Taxing the rich for the benefit of the poor: towards a more equitable world?

The proposition that rich people should pay higher taxes (see The Economist’s debate) to allow the government to serve the needs of needy people has some appeal. Not because it is abnormal to be rich in a world of poor people –nature and personal drive make people different and it is not a crime to be lucky or competitive!- but simply because poor people are likely to derive more marginal benefits from increasing their income as compared to rich people. Therefore, a society that cares about equality, equity, and solidarity should also care about income distribution among its members.

However, I don’t think higher taxes on rich people will yield much additional social gains in developed countries. In most rich countries, top earners are already burdened by high marginal tax rates and governments are striving to ensure the welfare of poor people through a variety of social protection programmes: unemployment insurance, health insurance, child benefits, cheap mortgages, etc.

By contrast, in Africa, where the income gap is so deep that rich people can afford almost anything and poor people none, such a proposition is justified. However, higher personal income taxes in these countries, in my view, should be accompanied by lower corporate, investment income, and interest income taxes (unless some are treated as income taxes) so as to encourage wealth creation. In any case, the net effects of higher taxes on the rich are hard to predict even in developing countries given that their economies are usually dominated by informal sectors and the black market.