Redistribution of income and wealth
Redistribution of income and wealth is the transfer of income and wealth from some individuals to others through a social mechanism such as taxation, welfare, public services, land reform, monetary policies, confiscation, divorce or tort law. The term typically refers to redistribution on an economy-wide basis rather than between selected individuals.
Understanding of the phrase varies, depending on personal perspectives, political ideologies and the selective use of statistics. It is frequently used in politics, to refer to perceived redistribution from those who have more to those who have less. Rarely, the term is used to describe laws or policies that cause redistribution in the opposite direction, from the poor to the rich.
The phrase is sometimes related to the term class warfare, where the redistribution is alleged to counteract harm caused by high-income earners and the wealthy through means such as unfairness and discrimination.
Redistribution tax policy should not be confused with predistribution policies. "Predistribution" is the idea that the state should try to prevent inequalities from 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 and not just a minimum wage, as a "bottom-up" response to widespread income inequalities or high poverty rates.
Many "top-down" taxation proposals have been floated. In the United States, the "Buffett Rule" is a hybrid taxation model composed of opposing systems intended to minimize the favoritism of special interests in tax design.
The effects of a redistributive system are actively debated on ethical and economic grounds. The subject includes an analysis of its rationales, objectives, means, and policy effectiveness.
History
In antiquity, redistribution operated within a palace economy, whereby the government, meaning the dictator or pharaoh, had both the ability and the right to say who was taxed and who received special treatment. In the West, ancient civilisations had customs to aid wealth redistribution, such as the ancient Jews, whose Jubilee relieved the debts of the poor, and the ancient Greeks, whose liturgies saw the rich voluntarily financed the city-states.In the early modern period, there have been experiments in agrarian socialism. For example, in the Plymouth Colony under the leadership of William Bradford, who recorded in his diary that this "common course" bred confusion, discontent, and distrust among colonists, who looked upon the system as a form of slavery.
A closely related term, distributism, refers to an economic ideology that developed in Europe in the late 19th and early 20th century. It was based on the principles of Catholic social teaching, particularly the teachings of Pope Leo XIII in his encyclical Rerum Novarum and Pope Pius XI in Quadragesimo Anno. More recently, Pope Francis echoed the earlier Papal statements in his Evangelii Gaudium.
In 1789, Montesquieu posited in The Spirit of Law that progressive tax is most suited to liberty, whereas a regressive tax is most suited to slavery. In contemporary society, this principle is still prevalent, where progressive taxation is recognized as a means to redistribute income and wealth from the rich to the poor.
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 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 were restricted. To attain an efficient allocation of resources with the desired distribution of income, if the assumptions of the competitive model are satisfied by the economy, the sole role of the government is to alter the initial distribution of wealth – 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.A comparison between socialist and capitalist systems in terms of distribution of income is much easier as both these systems stand practically implemented in a number of countries under compatible political systems. Economic inequality in almost all the Eastern European economies has increased after moving from socialist planned economies to capitalist market economies. These economies maintain features of socialism, and are argued to resemble closer social democracy than free-market capitalism.
For the Islamic distribution, the following are the three key elements of the Islamic Economic System, which have significant implications for the distribution of income and wealth and are markedly different from capitalism. The Islamic system is defined by the following three key elements: Ushr and Zakat, the prohibition of usury, and the Inheritance Law. Ushr is an obligatory payment from agriculture output at the time of harvesting. If agricultural land is irrigated by rain or some other natural freely available water the producer is obliged to pay ten percent of the output as Ushr.
In case irrigation water is not free of cost then the deduction would be five percent, while Zakat is a major instrument of restricting the excessive accumulation of wealth and helping the poor and most vulnerable members of the society, Secondly, usury, or charging interest, is prohibited. Elimination of interest from the economic system is a revolutionary step with profound effects on all spheres of economic activities. Finally, the Inheritance Law Of Islam is the distribution of the property of a deceased person from closest family members and moving towards a more distant family. Son, daughter, wife, husband and parents are the prime recipients. This distribution is explicitly illustrated in Quran and cannot be changed or modified. Under varying conditions, the share received by different relatives accordingly changes. The important principle is that the owner at the time of his/her death cannot change these shares.
How views on redistribution are formed
The context that a person is in can influence their views on redistributive policies. For example, despite both being Western civilizations, typical Americans and Europeans do not have the same views on redistribution policies. 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. 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. 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. This leads to fundamentally different ideas of what is ‘just’ or fair in these countries and influences their overall views on redistribution.People tend to favor redistributive policy that will help the groups that they are a member of. 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. Research has also found that women generally support redistribution more than men do, though the strength of this preference varies across countries. The perception that immigrants benefit more from welfare spending was found to be correlated with lower support for redistribution.
The rich people who are living in the states with more redistribution, are more in favor of immigrants than poorer people, if this can make them pay lower wages.
The classic theory that individual preferences for redistribution decrease with their income, leading to societal preferences for redistribution that increase with income inequality has been disputed. Another context that can influence one's ideas of redistributive policies is the social class that one is born into. Most researchers accept that social class plays some role in determining someone's views towards redistributive policies. Perhaps the most important impact of government on the distribution of “wealth” is in the sphere of education—in ensuring that everyone has a certain amount of human capital. By providing all individuals, regardless of the wealth of their parents, with a free basic education, government reduces the degree of inequality that otherwise would exist.
Income inequality has many different connotations, three of which are of particular importance:
- The moral dimension, which leads into the discussion of human rights. What kinds of reasons should a society accept for the emergence or existence of inequality and how much inequality between its members is reconcilable with the right of each individual to human dignity?
- The second dimension links inequality to political stability. How much inequality can a society endure before a significant number of its members begin to reject the existing pattern of distribution and demand fundamental changes? In societies with very rigid forms of the income distribution, this may easily lead to public protest, if not violence. Authorities are then faced with the option of reacting to protests with repression or reform. In societies with flexible tools of negotiation and bargaining on income, smoother mechanisms of adaptation may be available.
- The third dimension – in many cases the dominant pattern in the social debate – links inequality to economic performance. Individuals who achieve more and perform better deserve a higher income. If everybody is treated the same, the overall willingness to work may decline. The argument includes the scarcity of skills. Societies have to provide incentives to ensure that talents and education are allocated to jobs where they are needed most. Not many people doubt the general accuracy of these arguments – but nobody has ever shown how to correctly measure performance and how to find an objective way of linking it to the prevailing level of the income distribution. Inequality is needed – to some extent – but nobody knows how much of it is good.