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Redistribution of Income and Wealth

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Redistribution of Income and Wealth Redistribution of income and wealth Redistribution of income and wealth is the transfer of income and wealth (including physical property) from some individuals to others by means of a social mechanism such as taxation, charity, welfare, public services, land reform, monetary policies, confiscation, divorce or tort law.[2] The term typically refers to redistribution on an economy-wide basis rather than between selected individuals. Interpretations of the phrase vary, depending on personal perspectives, political ideologies and the selective use of statistics.[3] It is frequently heard in politics, usually referring to German progressive tax rates for perceived redistributions from those who have more to those who different incomes. Progressive tax have less. Occasionally, however, it is used to describe laws or systems require the rich to pay taxes policies that cause opposite redistributions that shift monetary at higher rates, to make it possible to raise larger total sums to pay for burdens from wealthy to low-income individuals.[4] governmental functions.[1] Some The phrase can be emotionally charged and used to exaggerate or argue such systems are primarily for misconstrue the motivations of opponents during political wealth redistribution. debates. For example, if an individual politician calls for increased taxes on higher income individuals, their sole focus may be to raise funds for specific government programs, tapping the largest available sources while realizing that low-wage workers have little or no excess income to draw tax revenues from. Political opponents might argue that this politician's prime motivation is to redistribute wealth, when redistribution is not their goal. The phrase is often coupled with the term "class warfare", with high income earners and the wealthy portrayed as victims of unfairness and discrimination.[5] Redistribution tax policy should not be confused with predistribution policies. "Predistribution" is the idea that the state should try to prevent inequalities occurring in the first place rather than through the tax and benefits system once they have occurred. For example, a government predistribution policy might require employers to pay all employees a living wage, not just a minimum wage, as a "bottom-up" response to widespread income inequalities or high poverty rates. Many alternate taxation proposals have been floated without the political will to alter the status quo. One example is the proposed "Buffett Rule", which is a hybrid taxation model composed of opposing systems, intended to minimize the favoritism of the special interest tax design. The effects of a redistribution system are actively debated on ethical and economic grounds. The subject includes analysis of its rationales, objectives, means, and policy effectiveness.[6][7] Contents History Role in economic systems How views on redistribution are formed Modern forms of redistribution Class analysis Objectives Moral obligation Economic effects of inequality Criticism See also References External links History In ancient times, redistribution operated as a palace economy.[8] These economies were centrally based around the administration, so the dictator or pharaoh had both the ability and the right to say who was taxed and who got special treatment. Another early form of wealth redistribution occurred in Plymouth Colony under the leadership of William Bradford.[9] Bradford records in his diary that this "common course"[9] bred confusion, discontent, distrust, and the colonists looked upon it as a form of slavery.[10] A closely related term, distributism (also known as distributionism or distributivism), is an economic ideology that developed in Europe in the late 19th and early 20th century based upon the principles of Catholic social teaching, especially the teachings of Pope Leo XIII in his encyclical Rerum novarum and Pope Pius XI in Quadragesimo anno. More recently, Pope Francis in his Evangelii Gaudium, echoed the earlier Papal statements.[11] Role in economic systems Different types of economic systems feature varying degrees of interventionism aimed at redistributing income, depending on how unequal their initial distributions of income are. Free- market capitalist economies tend to feature high degrees of income redistribution. However, Japan's government engages in much less redistribution because its initial wage distribution is much more equal than Western economies. Likewise, the socialist planned economies of the former Soviet Union and Eastern bloc featured very little income redistribution because private capital and land income – the major drivers of income inequality in capitalist systems – was virtually nonexistent; and because the wage rates were set by the government in these economies.[12] How views on redistribution are formed The context that a person is in can influence their views on redistributive policies.[13][14][15] For example, despite both being Western civilizations, typical Americans and Europeans do not have the same views on redistribution policies.[16] This phenomenon persists even among people who would benefit most from redistributive policies, as poor Americans tend to favor redistributive policy less than equally poor Europeans.[17][16] Research shows this is because when a society has a fundamental belief that those who work hard will earn rewards from their work, the society will favor lower redistributive policies.[18] However, when a society as a whole believes that some combination of outside factors, such as luck or corruption, can contribute to determining one's wealth, those in the society will tend to favor higher redistributive policies.[18] This leads to fundamentally different ideas of what is ‘just’ or fair in these countries and influences their overall views on redistribution.[13] Another context that can influence one's ideas of redistributive policies is the social class that one is born into.[14] People tend to favor redistributive policy that will help the groups that they are a member of.[19] This is displayed in a study of Latin American lawmakers, where it is shown that lawmakers born into a lower social class tend to favor more redistributive policies than their counterparts born into a higher social class.[14] Research has also found that women generally support redistribution more than men do, though the strength of this preference varies across countries.[20] While literature remains mixed on if monetary gain is the true motivation behind favoring redistributive policies, most researchers accept that social class plays some role in determining someone's views towards redistributive policies.[21] Nonetheless, the classic theory that individual preferences for redistribution decrease with their income, leading to societal preferences for redistribution that increase with income inequality[22] has been disputed.[23] Modern forms of redistribution The redistribution of wealth and its practical application are bound to change with the continuous evolution of social norms, politics, and culture. Within developed countries income inequality has become a widely popular issue that has dominated the debate stage for the past few years. The importance of a nation's ability to redistribute wealth in order to implement social welfare programs, maintain public goods, and drive economic development has brought various conversations to the political arena. A country's means of redistributing wealth comes from the implementation of a carefully thought out well described system of taxation. The implementation of such a system would aid in achieving the desired social and economic objective of diminishing social inequality and maximizing social welfare. There are various ways to impose a tax system that will help create a more efficient allocation of resources, in particular, many democratic, even socialist governments utilize a progressive system of taxation to achieve a certain level of income redistribution. In addition to the creation and implementation of these tax systems, "globalization of the world economy [has] provided incentives for reforming the tax systems" across the globe.[24] Along with utilizing a system of taxation to achieve the redistribution of wealth, the same socio-economic benefit could be achieved if there are appropriate policies enacted within current political infrastructure that addresses these issues. Modern thinking towards the topic of the redistribution of wealth, focuses on the concept that economic development increases the standard of living across an entire society. Today, income redistribution occurs in some form in most democratic countries through economic policies. Some redistributive policies attempt to take wealth, income, and other resources from the "haves" and give them to the "have-nots", but many redistributions go elsewhere. In his article Redistribution,[25] Dwight R. Lee states: "…most government transfers are not from the rich to the poor. Instead, government takes from the relatively unorganized (e.g., consumers and general taxpayers) and gives to the relatively organized (groups politically organized around common interests, such as the elderly, sugar farmers, and steel producers). The most important factor in determining the pattern of redistribution appears to be political influence, not poverty." "The direct transfer of cash and services is only one way that government transfers income. Another way is by restricting competition among producers. The inevitable consequence—indeed, the intended consequence—of these
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