Thursday, May 15, 2003

Discussion: Wealth Tax v. Income Tax v. Consumption Tax v. ???

I apologize for my prolonged absence. I was reviewing some old posts, and thought I would share a comment, however belated it may be.

In Joe's Post of April 17, 2003, , Joe advocated for a wealth tax system. He highlighted fairness, practicality, and wealth regulation as three arguments that favored his position. Discussing wealth regulation, Joe posited that wealth disparity is correlated with and leads to political instability:

Further, (and I'm sure this will get me into a great deal of trouble) I think there is a role for the government to regulate and redistribute wealth. It is unhealthy for any society to have too uneven a distribution of wealth. When wealth becomes too concentrated in too few places the social structure becomes inherently unstable. Additionally the presence of a strong middle class is vital to the healthy function of a democracy. Democracy can be corrupted all too easily by money, and as such allowing people to amass vast wealth subverts the democratic process and allows those people to exert a much greater influence over the political system than anyone else.

I share Joe's sentiment, but there is an article in the May/June issue of Foreign Policy discussing the causes for Civil War (entitled The Market for Civil War) that gave me some pause. In it, Paul Collier dismisses income inequality as a catalyst for internal strife:

For example, income inequality and ethnic-religious diversity are frequently cited as causes for conflict. Yet surprisingly, inequality--either of household incomes or of land ownership--does not appear to increase systematically the risk of civil war. Brazil got away with its high inequality; Columbia didn't.

Collier goes on to argue that economic conditions generally "remain paramount in explaining civil wars." That is, it is not the distribution of income, but average quality that matters most (the author argues "the risk reaches nearly 80 percent"). Natural resources also play a large role, according to Collier's analysis.

The story also notes that, much "to the dismay of demoncratization activists, democracy fails to reduce the risk of civil war, at least in low-income countries." Too late for that chunk of information. Afghanistan, Iraq: sorry. No harm, no foul?

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