On States’ Income and Devolution I am seeing a lot of chatter about the collection of taxes and devolution of tax income. Certain statements by Tamil Nadu Finance Minister Palanivel Thiagarajan have contributed to this.

Tamil Nadu is one of the prosperous states, and so there is a lot of economic activity in TN. This means that a lot of tax is collected in TN.

Palanivel Thiagarajan But the devolution of tax income is based on the population of each state. UP has a huge population and hence gets the lion’s share of tax income that goes to the states. But economic activity in UP is relatively low, so it doesn’t contribute very much to tax revenues, relatively speaking. That’s because UP is terribly poor and underdeveloped, no matter how many dimensions you measure it on.

How should you feel about this?

Well, I guess that depends on your economic philosophy.

Are you a socialist? Didn’t Marx say, “From each according to his ability, to each according to his need?” So, if you are a socialist, then TN is able to make more money, so you take more from TN. You assume that each person has the same basic needs, so you distribute the total revenue equally according to population. UP has a larger population than TN, so they get more. UP doesn’t have the same ability to earn as TN, so we have to take less from UP.

Now, keep in mind, the devolution of taxes is based on the population in 1971 and its split among the states. Since then, the population of UP has grown much more than that of TN. If the devolution of tax revenue was done according to today’s population levels, TN would get significantly less.

If you are not a socialist, then you would say, I am not going to subsidize UP or any other state. I will make my contribution to the national treasury for national needs like defense, etc., but I should get back devolution of tax income based on what I put in.

By that token, of course, you would also not like progressive taxation. After all, why should the needs of the poor be subsidized by taxing you? Let the poor guy and you and Ambani all pay the same flat rate. Just like TN earned its tax income through hard work, so did Ambani earn his income. If TN should not be penalized for doing well, why should Ambani?

And why should there be government schools for poor people? The money for the government schools comes from taxing people like you, people who work hard to earn your salary or profit. They want to use your hard-earned money to give free schooling to poor people who pay no tax. How dare they? Let the “poor” people send their kids to private schools if they can, or remain illiterate if they cannot. Why should their education happen on your dime? Goddamn freeloaders.

And you wouldn’t like any social programs, such as Mid-day means, Pradhan Mantri Awas Yojana, Integrated Child Development Services, and many other similar programs. Because the money for all those comes from the taxes you pay to pay for services for people who don’t pay taxes. After all, you don’t send your kids to government schools (see above paragraph.)

It’s a question of economic philosophy. India is still a socialist country, and that’s why these rules are in place.

But if you are not a socialist, the good news for you is that India is gradually becoming a more capitalist country, and perhaps when that happens, these rules will go away. The irony is that the states that are helping the BJP win are states like UP. The BJP is reducing the entitlements that the poor are being given in the socialist model, such as gradually reducing MNREGA. These will adversely affect states like UP, because there are more poor people in UP as a percentage of the population.

The state owning the means of production is another hallmark of a socialist state. Under the BJP, state-owned enterprises are being privatized rapidly. Even the railways are being privatized. Who needs these “government jobs” desperately? Certainly not Tamil Nadu. TN has so many private companies offering high-paying jobs that they will manage without the government jobs. But a state like Bihar or UP will have very few jobs without government jobs. Yet these are the people who vote most enthusiastically for the BJP that is busy axing government jobs by privatizing huge chunks of the economy.

So, in conclusion, if you are a person from Tamil Nadu, who is very upset about how your money is being used to subsidize poor people in UP, Bihar, Odisha, Rajasthan, and the like, take a deep breath and wait a decade. In that time, Modiji will end all this government expenditure. There will not be any government owned businesses – no railways, no steel plants, no factories; no government schools to waste money on midday meals; no army infrastructure to subsidize (because even this is being privatized thanks to Agnipath).

Simply put, government is going to become small, and so government expenditures are going to drastically decrease, so you will not have to part with so much of your income. The government will have no use for your money.

Everyone will finally be happy. The folks in UP and MP who like to see Modiji rule them forever, and the folks in TN who don’t want their money to be spent on welfare schemes in UP and MP.

So, my friends from TN, take a chill pill! Acche Din are coming soon in New India!