individuals in a nation and togather their income is Rs 50000cr.
  3. Now say the taxes are adujusted in such a way that each person ends up paying 10% of his income. Such a tax is called as FLAT TAX (flat wrt income).
  4. If the taxes are adujusted in such a way that a person who is earning LESSER income ends up paying more than 10% his income, and person with higher income end up paying LESS than 10% of his income. Such a tax is called as REGRESSIVE TAX (regressive wrt income).
  5. If the taxes are adujusted in such a way that a person who is earning MORE income ends up paying more than 10% his income, and person with higher income end up paying LESS than 10% of his income. Such a tax is called as PROGRESSIVE TAX (progressive tax wrt income).
In the same way, say GoI needs say Rs 10000cr as taxes. Say various members of the citizenry own properties whose total worth is Rs 10,00,000 cr. Now again, there are three ways to impose taxes ---
  1. One way is to impose a uniform tax of 1% of the property value. This would be a FLAT tax (flat wrt wealth owned).
  2. Another way is to impose a tax in which those with lesser property will end up paying taxes which is higher % of their property value. This would be a REGRESSIVE tax (regressive wrt wealth)
  3. Another way is to impose a tax in which those with higher property will end up paying taxes which are higher wrt their properties' values. This would be a PROGRESSIVE tax (progressive wrt wealth)
Today, India is full of leaders and intellectuals who pretend that they favor progressive taxes, but in reality, they support, implement and shamelessly rationalize/justify regressive taxes.

I would make my political/spiritual viewpoint clear : I support ONLY the FLAT taxes, and I am hostile to ALL regressive and progressive taxes. And those who disagree and believe that they support progressive taxes, should first pull collars of those leaders and intelelctuals who support, implement and justify regressive taxes. And they should question me ONLY after regressive taxes are removed. As long as regressive taxes continue in India, there is no basis to oppose flat tax proposals.

Following are some REAL examples of regressive taxes, as implemented by GoI
  1. Taxes on tea : Consider 100cr citizens of India. Say some 60cr citizens drink tea. For the time being, ignore the remaining 40cr. Now I would divide these 60 cr tea addicts into 3 groups :
    1. those who earn below Rs 100/day
    2. those who earn Rs 100/day to Rs 1000/day
    3. those who earn above Rs 1000/day
    Now say a cup of tea is costing Rs 5, which uses say 10gm of tea which costs say Rs 2. Say the taxes on tea are 50% of the costs i.e. a cup of tea costing Rs 5 has taxes of Rs 1. Now consider a person making Rs 100/day. Say he drinks 2 cups of tea. Hence he is paying Rs 2 as taxes i.e. 2% of his income. Now consider a person who is earning 10 times i.e. Rs 1000 per day. Obviously, such a person will NOT be drinking 10 cups of tea per day. Say he is drinking 5 cups of tea per day, in which case he will be paying Rs 5 as taxes i.e. 0.5% of his income as taxes. And likewise, a person who is earning Rs 10000/day will be perhaps spend say 0.05% as tea tax. IOW, tax on tea is REGRESSIVE wrt income of a person.

  2. Taxes on tobbaco, coffee, gutaka, beer and ALL basic commodities which are consumed by rank and file of citizenry : Consider tax on any such commodity, such as tobacco. Once again, say out 100cr citizens of India, say 40cr chew/smoke toboacco. I would divide the tobocco addicts into 3 groups
    1. those who make below Rs 100/day
    2. those who make beltween Rs 100/day and Rs 1000/day, and
    3. those who make above Rs 1000/day.
    Consider a person who is earning making Rs 100/day. Say he is chewing 10gm of tobacco on which tax is Rs 1. Obviosuly, those who earn 10 times i.e. Rs 1000/day are NOT likely to consume 10 times more tobacco. Perhaps they would be consuming 2-3 times more. Hence the individuals with lesser income are paying larger portion of their incomes on tobacco taxes. Hence taxes on all these commodities like coffee, tobacoo etc are REGRESSIVE wrt income.

  3. Taxes on car : The portion of excise, sales tax and other taxes, that is spent on highways, city roads, streets etc is NOT tax towards military, police etc, but a user charge which becomes necessary as tolls cant be implemented for streets and small roads. But consider the portion of excise, sales tax and other taxes on vehicles which are used for sectors other than roads. This portion is a indeed a tax, and it is a regressive tax. But it is LESS regressive than tax on tea, tobocco etc as
    1. A person with less income is unlikely to buy a vehicle and hence this tax will NOT fall on him
    2. A person with higher income is more likely to buy a more expensive car and hence pay a higher tax.
    Nevertheless, the taxes on vehicles, unless used strictly for road etc, tax is a regressive tax wrt income, and should be stopped.

