tag:blogger.com,1999:blog-5043138489010794057.post2937500319876219019..comments2024-03-27T15:57:09.192+05:30Comments on Urbanomics: Capital gains and income inequalityUrbanomicshttp://www.blogger.com/profile/16956198290294771298noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-5043138489010794057.post-16311750751793078032011-11-22T22:04:28.349+05:302011-11-22T22:04:28.349+05:30Dear Gulzar,
I think there is a strong case for i...Dear Gulzar,<br /><br />I think there is a strong case for increasing taxes - there is a certain quality to the accumulation of wealth and in that regard we cannot compare salaries to investment / equity (or risk capital) - salaries mostly stagnate.<br /><br />The tendency to accretion of wealth is further enhanced by productivity / technology / efficiency / market expansion. That in itself represents a significant reward.<br /><br />I think elizabeth warren had some sharp remarks to make of "businessmen" and "risk" - like it all happened in isolation with nothing owed to society for their success.<br /><br />[This ignoring the significant market subsidies (incentives) offered to risk takers. (more riskier than the business though is the difficulty in handling the 'environment')]<br /><br />regards,KP.KPhttps://www.blogger.com/profile/06553866275918658507noreply@blogger.comtag:blogger.com,1999:blog-5043138489010794057.post-88093483023359500052011-11-20T19:37:51.210+05:302011-11-20T19:37:51.210+05:30>> if the business activity is very profitab...>> if the business activity is very profitable, then the returns will be naturally very high. <br /><br />Hmm. I would disagree there. First of all if a business activity is very profitable, it has to mean there exists some high degree of barrier that has meant that competetion has not reduced its returns.<br /><br />Secondly, lets assume some one started this profitable business. That means he took a risk that none had taken before. If he had failed, he would be blasted for not understanding. If market rewards him for being right, well, thats a risk that has paid off.<br /><br />Lets take Reliance for example. Its a business activity that is indeed profitable. Margins are pretty high and they have high barriers of entry. But the reason Ambani made money was that he took every risk that he could take & came out on top.<br /><br />On the other hand, I believe it would be fair to have a Estate Tax. The risk taker should not be penalized for winning. Or how about even a Wealth Tax.Prashanthhttp://twitter.com/#!/Prashanth_Krishnoreply@blogger.comtag:blogger.com,1999:blog-5043138489010794057.post-85320359697281353942011-11-20T18:17:52.986+05:302011-11-20T18:17:52.986+05:30prashanth, thanks for the comment. the reality is ...prashanth, thanks for the comment. the reality is that the risk weighted return on certain categories of financial assets, even assuming a high rate of taxation, is much higher than bonds and FD. the spectacular income gains by those at the top of the income ladder in the past few years is a testament to this trend. this has caused the skewed distribution of investments in such asset classes. <br /><br />the returns on asset classes are determined by the returns on the underlying assets. if the business activity is very profitable, then the returns will be naturally very high. specific equities will always generate higher risk weighted returns than debt instruments. so there is no danger of growth being constrained.Urbanomicshttps://www.blogger.com/profile/16956198290294771298noreply@blogger.comtag:blogger.com,1999:blog-5043138489010794057.post-32943295940529675792011-11-20T17:46:42.841+05:302011-11-20T17:46:42.841+05:30By raising the rate, would not it mean that Steady...By raising the rate, would not it mean that Steady income like Salary is made equivalent to risky investments (especially in stocks). Why would anyone want to risk investing in stocks when they could get a better Risk Adjusted Return via a Bond / FD. <br /><br />Would not this then constrain growth since people would stay away from new business & risk.Prashanthhttp://twitter.com/#!/Prashanth_Krishnoreply@blogger.com