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permanent, whereas capitalism undermines status and introduces social mobility. |
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Government Measures Used to alter the Distribution of Income |
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The methods that governments have used most widely to alter the distribution of income have been graduated income and inheritance taxation. Before considering their desirability, it is worth asking whether they have succeeded in their aim. |
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No conclusive answer can be given to this question with our present knowledge. The judgment that follows is a personal, though I hope not utterly uninformed, opinion, stated, for sake of brevity, more dogmatically than the nature of the evidence justifies. My impression is that these tax measures have had a relatively minor, though not negligible, effect in the direction of narrowing the differences between the average position of groups of families classified by some statistical measures of income. However, they have also introduced essentially arbitrary inequalities of comparable magnitude between persons within such income classes. As a result, it is by no means clear whether the net effect in terms of the basic objective of equality of treatment or equality of outcome has been to increase or decrease equality. |
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The tax rates are on paper both high and highly graduated. But their effect has been dissipated in two different ways. First, part of their effect has been simply to make the pre-tax distribution more unequal. This is the usual incidence effect of taxation. By discouraging entry into activities highly taxedin this case activities with large risk and non-pecuniary disadvantagesthey raise returns in those activities. Second, they have stimulated both legislative and other provisions to evade the taxso-called "loopholes" in the law such as percentage depletion, exemption of interest on state and municipal bonds, specially favorable treatment of capital gains, expense accounts, other indirect ways of payment, conversion of ordinary income to capital gains, and so on in bewildering number and kind. The effect has been to make the actual rates imposed far lower than the nominal rates and, perhaps more important, to make the inci- |
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