6.7.2.4  Mechanisms to Reduce Economic Inequality

(This is a current extract from the Patterns of Power Repository.  An archived copy of this page is held at http://www.patternsofpower.org/edition02/6724.htm)

Government attempts to directly control disparities in income are dysfunctional (3.3.6), but politicians can use their economic powers to take other steps to reduce overall economic inequality:

·      Benefit payments (6.7.1.3) can help the poorest in society.

·      An increase in the minimum wage (3.3.3.3) reduces low-paid workers’ dependence on taxpayer-funded benefits.

·      It is possible to make changes in corporate governance, to rebalance the negotiations by which wealth is shared (3.5.6.3).

·      If more services are provided by government, and are available to everybody, fewer people have to do without those services – so there is less inequality in people’s standard of living (6.7.1.1).

·      Government spend has to be paid for by taxation and, if the taxation is progressive (3.2.4.1), the effect is redistributive: reducing the differences in disposable income between rich and poor.  Tax increases are possible: the wealthiest 1% of Americans now pay less tax than they used to,[1] and empirical data indicate that higher taxes on the wealthy haven’t reduced economic growth in practice.[2]

Such steps to reduce inequality can be effective: Sweden’s society shows levels of social well-being that are comparable to Japan’s (which has less difference in pre-tax income).[3] 

© PatternsofPower.org, 2014                                                 



[1] On 15 April 2010, CBS published an article by Alain Sherter entitled Skinning America: How the Tax Code Favors the Rich, which was available in May 2014 at http://www.cbsnews.com/news/skinning-america-how-the-tax-code-favors-the-rich/.  It included the following point:

“Between 1955 and 2007, the top 400 income-earners have seen the share of their income they pay in federal income tax fall from 51.2 percent to 16.6 percent.”

[2] Thomas Piketty’s book, Capital in the Twenty-First Century, “argues that higher top tax rates were not particularly detrimental to growth” according to an overview of the book published by The Economist on 25 April 2014, entitled Reading "Capital": Part 4, Conclusion, and recap, which was available then at http://www.economist.com/node/21601214.

[3] Wilkinson and Pickett, The Spirit Level, p. 176.