Inequality in Europe is a difficult thing to measure. Some analysts warn that rising inequality is undermining democracy within the EU. Others, however, suggest that inequality has risen slowly in Europe compared to the United States, or even that inequality in the EU is decreasing.
The picture also changes depending on how we measure inequality: if you look at incomes, then inequality hasn’t necessarily worsened since the 2008 financial crisis. However, if you look at wealth inequality (e.g. including assets such as property, stocks, investments, etc.), then the difference between the most wealthy in society and the least is dramatic.
What do our readers think? We had a comment sent in from Julia, who argues the solution to cutting social inequality is simple to “tax the mega-rich”. Is it as easy as that?
Well, I think Julia sounds like someone I could probably get along well with. If you’ve read any of the stuff that I’ve done, or seen the videos I’ve been putting up on YouTube, this is exactly basically what I’ve been pushing for.
In particular, what I want to point out is that the tax system that we have at the moment is very good at taxing high income – like if you’re a footballer or a banker, whether these guys are popular or not. But it’s really not good at taxing people who have very high wealth; these people who get their income through trusts or capital gains, our tax system is not really designed well to tax those people.
So, you might end up in a situation where someone from a poor background who is making a high income – 50,000 pounds, 100,000 euros – they’re paying a lot of tax, whereas you’ve got the Duke of Westminster who inherited 9 billion, he probably has never worked in his life and he’s paid no tax. So, if we have a situation where the very, very, very rich pay no tax, whereas ordinary working people pay high tax, inequality is going to get higher and higher. So, I really would agree completely with Julia. We need to look at taxing the very richest, particularly people that don’t get their income from work but are simply collecting and growing wealth over time.
For another perspective, we also spoke to Marc Morgan, an economist working at the World Inequality Lab, based at the Paris School of Economics. What would he say?
Yes, if the question is whether taxation is useful to reduce inequality, then it is a useful tool. Especially as it has direct and indirect effects on reducing a given individual’s income or wealth… But, directly, taxation takes income off people – if they pay themselves above a certain level then it will take a certain percentage off – and that’s the direct way of reducing income, especially if higher rates apply to those at the top of the distribution, with higher income.
But also, indirectly, high tax rates, especially at the top, can have the effect of dissuading top earners from actually paying themselves that much more, simply because – as research has found – if you’re in the context of very high tax rates, the difference between paying yourself a bit more when tax rates are so high, in the end, it doesn’t make that much of a difference when most of it is going to go to the government anyway. So, it actually dissuades people from increasing their incomes a lot…
So, mechanically taxes are a very good way to make the distribution more equal by taking more income off those that are earning more relative to those that are earning less… So, I think there’s ample scope to increase taxes on higher earners, not only on income but also on wealth and therefore the capital income that they derive from that wealth.
How would you cut social inequality in Europe? Would wealth taxes be an effective approach? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!