Essay – Approach to 10 Billions of Happiness
Lifework. Mission. Conviction. Here’s an essay to elaborate on what is in my mind when I hear these words…
Thesis: While the tax system needs to be implemented not to ruin work motivation, taxation should take account of wealth redistribution. The fundamental aim of this essay is to show that wealth redistribution is essential to achieve social equality. As you might have heard, the richest 1% own 45% of the world’s wealth (Inequality.org, 2018). The question is wealth inequality is whether harmful or not in terms of maintaining a sustainable society.
Our society ideally should ensure equal opportunities, such as the right to education, access to information and physical/mental health. Besides, there is also pragmatic merit for wealth redistribution. Without wealth redistribution, more people fall into relative poverty as wealth concentration escalated. Relative poverty then takes away a chance to learn things and start something new from the majority of people, which results that every member of the society potentially cannot enjoy the benefit of the accomplishments out of these challenges.
For the sake of embodiment, let me exemplify how wealth redistribution works in actual taxation. A study shows that the maximum progressive tax rate is optimal at 50–60 percent for inheritance tax supplemented with periodic taxation of wealth and capital income (Piketty, 2015). On the other hand, the benefit to the poor can be both direct and indirect, meaning that the tax revenue is supposed to be used for a variety of social security services such as health care, pensions, unemployment insurance and free college. In the US, there is a more general approach called EITC which stands for the earned income tax credit. In short, the government sends money according to the taxpayer’s income; while the actual system went too complicated lately (Eissa, 2008).
The well-known endorsement of the wealth redistribution is Piketty’s work, which formulated the wealth distribution as “r > g” where “r” is the rate of return on capital and “g” the economy’s growth rate (Piketty, 2014). He also implied the relevance between extreme wealth inequality and social instability:
“In my analysis, the size of the gap between r and g, …, is one of the important forces that can account for the historical magnitude and variations in wealth inequality. In particular, it can contribute to explain why wealth inequality was so extreme and persistent in pretty much every society up until World War I” (Piketty, 2014, ch. 10).
As far as the national tax records are available, there is no evidence denying his theory in history, except two World Wars. That means the wars were the only chance of shuffling social strata since the 18th century. Even Bill Gates, one of the richest 1%, advocates Piketty’s theory because he sees wealth inequality as a threat to a sustainable society (Gates, 2014).
The most common criticism is that wealth redistribution can result in less incentive to work. Firstly, it’s fair to say the decrease of the workforce is not desirable at the moment because the demand for the labor force will not decrease at least in the short term even with the broad acceptance of automation. Hence, taxation and social security should take account of work incentive as well. It’s not so hard to implement the system without diminishing the incentive. For example, most people will quit working if they receive $10B per year from the government, while they will not if it’s only $10 per year. That means there’s a happy medium where we can compromise. Interestingly, ETIC is implemented to encourage people to work more.
To answer the question in the introduction, yes; wealth inequality is harmful to society. As we’ve looked through, history shows that wealth concentration has been escalated except wartime. To avoid it in a peaceful manner, we should utilize the taxation to ease the inequality with controlling the downside of wealth redistribution. The challenge is to build consensus among non-wealthy 99% people on the policy to make taxation and social security effective to achieve wealth redistribution.
Here’s a list of outside sources:
- Inequality.org. (2018). Global Inequality. Retrieved from https://inequality.org/facts/global-inequality/.
- Piketty, T. (2015). About capital in the twenty-first century. American Economic Review, 105(5), 48-53.
- Piketty, T., & Goldhammer, A. (2014). Capital in the Twenty-First Century. Belknap Press: An Imprint of Harvard University Press.
- Gates, B., Why inequality matters. (2014). Retrieved from https://www.gatesnotes.com/Books/Why-Inequality-Matters-Capital-in-21st-Century-Review.
- Eissa, N., & Hoynes, H. (2008). Redistribution and tax expenditures: The earned income tax credit (No. w14307). National Bureau of Economic Research.