Wealth tax is a necessary element if redistribution is to solve inequality

Given this, in terms of social justice alone, there seems to be a strong case for a move towards a more equal distribution of the ownership of wealth, particularly among the young. But why not simply do this by the traditional route of taxation – inheritance taxes, a lifetime capital receipts tax (to capture gifts as well as inheritances), as advocated by Atkinson [7], or a straightforward tax on wealth? Certainly, some type of wealth taxation should form part of any strategy for redistribution, and indeed most UBC advocates have suggested financing the UBC through that route. The introduction of a more effective tax regime could alone do much to remedy the inequality of inherited wealth, by lowering the amounts given in the top quintiles. However, simply to rely upon taxation would mean missing a key benefit of the UBC – one that may constitute as important an argument for the policy as the rectification of social injustice.

This benefit arises from the impact that a UBC can have on the life-time of the individuals themselves, and not only the recipients of their eventual wealth. Evidence from longitudinal studies in Britain show that young adults’ ownership of financial assets has a significant impact on their subsequent lives and livelihoods. The simple fact of possessing assets at 23 has been shown to improve young people’s prospects, in terms of employment, earnings and health, at the ages of 33 and 42. Nor is this likely to be mere correlation, with the relationships remaining even when controlling for confounding factors, such as income, class, and personality type [17, 18].

In passing, it is worth noting that recent LSE research in partnership with BRAC (an NGO based in Bangladesh) on the ultra-poor in the developing world has also found dramatic ‘asset effects.’ An asset transfer of around US$550 to ultra-poor individuals with no assets appears to enable them to lift themselves out of poverty and to stay out of poverty by their own agency [19]. There appears to be a universal message here, one that should be of interest to policy-makers concerned with inequality and poverty in developing as well as in developed countries.

There are several routes through which these asset effects could make its impact. The ownership of financial assets may increase individuals’ independence and their capacity for agency, which is likely to be beneficial both psychologically and materially. It may help them to start a business, to pay for college, to put a down payment on a house, or even to start a pension, all of which are likely to have favourable long-term effects. In short, it should act as a springboard for young people, enabling them to make the most of their adult lives. The existence of an asset effect is a powerful supporting argument for a UBC.