  4. Tax on movie tickets : Say a person earning Rs 3000/mo sees say 3 movies a month. Say he buys cheaper tix worth Rs 50, in which tax in Rs 20. So he pays (3 * Rs 20) = Rs 60/month as tax, which is 2% of his income. Now consider a person earning say Rs 30,000/mo. It is unlikely that he would be seeing 10 movies a month. Say he sees 4 movies a month, buy more expensive tix worth Rs 100, in which tax is Rs 40, and thus pays Rs 160/month as tax. The tax % will be = 160/30000*100% = 16/30 = 0.54%. Hence tax on movie tix is a regressive tax, regressive wrt income. What is worse is that in some cities of India like Ahmedabad, the tax on ORDINARY cinemas, where base price is Rs 3 to Rs 25 is about 50% to 80% of the base price. While for the expensive theatres (called Multiplex) where base price is Rs 100/- or even Rs 150/-), the tax is literally ZERO !!! IOW, a person who can barely afford/spend to Rs 10 to Rs 40 ends on movie ends up paying a tax of Rs 5 to Rs. 15. While those spending Rs 100 to Rs 150 pay ZERO tax !!! This is truely a regressive tax wrt income.

In general, following taxes are regressive
  1. all types on taxes on items which rank and file of population consume, like tea, coffee, tobacco, beer, cigaratte, cinema tix, soft drinks etc
  2. Octroi -- as of today, much of the octroi comes from commodities of mass consuption, and hence it is a regresive tax.
  3. Sales tax, Value added tax
  4. Excise
  5. Servce tax
  6. taxes on fuel such as petrol, disel etc :- if taxes on petrol etc is strictly used to build/maintain roads on which toll collection is NOT possible, the tax is just a toll and NOT a tax used for services like police, military etc. But if tax on petrol etc is used for purposes other than roads, or it is used to fund roads where toll is collected, it is regressive tax.

    etc etc
All these taxes should be abolished, and replaced by a flat income tax, flat capital gains tax and a flat wealth tax on land/construction, gold and shares.

Regressive tax breaks

What is regressive tax break? Say income tax rates are as follows :

Net tax
less than Rs 50000 Nil
Rs 50000 to Rs 60000 10% of income above Rs 50000
Rs 60000 to Rs 120,000 Rs 1000 plus 20% of income above Rs 60000
Above Rs 120,000 Rs 13000 plus 30% of income above Rs 120,000

Now consider following deductions --- deduction of upto Rs 70000 against deposits in PPF (private provident fund). Clearly, a person who is earning less than Rs 50000 gets no advantage of it. Also, a person earning Rs 50000 to Rs 80000 with a family of 4 cannot really save any money, and hence he too cannot any benefit of this deduction. Further, money in PPF gets locked for several years. So only a person with quite a bit of liquid assets, or a fairly high stable income (say someone with a stable job) can afford to put money in a scheme with such locking conditions.

So such deduction will benefit only those with incomes well above Rs 150,000. So instead, it would better to cancel such deductions, and lower the tax rates on all, so that even those with lower incomes can benefit.

The maze of various deductions and rebates, many of which are based on investments, only end up creating illiquid assets, and creating a regressive effect --- those with lower income end up paying higher tax rates, as they do NOT have income high enough that they can take advantage of rebates and deductions. Hence these rabates and deductions are regressive tax breaks. All these rebates and deductions should be scrapped, and replaced by a lower tax rate, whose benefit will go to lower income as well.

To be specific, following tax breaks are regressive
  1. Rs 5000 rebates to women
  2. Rs 12000 deduction on interest from bank interest
  3. deductions for PF, LIC investments etc
  4. deductions for health insurance
  5. depreciation on vehicles
  6. deduction on incomes from SEZ (special economic zones) : as a small manufacturer will simply fail to gain a foothold in SEZ
    And several such tax breaks

Why Ministers/intellectuals support regressive taxes

India's Ministers/intellectuals, be leftists or rightists or centrists Gandhian, have been exteremely fanatic supporter of regressive taxes like taxes on tea, coffee, beer, tobocco, petrol, disel etc and sales tax, VAT, excise etc. Why?

