Wealth redistribution: are we on the same page?

Effective Altruism’s relationship with private wealth has been a major ‘ick’ to the masses for a long time, even before the SBF scandal.

Effective altruism was founded explicitly on voluntary redistribution of income from people in high-income countries to low-income countries (e.g. Giving What We Can). The conventional wisdom in effective altruism is that we should focus on persuading those with private wealth to give, rather than taking from the rich.

They are not either/or options: There is little evidence that government spending crowds out private charitable donations of time and money and I haven’t seen evidence that privacy charity crowds out government spending.

However, there are likely strategic implications to our relative focus. Giving What We Can encourages people to see themselves as wealthy with their How Rich Am I calculator. Downward comparisons are probably good for individual wellbeing. However, research suggests that correcting underestimates people from rich countries have about their true place in the world’s income distribution does not affect their support for policies related to global inequality. Other research suggests perceived economic immobility is associated with support for redistribution, so reinforcing the relative poverty of the poor and middle class may be more promising an approach to advocating for redistribution in democracies.

The basic argument for redistribution is that the poor and middle-class need the money more than the rich. The marginal utility of a dollar to the rich is less than the marginal utility to the poor. The cost of an expensive bottle of wine for a rich person could be the cost of life saving mental health care for the poor and middle class. The stereotypical implementation of wealth redistribution is an asset tax such as an inheritance tax or a tax on net wealth.

Would redistribution reduce giving to effective charities? No, the poor and middle class are no less charitable than the rich. A 2020 paper rejected findings of U shaped relationships and concluded that neither the rich, middle or poor are more charitable and they all donate to similar types of charities regardless of their income and wealth.

In 2016, Rob Wiblin argued on the Forum that working on taxation for the very rich is not neglected, because the issue is so topical. But it is neglected by the EA community, and since this issue is so politically divisive our behaviour as a voting bloc on the margin could be significant. It could be important that we’re all on the same page.

Wiblin correctly predicted the growing share of wealth and income held by the top 1%, would increase the value of taxation of this group. He acknowledged that it is not only for the growing value of wealth redistribution that we should revisit this issue but the cost of not doing so.

Barring significantly higher taxes on them now, the political power of this group will also grow progressively over time, making it harder to make any changes that disadvantage them in the future.

A year later, in 2017 Oxfam reported that eight men own the same wealth as the 3.6 billion people who make up the poorest half of humanity. Rich democracies have actually been cutting tax rates on wealth despite rising levels of wealth inequality.

The second element of Wiblin’s argument against wealth redistribution is that governments spend their money poorly relative to private entities. Foreign aid and private giving face the same challenge of corruption and maladministration which effective altruists overcome with considered evaluation. Wealth redistribution overseas in the form of foreign aid could also be funded by the same domestic taxes.

Wealth redistribution does not mean developing countries are left behind. Developing countries often have lower tax rates and higher room for redistribution.

The third element of Wiblin’s argument is that the rich can evade taxes. Yes, they can and do. But we can try and make the most of what money can be taxed and strengthen anti tax evasion measures. The good is not the enemy of the perfect. If the tax is progressive, the poor don’t pick up the bill.

The fourth is that international coordination against capital flight is difficult. Yes, it is difficult, but it works well enough anyway. In Australia for example, much of the wealth comes from mining, one of the few industries that can operate in certain places. In high tax other countries some rich stay for myriad reasons such as the social and economic conditions, infrastructure and services afforded by high tax rates, for them and their workers.

It has been separately argued here on the EA Forum that wealth taxes would encourage the wealthy to donate now rather than earlier, to minimise taxes while supporting causes they’re interested in. Billionaires donating more to charity is a good thing. If we believe effective charities are better recipients than the government, or that now is the most important century, maybe that’s not so bad. If you are worried about, say , the Koch brothers dumping money into malicious charities to minimize their taxes or maximize their political influence, I question whether the room for divergence in human values expressed through charitable giving is greater than the room for good. With uncertainty, I’d guess the room for additional funding for many causes considered malicious is probably lower than the room for more funding for good causes and will easily be easily outweighed. Redistribution policies could also be complemented with policies limiting the political influence of financiers or charities.

I also want to talk about the argument that when a government taxes a particular economic activity, it raises revenue but also alters individual economic incentives at the margin and ‘obstructs the industry of the people’. This is true. The question is, WHERE are the economic proceeds going or being lost from and does this cost matter? Whenever there is talk about the economic return on something, or the economic cost, effective altruists must ask about the distributional effect and not just the aggregate return. Wealth redistribution could discourage production of goods purchased by the masses, but I doubt that outweighs their increased purchasing power. It could also discourage extreme profit motivations, but the marginal utility of another dollar to the very rich is relatively minimal.