Thread by @shrikanth_krish

This Indian budget doc suggests that in 2017-18 the govt is projected to earn Rs 19 lac crores as gross tax revenue

Of which the share of Income tax on individuals is ~4.4 lac crores - close to 23%

indiabudget.gov.in/budget2017-201…

Now we all know that not everyone pays Income tax in this country. Barely 3% or even less do. (though I don't recall the latest number offhand).

And none of us relish paying income tax

There have been radical suggestions on this front from many voices perceived to be "zany".

Subramanian Swamy has gone on record saying that income tax should be done away with

This made me ask this somewhat "zany" question -

Suppose we had no income tax, but instead a donation fund, what proportion of the IT amount collected today can in fact be collected in the form of voluntary donations?

And how could we possibly optimize that amount?

It is anybody's guess. The motivations of Charitable giving is a research topic in itself. This old WSJ piece from US suggests that barely a third of the wealthy households in US regard a tax benefit as the prime motivation for charity and giving

wsj.com/articles/the-s…

In my view a plain vanilla donation fund would probably be a failure and would not even collect a small sliver of the amount one collects today through IT.

But if the idea is to reduce tax rates and instead incentivize voluntary giving, what is the best way to go about it?

To my mind the best way to optimize "giving" is to clearly link public projects to individual donations and appealing to the vanity of citizens.

So rather than a donation fund, you have a "Project fund" - where a few hundred or a few thousand projects are earmarked.

And you leverage exclusive naming rights to incentivize donations by the wealthy. And this can be extended to even small ticket projects

Eg : Suppose you donate Rs 10 lac to fund the construction of the road near your house, then the donor earns the right to name the road. And the government promises not to change the name of the road for a period of say 50 years!

Or you might choose to donate a few tens of lacs to fund a police station in your native village. And you get to name the police station. You can name it after yourself for all that the govt cares.

This is a somewhat half-formed idea. But the key thought here is

Appeal to the vanity in men, linking specific projects to individual donors.

You tie your contribution to a project and your contribution is memorialized for eternity.

In an ideal world, we should have a govt that runs by voluntary contributions from the citizenry. That's ofcourse a pipedream.

But we can take baby steps in that direction by engaging in creative ways to incentivize giving.