Consider today's India of population of about 100cr. Say income distribution is roughly as follow

% popolation
Population Average income Total income of
this segment
topmost 0.1% 0.1 cr Rs 10,00,000 Rs 100,000 cr
next 0.9% 0.9 cr Rs 500,000 Rs 450,000 cr
next 4% 4 cr Rs 100,000 Rs 400,000 cr
next 15% 15 cr Rs 50,000 Rs 750,000 cr
next 60% 60 cr Rs 25,000 Rs 1500,000 cr
bottom 20% 20 cr Rs 10,000 Rs 200,000 cr
-------- -------- -------- --------
Total = 100% 100 cr ------ Rs 34,00,000 cr

Now say GoI needs to spend Rs 340,000 cr on military, police etc. Then most ethical way is to charge 10% tax on EVERYONE, in which case there will be an tax will be 10%.

But instead Ministers/intellectuals, given their nexuses with wealthy individuals, come up with defunct plans, that would reduce the burden on higher income group, and so ONLY way left to meet the expenses is to over-tax the lower income group. It cannot be done explicitly, and so it is done by indirect taxes, like taxes on tea, coffee, movie tickets, tobacco etc. IOW, it is due to nexuses with wealthy individuals that Indian Ministers/intellectuals have become rabbid supporters of regressive taxes.

There is another reason why Ministers/intellectuals stoop low and impose regressive taxes --- it is cheaper to over-tax the poor than over-tax the rich. Why?

In general, there are two ways to run government, when it comes to deciding and collecting taxes :
  1. The ethical way -: the ethical way is to impose a flat tax on income/wealth, and also impose a progressive tax on wealth to manage funds for military (I will later show why a progressive tax on wealth to fund military is ethical). And avoid regressive taxes, even if flat tax is difficult to implement.

  2. The "pragmatic" way :- collect taxes in a way that would give rise to least resistance, without worrying about ability to pay. I would refer to this as a "criminal" or "sociopathic" way.

Why least resistance? Anytime, a tax is imposed, the payor will create a hostile pressure on the Ministers to repeal that tax, and the payors will also hire a fleet of intellectuals to lobby before the Minister and blackmail him. So the Ministers/officers etc are always looking for taxes which they can collect with "least" resistance.

Now obviously, weaker the individuals, less likely and less strongly will they be able to oppose. And more disorganized the individuals, less stronly will they be able to put a resistance. So Ministers/intellectuals prefer to impose/suggest taxes on poorer rather than richer, and hence we have regressive taxes in our administration.

I would give an example to further clarify. Say a criminal spots two individuals : an old fragile lady with just Rs 100 in her purse, and a strong adult wrestler with Rs 10000. Whom would a criminal attack? Even though the wrestler has 100 times more cash, the criminal knows that chances of retribution and resulting injuries are very high. So a criminal will prefer to rob the old lady and spare the wrestler.

Now lets extrapolate this example. Say in a village there 1000 old ladies with just Rs 100/- each and there are 10 strong wrestlers with Rs 10000/- each. Whom would a criminal prefer to victimize? The logic is same --- the criminal knows that attempt toc collect money from wrestler may cost him his life, while the money of old lady is a safe bet. So will rob the old ladies and spare the wrestlers.

The SAME "pragamatic" or "sociopathic" logic applies on PM/Ministers in-charge of tax collection and intellectuals who draft tax proposals and their justifications. Say there 1000 poors in a town earning Rs 100 each and 10 rich persons earning Rs 1000 each, and so total of incomes would be Rs 200,000. Now say govt expenses are Rs 20000. Then an ethical Minister would force EVERYONE to pay 10% of his income as tax. And an intellectual with ethics would advocate ONLY such tax proposals, and would be hostile to any tax proposals which cuases more than 10% burden on any group. But this would result into retribution from the wealthy ones. Hence Ministers/intellectuals take a "pragmatic" approach, the SAME kind of approach which criminal took --- overtax the weak and unorganized and undertax the wealthy and organized ones. I would label these Ministers/intellectuals as SOCIOPATHIC and ignore their enlightenied justifications for good.

Now I do NOT know any way to cure these nexused/defunct and sociopathic Ministers/intellectuals. But I will propose an administrative procedure, by which citizenry can reduce such regressive taxes.

