International School of Latvia
Blog - Income Distribution/Taxation
Income distribution and taxation are closely linked. An unequal distribution of income is something that governments do not want, because this means that the society is getting more and more divided into the rich and the poor. As logic and market forces dictate the number of rich people would be smaller than the number of poor people, and as social structure or conduct dictates the rich would be in control over the majority of domestic matters, leaving the poor often without a say. This is something that the government does not want. It is also false to say that income inequality is a bad thing. This is because it needs to be established that an economy needs those with low income jobs and those with high income jobs, the economy needs winners and losers. That is the very basis of a capitalistic economy. Workers such as factory workers, miners and farmers are all essential to the economy. Their wages might be low, but without them the economy would fail, since the primary sector of the economy would be completely deserted, leaving no or little purpose for the secondary and tertiary sectors to exist at all. The capitalistic market dictates that not everyone gets to be a CEO.
This said it is also the governments job to make sure that the income inequality does not reach out of hand, as it has started to do in the U.S “ The top five percent of US households earned 15 percent of total house-hold income in 1980; by 2006 that share had risen to 21.5 percent.”. ( Davies, 4 ). The government needs to find the right balance between an healthy inequality of income and an unhealthy or a disproportionate inequality of income.
This can be done through taxation and government intervention.
Taxation is essential for all nations, because it enables the government to receive revenues (money) so that it can improve the lives of the citizens within the nation. The degree of taxation though is much disputed, but personally coming from a high taxation nation and having lived in the highest taxing nation in the world, I personally have seen the effects of high taxation in the infrastructure of the nation.
Having lived in Denmark where the income taxes are over 50 % of your income, I have seen that the nation has only benefited from it. The income inequalities are not nearly as vast in Denmark than in say Latvia or US, and this is partially due to the fact that since the taxes are so high it is very hard to become filthy rich. This can then be seen as a bad point through the eyes of some people ( Philipp, Michael…) but in essence it seems that high taxes do so much more for the country than low taxes would. The living standards in Denmark are some of the best in the world, the health system is one of the best in the world, there is free education, there is free universities, there is free health care, the roads and railways are extremely modern, there is little poverty and even those who are poor are looked after by the government.
But apart from taxation there are other methods through which the government can intervene in curing the “unhealthy” income inequality. A few government policies such as the minimum wage. “ A minimum wage policy is a policy that ensures that workers are paid what is determined to be a ‘fair’ wage. Governments may also legislate that firms pay social security benefits such as a designated minimum amount to cover medical insurance and/or pensions for their workers. It could also be said that government-sponsored training schemes are a way of helping workers to find gainful employment and thus raise their living standards” ( Blink, 242 ) It is through policies as such that the government should invest and intervene on, because this not only would ensure that the primary sector workers stay working, but that their income is high enough to provide themselves with the essential necessities, and maybe a little more. This is something that I personally emphasize on, that yes there should be inequality of income, because its healthy and essential for a capitalistic environment, but at the same time it should be regulated or controlled by the government.
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