LET THEM EAT CAKE BY ASMI GUPTO

The most well-known quote attributed to Marie Antoinette, the last queen of France before the French Revolution, is "Let them eat cake": This was apparently the queen's reaction when she learned that her famished subjects were without bread. This tale has been used to illustrate Marie Antoinette's ignorance of the circumstances and everyday lives of common people since cake is costlier than bread. It is rather unfortunate that even in the year 2025, we are witnessing an economy which is rather similar to that of the 1700s. Inequality in India has skyrocketed since the early 2000s, with the income and wealth share of the top one per cent of the population rising to 22.6 per cent and 40.1 per cent, respectively, in 2022-23, according to a working paper. The paper titled, “Income and Wealth Inequality in India, 1922-2023: The Rise of the Billionaire Raj” stated that between 2014-15 and 2022-23, the rise of top-end inequality has been particularly pronounced in terms of wealth concentration. Naturally, taxing the wealthy would seem to be the most practical and rapid remedy for this. However, is this truly the most desired and required solution?

Last year, a group of economists led by Frenchman Thomas Piketty revealed some startling data regarding the patterns of economic inequality in India over the past 100 years. In India's 1922–2023 Income and Wealth Inequality: The Rise of the Billionaire Raj, according to Piketty, and his fellow writers, inequality in India is far worse now than it was during British colonial authority between the wars. The richest 1% of Indians had 40.1% of the country's wealth and received 22.6% of its income in 2022, while the poorest 50% held 6.4% of the nation's wealth and received 15% of its income. When compared to the top 10%, who possessed 65% of all wealth and received 57.7% of all national income, the conditions facing the bottom 50% appear much worse. The authors further proposed a wealth tax on the wealthy based on their findings, claiming that India's regressive tax system is mostly based on people's salaries.

Piketty's data may appear concerning, but it's important to consider if utilizing it to support wealth redistribution is reasonable; It's critical to examine two significant trends identified by Piketty and his co-authors in order to comprehend this further. First, it wasn't until the 1980s, when India started progressively embracing markets, that income and wealth disparity in the country started to rise rapidly. For instance, the income proportion of the top 10% increased from 30.1% to 57.7% over the time, while the income shares of the lowest 50% decreased from 23.6% in 1982 to 15% in 2022. This implies that a decline in the share of national income held by the bottom 50% does not mean a decline in their actual income or standard of living. The World Inequality Lab's data indicates that although the bottom 50%'s share of the national income decreased from 23.6% to 15% between 1991 and 2022, their overall real income climbed by more than four times. Put another way, the bottom 50% of Indians today enjoy better incomes despite receiving a considerably smaller part of the country's total income because the country's economy has risen so much over the past 30 years.

Second, since the 1980s, there has been a tendency in the income shares of various groups, indicating that the lowest 50% does not have the same level of economic independence as the top 1% or even the top 10%. It should be highlighted that in a market economy, a group's income share is determined by its capacity to contend with other groups in the market for a portion of the overall national income. According to Piketty, the top 1% of Indian earners make an average of ₹53 lakh a year, while the lowest 50% make an estimated ₹71,000.

The vast wealth gap that exists in India today is mostly not the result of the free market rewarding the richest 1% of people for their ability to start their own businesses; Rather, a significant portion of it can be attributed to the government's unique privileges granted to the top 1%, shielding them from market competition that could significantly reduce their wealth share. Therefore, the best course of action is to eliminate these special rights and increase economic competition.

Since competition guarantees that the greatest investors rise to the top of the wealth hierarchy and enlarge the size of the economic pie in the process, this would naturally diminish the wealth share of the top 1% and also benefit the wider economy. Contrarily, a wealth tax will have unforeseen repercussions. In actuality, investors can protect themselves against rising taxes — including wealth tax — by reducing the amount of capital they invest in every given enterprise in accordance with their anticipated post-tax income. Thus, workers and landlords who must pay less to retain investor profits would be the ones who would genuinely be impacted by greater taxes on the wealthy. As a result, the tax would indirectly affect the income of regular workers, the majority of whom are in the middle or lower 40% of the population, and consequently their productivity. A wealth tax imposed on labourers and landowners would be equally detrimental.

Moreover, it should be highlighted that the majority of the wealth held by the top 1% is not in the form of consumer products and services, but rather in capital assets like sophisticated manufacturing and real estate. Thus, it is untrue to say that because the wealthy control the majority of consumer products, the poor have inferior living standards. Actually, affluent people's capital assets raise the productivity of labourers dramatically (if applied in the right direction), which raises the output of consumer products and services and raises the standard of living for the majority of people.

Hence, all things considered, the wealth tax will be detrimental to both economic expansion and living standards which, eventually, will not allow them to have a piece of the cake.