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What is Income Redistribution?

Mary McMahon
By
Updated May 16, 2024
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Income redistribution is a practice designed to level incomes across a society through the transfer of income from wealthier to poorer individuals, either directly or indirectly. Proponents of this practice argue that it promotes the development of an egalitarian society and addresses a number of social problems that are linked with poverty. Opponents believe that it is a form of theft, suggesting that it involves taking legitimately earned funds away from people and giving them to others. Many governments around the world practice some form of income distribution, and there are varying ways to approach it.

It is very important to distinguish between this practice and the redistribution of wealth. Redistribution of wealth involves the seizure of assets and the redistribution of these assets to other members of society, and is a much more extreme practice. With income redistribution, assets are not taken from people, and people in positions of economic clout are not supposed to be penalized.

One of the classic forms is a progressive tax system, in which people are taxed at different rates, depending on their incomes. People who make more money pay higher taxes under this system, thereby forfeiting more of their income to the government. Tax funds are used to benefit society as a whole by providing a variety of public and social services, and the direct transfer of income may occur in the case of welfare payments and other forms of cash assistance made to low-income members of society.

The goal of income distribution is not to make all incomes equal by taking money away from some people and giving it to others. Instead, it is to avoid what proponents view as extreme or unreasonable inequality. These systems are also not designed to punish people who make a great deal of money, although it may feel this way during tax time for people in high tax brackets. When administered properly, such a system is supposed to promote overall economic growth and health by creating a large consumer class that has income to spend on consumer goods and the desire to purchase such goods.

The government does not necessarily need to be involved in income redistribution. Charitable giving is another form, in which people give part of their income away to benefit members of society who are not making as much money. Many religions specifically cite charitable giving as an important part of religious faith, illustrating the commonly-held belief that there s a social obligation to assist the poor. Conservatives who are opposed to government-administered systems often support charitable giving, arguing that it can play a role in society, but that the government should not be involved.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By anon990042 — On Apr 02, 2015

Where is the incentive to earn more money to attain disposable income when you are getting 'enough' by taking from the government?

By anon292379 — On Sep 19, 2012

"Both cases hurt the economy which is why supply side economics is so effective."

You're kidding, of course. Please cite date, time, and period when supply side nonsense has been even marginally effective. Trickle down is an urban myth of the first magnitude.

By mutsy — On Jul 15, 2010

Sunshine31- I agree with you. I think a progressive tax does not help the middle or lower classes. Some feel that eliminating the Internal Revenue Service altogether and going with a flat tax might be better way to generate tax revenue.

But opponents to this idea say that it punishes the poor because they have to pay the exact same percentage of tax as a wealthier individual.

By sunshine31 — On Jul 15, 2010

Great article- I just want to say that forced income redistribution in theory is wonderful, but in reality it actually hurts the middle and lower classes as well as the wealthy.

For example, the higher income individuals own companies and thus provide job opportunities for the general public.

In addition the more disposable income a person has, the more they generally tend to spend which also stimulates the economy and offers middle and low income individuals more job opportunities and possibly higher wages as a result.

The progressive tax punishes those with higher incomes. This causes those with higher incomes to possibly lay off workers and cut back on personal spending.

Both cases hurt the economy which is why supply side economics is so effective. Cutting taxes across the board stimulates economic growth in the form of new jobs and increased personal spending.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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