Tax men more than women

Dear Mr Chidambaram,

As a feminist myself, I am happy that you are now interested in gender budgeting.  But many projects and policies (highway or liberal imports) benefit women as much as men. Additional allocations to feed pregnant mothers or train rural midwives will help women at the margin, but will not reduce male dominance.

Real female empowerment requires ending male dominance of wealth. That requires new rules and incentives that induce wealth transfer and control to females. Their initial impact may be small, yet over time they can transform society.

Consider Bangladesh. Grameen Bank there pioneered micro-credit societies consisting entirely of rural women, who traditionally had no  property, spending power or creditworthiness. Grameen Bank proved that poor rural women could be relied on (far more than men) to repay loans with commercial interest and hardly any default. Micro-loans were used first for improved consumption and then for starting female-owned businesses.

Grameen inspired the mushrooming of similar outfits like BRAC, that diversified from micro-credit into schools with female teachers, greatly improving female literacy. Next came Grameen Telephones: rural women obtained mobile phones on credit, and used these to operate rural public call offices.

This new money power and status of women outraged mullahs, who burned BRAC offices, but in vain. Female fertility in Bangladesh, once sky-high, began falling faster than in Hindu India. So much for RSS propaganda that Muslims oppose birth control. When females control the purse strings, they begin to control education and births as well, and have the gumption to stand up to mullahs.

Your budget, Mr Chidambaram provides for a large expansion of bank finance to microcredit and self-help groups in India. Good: we are following Bangladesh’s example with a lag. One-third of panchayat members are now women. True, men often control political and purse strings behind the scenes. Still, micro-credit and panchayat elections have given a new impetus to female empowerment in rural areas.

But what about the top and middle of our income spectrum? The social elite has  absorbed western notions of equality and helped create laws to achieve this. Women have started rising to the top in salaried jobs.

But business wealth remains overwhelmingly in male hands. Do not be misled by a few striking exceptions. Attempts to give females their legal property and inheritance rights typically spark quarrels and litigation in business families.

Yet, just as micro-credit can change gender power in villages, so can tax incentives change gender power among the rich. Delhi now levies 6% stamp duty on properties registered in female names, against 8% for males. This small step will induce some males to gift sums to women (wives, daughters, mothers) to buy property.

A far bigger step could have been a differential wealth tax. But wealth tax has virtually been abolished.

There remains income tax. Currently, women and men pay the same top rate of 30%.  What if the rate were raised to 31% for men and lowered to 29% for women? Would this induce men to transfer wealth to female kin to reduce their tax liability?

Not on a large scale. Salaried men would have no incentive. But in business families with property and interest income, a 2% tax reduction means crores. In such families even a 0.25% tax break sparks re-engineering of property ownership. A difference of 2% will concentrate some male minds wonderfully.

Yet there will be great resistance to transferring assets to females. Business males often do not trust their own brothers and sons, let alone female relatives.

But history shows that in the long run, a 2% tax difference can be irresistible. If a female business and male business are equal in size today, a 2% tax difference will, other things equal, make the female business twice as large as the male one in 35 years. Long before the end of that period, female takeovers of male businesses will begin.

Some will ask, why discriminate against men? For the same reason that microcredit is directed at women: to reverse historical gender discrimination.

One problem: dividends and long-term capital gains are no longer taxed in the hands of men and women. Instead, corporations pay the dividend tax and brokers pay a transactions tax in lieu of capital gains tax. This rules out gender tax differentials for dividends and capital gains, reducing the overall impact quite a bit.

Never mind. Social engineering is often best done by measures with low immediate impact (thus avoiding sabotage), but sufficient long-term impact to change  power relations. Tax differences can alter power relations at the top, just as panchayat elections and micro-credit have at the bottom. Nobody imagined that micro-credit in Bangladesh would one day lead to female PCOs and falling fertility. Gender taxation could change India even more in the long run.

What do you think?