A new study from the International Monetary Fund (IMF) appears to have found proof that not only are high levels of income inequality bad for a nation’s economy, but that redistribution of wealth through higher taxes on the rich benefits long-term economic stability.
The study is one of the first of its kind. It examined the pre- and post-tax income of several countries and reached some important conclusions including that low net income inequality is good economics, boosts long-term economic growth and leads to longer periods of economic expansion.
However the most important (and controversial) finding was that redistribution of wealth through higher taxes does not actively harm economic growth, and that because this policy decreases economic inequality, this actually increases economic growth:
[box type=”shadow”]”We find that higher inequality seems to lower growth. Redistribution, in contrast, has a tiny and statistically insignificant (slightly negative) effect. This implies that, rather than a trade-off, the average result across the sample is a win-win situation, in which redistribution has an overall pro-growth effect.”[/box]
According to the CBC, the authors of the study are aware of the political implications their findings could have, but felt a new approach was needed to study the effects of income inequality:
[box type=”shadow”]”The authors concede that their conclusions tend to contradict some well-accepted orthodoxy, which holds that taxation is a job killer. But they say that many previous studies failed to make a distinction between pre-tax inequality and post-tax inequality, hence often compared apples to oranges, among other shortcomings.”[/box]
Since the advent of neo-liberalism and Reaganism in the late 1970’s and early 1980’s, it has become a mantra of the Republican Party to claim that taxes are job-killers, and that only be lowering taxes (especially for the wealthiest earners) will free enterprise be allowed to prosper, leading to economic growth. However this study is the latest to forcefully argue that the more equal a society is, the more prosperous, free and sustainable it is. The GOP is now placed in the rather invidious position of defending an economic policy based not on evidence or facts, but ideology and dogma.