30+ years ago when the Soviet Union disbanded, the path for capitalism to be the dominant force was clear as day. And yes it has been 30+ years. For someone who is born in the 1990s, when someone says 10-15 years ago my mind instantly goes to 1990. Unfortunately, 10-15 years ago is 2005! But enough about my existential crisis, if I had to write an article on that, you’d be here for a long time.

I digress, but coming back to the point, when communism as an idea was “defeated”, the economic systems of the world geared up to be run on capitalistic principles. Rampant economic production, the rise of globalisation and the proliferation of wealth has thrown up more questions than they can possibly solve. In its wake it has left societies inherently unequal, gasping for some amount of reprieve in this ruthless economic state of nature. 

These are not just hollow words without any empirical backing, and that goes without saying. If I had a dollar for every time I have read income inequality in the news, I possibly could have been part of the 1% – the statistic that gets so famously passed around. But what is this 1%? Well according to Oxfam the world’s 26 richest people controlled as much wealth as the population's bottom half. The global population is currently 7.8 billion people. That means that these 26 individuals have as much money as the poorest 3.9 billion. Talk about being lopsided. This is like David vs Goliath, although in this scenario David will never win. 

In this scenario, taxation has presented itself as the messiah. The logic here is simple, tax the rich more, and redistribute that money to the less fortunate through social security nets, or through the provision of public goods, or in some cases by unconditionally transferring to them some amount of money, but more on that later. Taxation or progressive taxation rather is now embedded in taxation systems all around the world. As your income goes up, so does the tax rate. However, does this really work? 

Well prima facie, no. Even a brief reading of the rising inequality in the world is enough to tell us that probably there are some flaws with this framework. Maybe the tax rebates, write-offs of outstanding debt, or the innumerable tax havens, offshore accounts, and shell companies also play a vital role. Our suspicions are strengthened (no surprise there), by the leaks in the pandora and the Panama papers. So what do we do? 

Higher Wealth Taxes Have Become More Popular 

There is no perfect income redistribution method, yet, and it seems more and more difficult as economic and taxation systems become more complex, and evading them becomes easier. This frustration however has spilt onto the streets. The overwhelming support received by Bernie Sanders is a testament to the rising discontent with the big corporations and their obscene wealthy billionaires. Another presidential candidate by the name Elizabeth Warren had also called for the breakup of these larger than life corporations because let us be honest, no corporation in the world should have that much of a hold over public life. 

Companies such as Apple, Amazon, Facebook, Google, and the other dot-com boomers, will all be worth trillions of dollars. They have given rise to centillionaires (yes that exists, apparently), and nobody in this world needs this kind of wealth. But do they deserve it? Debatable. The reason why I say that is because the determination of deservedness is subjective. Individuals such as Jeff Bezos, Elon Musk, or Mark Zuckerberg do not need that kinda money, but whether they warrant such an amount of wealth depends on who you ask. 

If you ask me, I am in the grey area with this one. These individuals have come up with products or services that have revolutionised the world as we know it. These are in once in humankind kinds of products that have transformed the way we live. And the net worth that you see in the news so often, at the risk of sounding too obvious here, is not equal to the money that they have in their accounts. Mark Zuckerberg is not carrying $124 billion dollars in his bank account. That is his net worth, assets minus liabilities. That asset could be Facebook shares or his own personal assets. 

Playing the role of a devil’s advocate further, should wealth creators be subject to very high tax rates? Does that have the effect of deterring innovation? If hypothetically, tax rates are changed to 60-70% of the net worth of high profile individuals, will the world see the next Jeff Bezos? Will he want to innovate if he does not see the astronomical monetary benefit? All of these are open-ended questions with possibly no definitive answers. Of course, the instances where companies do not pay their workers minimum wage and exploit them further by making them work in inhumane conditions are disgusting. They should be probed and accountability should be fixed. 

The bottom line is this, the need of the hour is to devise an effective way to redistribute money, stop tax havens and enact a fair rate of tax. It is interesting to note that some wealthy people have also called for higher taxes. Amid the coronavirus pandemic, several millionaires worldwide advocated for higher taxes. As they put it, this money could help with improved air recovery. The pandemic has also put the spotlight back on Universal Basic Income. Unconditional transfers to everyone were gaining traction amidst fears that automation would take away many jobs. It is now also increasingly being cited as a bulwark against any future economic crisis triggered by events such as the Covid19 pandemic. 

The solution is quite complex and if you read till the end hoping I would give you one, I apologize. Although if I did have one, or I have an epiphany in the future, I’ll probably win the Nobel Prize. Conversely, if I stop complaining about income inequality it could also be because I am now part of the 1%. Wish me luck either way. 

World’s billionaires have more wealth than 4.6 billion people.

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The impossible debate on income inequality

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