Kathmandu:

One of the most pernicious myths floated in the last century by Marxist communists was that capitalism would gobble up the weak and the poor. Accumulation of capital had to be prohibited, and equality to be enforced by the state for the people to be happy.

Russia and China were founded on this belief. Many other nations including the US also absorbed a portion of this thinking and instituted progressive rates of income tax to confiscate the wealth of the rich. All this was done in the name of ‘fairness’ and for ‘unself-ish’ reasons. Socialist India followed this progressive thinking to the hilt. Under its prime minister, Indira Gandhi, it not only increased income tax rates to one of the highest levels in the world — over 90 per cent — but also levied wealth, capital gains, gift, and estate taxes to ensure that practically the entire declared income would come to the government.

In many instances that did happen; the total tax liability of some was over 100 per cent of their income. These anti-capital-accumulation policies, which originated in the name of the poor, were enforced by outright confiscation of capital in Russia and China, and by progressive taxation in India. The effects were similar.

The Russian people under the brutal regime of their communist leader Stalin soon become worse off than the citizens of a third world country. More of USSR’s people perished in Stalin’s concentration camps than in the second World War. In China, millions starved to death under a system which caused famines. Socialist India stagnated, mired in heart-wrenching poverty, with life expectancy of its people 20 years lower than of those in the west.

Fortunately, India liberalised, brought down its income tax rates to below 40 per cent and no longer looks down upon accumulation of capital. The economy now grows at eight per cent compared with under two per cent of the pre liberalisation era.

China now is even more capitalist than India, its government encourages you to accumulate wealth, and hence the country is progressing at a growth rate which is higher than that of India. Russia too has become one of the best places in the world to accumulate capital; the income tax rate has been reduced to a flat 13 per cent by its president, Vladimir Putin.

One of the best ways that Nepal can jump-start its economy is by abolishing the income tax. Ending this tax means that you are no longer taxing the one thing - capital - without which no country has ever or can ever progress.

As the world renowned Austrian economist professor, Ludwig Von Mises, points out in his classic, Planning for Freedom — “American wages are higher than wages in other countries because the capital invested per head of the worker is greater and the plants are thereby in the position to use the most efficient tools and machines. The economic backwardness of such countries as India consists precisely in the fact that their policies hinder both the accumulation of capital and the investment of foreign capital. As the capital required is lacking, the Indian enterprises are prevented from employing sufficient quantities of modern equipment, are therefore producing much less per man hour and can only afford to pay wage rates which, compared with American wage rates, appear as shockingly low.”

The income tax system in the US today is rat’s hole of arbitrary, discretionary, and insane regulations. According to Frank Champagne who campaigned for abolition of the income tax, an amount of over $600 billion is wasted by taxpayers, just to comply with the income-tax regulations. But, it was not always like that. Prior to 1913 there was no income tax and the US grew at four times the growth rate of the previous centuries, and, at over twice the anemic rate of two per cent at which it grows now.

US is rich but it could be a lot richer without the income tax. For Nepal,

it is not a question of increasing riches, it is a question of eliminating poverty. For doing this there is a need to accumulate capital — lots of it — and to do it fast. There is no better way to allow this to happen than by abolishing the income tax. Just do it — tomorrow.

(The writer can be contact at: everest@mos.com.np)