Rejection by Juries : Procedure to remove defunt/regressive tax laws

Following is the procedure that I propose to repeal regressive, and or any other defunct tax laws
  1. Any tax law or a by-law, that is listed by the Finance Ministry of Central Govt, can be challanged by a citizen before the District Grand Jury, after paying a deposit of Rs 5000/-.

  2. If the Grand Jury agree that there is a prima facie reason to delete the tax law, they may summon one Jury of 12 citizens from EACH Tahsil/Ward to review the cancellation of that specific tax law. The local tax office of Central Govt, under Finance Ministry, may send a representative to argue in the favor of the law. If over 8 out of 12 Jurors declare that a specific tax law is unfair, the Jury Administrator will inform the Finance Minister about the decision of the Tahsil Juries in his district.

  3. If over 8 Jurors agree, the deposit will be refunded. If over 8 Jurors agree, the Finance Ministry will have to pay Rs 1000/- per Tahsil to the complainer as expense. Alternatively, the Jurors may also impose a fine of Rs 5000/- per Tahsil on the complainer for filing a frivilious complaint.

  4. If in a period of 6 months, over 75% of the Tahsil Juries in the nation reject the law, then the Finance Ministry will delete that specific law within 7 days.

There are some 600 districts/municipalities in India. And each district/municipality has about 10/30 Tahsils/Wards. So togather, there are about 7000-10000 Tahsil/wards. Each Jury consists of 10 citizens. So the procedure takes explicit, fully informned and well reasoned opinion of 70,000 to 100,000 citizens. And it is not 51%, but over 75% of citizens who have rejected the tax law.

First, the Jury is NOT a static body. So if same or other complainers were to complain against some OTHER tax laws, some DIFFERENT 7000-10000 Juries consisting of 70,000 to 100,000 citizens will get called. Hence decision of Jurors was nexusless, and their opinion was honest, free from nexuses and based on their own conscience. In addition, it was a fully reasoned, and a FULLY informed decision. Further, the officer from Finance Ministry was also called to explain why the law should continue. So the 7000 to 10000 Jurors DID NOT give a one sided opinion --- they had heard both sides.

Where as the tax law was made merely by some 800 MPs, who have a term for 5-6 years, and make dozens of tax laws during their tenure. These MPs are nexused to the core. And worse, the intellectuals who draft these laws, namely the officers of Law/Finance Ministry, are 10 times more nexused, as they have been having a career of 10-30 years. The citizens are NEVER referred at the time of passing the tax laws. So law making in Parliament is one-sided affair at best. Also, it is NOT correct to say that MPs decision to enact the tax law was fully reasoned and fully informed decision, as most MPs simply do not have time to read the laws they are passing. So reasoning on them and gathering information/opinion is out of question.

So the tax law is nothing but a highly nexused opinion of 800 MPs, while the "Rejection by Juries" is a fully unnexused, two-sided and well reasoned and better informed procedure.

How will above procedure repeal regressive taxes?

Everyone knows that regressive taxes and rebates/deductions that are regressive in nature, are unethical, also unpopular. Hence if Democracy is taken an ethic, regressive taxes are twice unethical --- overtaxing the poor as well as against the popular will.

But most MPs have too many trusts, NGOs and companies to manage, MPs etc do NOT have time to repeal regressive taxes. Further, most MPs have dense nexuses with wealthy individuals who would prefer regressive taxes to flat taxes. Also, MPs do NOT want any problems with wealthy individuals who benefit from regressive taxes. So it is clear that MPs would never pass laws to repeal regressive taxes.

Where as, the commons are the worst hit by the regressive taxes. so they will take some initiative to cancel the such regressive taxes. Also, they have no nexuses with the wealthy ones who benefit from this regressive taxes. So they will certainly support the efforts to reduce the regressive taxes, and gradually, one by one, the procedure of "Rejection by Juries" will enable commons to cancel the regressive tax laws.

Draft of the act to create procedure TX.04

To enact procedure TX.04, the citizens need to pass a law in the Parliament. To see the draft of the law, please click here.

     Now citizens can ask MPs to pass this Act. But IMO, it will be wiser for citizens to first enact procedure LM.03, and then use LM.03 to pass these drafts WITHOUT any help from MPs. To know about procedure LM.03, please click here.

If you have any other question, please mail it to Thousand thanks in advance.

Next - TX.05 : Procedures to abolish taxes like octroi, sales tax, VAT etc