Fair Distribution of Income and Wealth

Wages

Money that is received as a reward for work or services.

Wage levels depend on….

Skills required + demand and supply of labour

Rent

Income received from renting spaces as a land owner.

Interest Income

A reward for saving money.

→ The higher interest rates the more money you earn from your savings.

Profit

Reward for enterprise.

State Benefits

Relying on state benefits as an income when you don’t have a job.

→ E.g. job seekers allowance, pensioners allowance, child benefits, disability living allowance.

UK State Pension

Regular payments made by the state to people of or above the oficial retirement age.

Types of Income

• Rent

• Wages / salaries

• Benefits

Income

Flow of money.

Wealth

The accumulation of assets and stocks by an individual

Increasing Wealth: Inheritance

Wealthy individuals can pass on their assets to their family members.

→ Poorer people have no assets to pass on

Increasing Wealth: Savings

Saving over time enables people to accumulate more wealth via interest.

→ People on low incomes cannot save much

Increasing Wealth: Property

Owning property, renting it, and investing in additional properties.

→ An example of wealth = more income = more wealth

What ways does the Government redistribute income and wealth?

• Progressive tax

• Inheritance tax

• Reducing indirect taxes

• Spending and Investment

Ways Gov. Redistributes Income and Wealth: Progressive tax

Those with higher incomes pay higher percentages of tax.

→ helps reduce inequality as those with lower incomes pay lower tax.

• This also increases incentive for people to take lower paid wages as tax is lower → more people join work force

Proportional Tax

Where all taxpayers pay the same fixed percentage.

E.g. A person earning 15k and another earning 65k, they both pay 20% of that income in tax.

Regressive Taxes

Taxation system where those who earn higher incomes pay a lower percentage of tax.

Ways Gov. Redistributes Income and Wealth: Inheritance tax

Tax on estate (property, money, possessions) of those who have died and passed on.

→ Helps as large amounts of wealth that is inherited can be redistributed to the poor

Ways Gov. Redistributes Income and Wealth: Reducing Indirect taxes

Tax on producers / suppliers by the government.

E.g. VAT, Duties on alcohol / cigs, carbon and sugar tax

→ This could help the poor more than the rich, as these taxes are negligible to the rich, whilst could consume a larger proportion of money to the poor.

Ways Gov. Redistributes Income and Wealth: Investment

The government can increase its spending and investment on areas that need it.

→ Such as investing in education in a less developed region of a country