What Should Know About Wealth Redistribution

Income redistribution is a policy of equalizing the resources through taxes. It aims to reduce differences in income between households within a society.

Fiscal methods of redistribution revolve around the taxation of property through wealth tax, inheritance tax and property tax, a dependent of the average level of income tax. And the different value added tax (VAT) rates for basic necessities, luxury goods and normal goods.

Redistribution is defined as all transactions through which a portion of income is levied on some economic or social categories to be repaid for the benefit of others. It is a collective practice, that requires the intervention of political power to decide who should give and who can receive.

It is justified by solidarity, ethical approach which considers the individual as part of a social group that has the duty to contribute to the development by maintaining cohesion and interdependence of its members.

Redistribution also takes place through government transfers and subsidies. These can be directly through cash payments or through tax free/low cost provision made by public services.

In some conutries, contributions to social insurance (statutory pension insurance, statutory health insurance, unemployment insurance, long term care insurance), with growing incomes are growing. This is because they are proportional to the contribution cap for gross income. The benefits paid are partially proportional to income (unemployment benefit) and the paid-up contributions.

Wealth is unevenly distributed around the world, for example, the three richest people own as much as the poorest 10% of world population. Presumably, redistributing the wealth of the richest to the poorest to solve the problem of poverty can be denounced as simplistic idea.

It is also about equality of opportunity: the children of poor families are not responsible for the poverty of their parents, and should receive the same education and same level of care than richer children. Poverty facilitates the emergence of crime.

The question of the ethical side of redistribution to compensate different distribution of resources is one of the fundamental questions with which people confront in a society. Redistribution policy can be democratic. In the oil-rich Norway, the redistribution by democratically elected governments with high taxes and social contributions is carried out.

The prosperity will benefit broad segments of the population. In the oil-rich Nigeria, state rules are missing to redistribute liberty and property protection. The prosperity can only benefit a few, hence problems in the Niger Delta region.

A redistributive tax is a tax which intends to distribute its implementation to become more pro-poor. For each tax or fee, the redistributive aspect is assessed in the comparison between the cost and benefit (reduced percentage of revenues) for each segment of population.

The progressive taxes and payroll taxes are thus strongly redistributive, as opposed to taxes such as value added tax (VAT) whose rate is fixed and independent of subjective considerations. In reality, the redistributive effect of taxes is highly dependent on its fiscal impact, that is, the person who bears the actual tax.

It is solely dependent upon the price elasticity: for example, increased income tax weighs on an employee while a merchant may pass on at least in part onto his customers. The tax exemption policies have a negative impact on the redistributive tax.