Can higher taxation really solve inequality?


No, although it is considered to be. Evaluating this topic of discussion will without doubt involve the combination of politics and economics. It is a fact that taxation is used by the government as an "excuse" due to government failure. When I use the term "excuse", I refer to the indefiniteness of politics and government inefficiency, which I will later explain in the following piece. Is it also justified to classify the rich as the "rich"?

The problem with rising inequality

Without doubt, taxation on the rich is not a solution to tackle inequality. Redistributing income from the wealthy end of the spectrum to the poorer end.  In the UK, the poorest fifth of society only shares 8% of total income compared to 40% by the top fifth, highlighting the wide gap between the rich and the poor. The government's solution of implementing higher taxes for the rich is only an indirect way to correct because it simply avoids the problem in hand. The government should focus on the bottom fifths in this instance rather than taxing the rich.

An underlying reason why the government should attempt to correct this failure through building plans to help the poor rather than the rich, is due to the fundamental truth that introducing higher taxation upon the rich, is as I have mentioned, indirect. This is because the government is devising policies which filter money from one end to another, instead of creating solutions to tackle the poor end. Yes, it is social responsibility for the rich to pay higher taxes which can be used within the welfare state, building better infrastructure and strengthen the economy, but I believe that rising taxation on its own, is not a sustainable way to tackle rising inequality.

Instead, rising inequality should be solved through several ways. A suggestion is to raise the minimum wage; currently at £7.50, raising the national minimum wage would directly affect those in the bottom fifths of the economy. This solution is very effective in reducing the gap between the national minimum wage and living costs, thus financially easing the poorer and creating a higher standard of living. Although, arguments stating that "demand for workers will likely decrease" and unemployment rates will increase owing to companies being not able or willing to hire the original number of employees due to the higher cost of production, this solution is sustainable in the long term. Although in the short term, workers may face redundancy or unemployment, increasing the minimum wage would result in greater prosperity and reduce inequality, as a result to not only the greater incentive to seek work, but also the likeliness of employment which is greater (because of growing industries and a wider range of job opportunities).

Inefficient governments

Many economists blame governments for their sluggish movement and inability to fully resolve emerging problems, such as rising inequality. As of 2016, 31% of the general UK public are satisfied with the government, resulting in a greater lack of confidence with how the government is truly distributing and filtering the money. Transparency has flopped when it comes to the distribution of information from politicians to the wider public.

During the Cameron administration, policies such as reducing income tax on the poor were desirable but not useful in any way as Cameron justifies this policy as desirable but not wise as the poor do not have enough money to spend to actually create an impact on the government's budget. It is said that careful planning and a clear structure when creating the government budget has to be created in order to "get somewhere" with the rising concerns of growing inequality.

The problems with the rich

When we talk about the "rich", we often picture vast mansions with endless acres of land or supercars. This is just a stereotype within our society but a more alarming question is, who can we classify as the rich? Pushing up income tax and inheritance tax purely on the rich may come with complementary problems. First of all, it is highly likely that if the UK government does in fact implement higher taxation upon inheritance and income, that the other tax bands will also increase. This creates problems for other aspects of society for instance the middle class.

In previous years, the middle class has been seen as the optimum class when it comes to taxation; those earning between £45000 to £70000 are the ones who contribute most to higher spending practices, a greater disposable income and as a result, are more able to pay their taxes. Increasing taxes upon the middle and upper bands, has only created a sense that many who fall into the middle class are paying taxes as if they were to be considered "rich". A clever strategy by Osborne.

To evaluate

All in all, I believe that although implementing higher income and inheritance taxes on the rich may help to solve rising inequality, it cannot be fully justified. The problem with increasing taxation for the rich is that the government focuses heavily on finding indirect solutions for solving problems at the other end of the spectrum. The poor are in need, yet the government attempts to pull off manoeuvres by reaching out to the rich.

Supply side policies such as education and training should be a priority for governments and thus increase spending upon long term solutions. Grants and subsidies used in education will be a direct, long-term solution to stopping inequality rather than the unsustainable usage of heavily taxing the rich. Although some may use the argument of "redistributing income", it is a social responsibility that the government should never rely on the rich as an exit strategy. The government is simply mis-addressing the problem of inequality by deluding the problem, using higher taxation on the rich.

If one erases taxation away from the scenario in hand, the concerns with rising inequality will still be there. Inequality is more of a social problem rather than an economic problem; although it can be solved through money and finances, the bigger solution relies on improving living standards, allowing all aspects of society to thrive and allowing prosperity. As a result, I strongly believe that rising inequality should not warrant for the imposition of higher income and inheritance taxes on the rich.