There is increasing public debate in the west about taxing wealth and the wealthiest in society. This article will look at the main reasons for the public concern? What are some of the causes of wealth inequality? Will taxing the super-rich work and how does Islam view these issues.
Public concern
There has always been a concentration of wealth from the landowners of the 17th and 18th centuries to the capitalist class of the 19th and 20th centuries. However, people have generally managed to get by: buying a bit of land or home of their own, some property, a new car and a few consumer durables even if it was on the back of rising levels of debt.
Now however, despite earning good salaries, young professionals are not able to get on to the housing ladder. Adults in their mid-late 20s are moving back in with parents so they can save for a house deposit; a generation earlier their parents would have started family life in their 20s. Today house prices are six to seven times average salary, with a hefty deposit, compared to 2.5 to 3 times average salaries in the 1980s.
It’s not only the cost of housing that’s becoming unaffordable. The cost of transport, energy and weekly groceries have all risen much faster than general inflation over the last two decades. This means that even if workers have seen their wages rise in line with inflation, which for many working-class has not been the case, there has been a huge squeeze on household finances, termed the ‘cost of living crisis’.
Young graduates can’t find graduate jobs despite being saddled with thousands of pounds of graduate debt, increasing every year due to above inflation compound interest rates. Additionally, there are nearly 1m young adults not in employment, education or training, even lower in the rung of the economic ladder.
This rising inequality has the potential to cause huge social and political unrest.
Causes depend on perspectives
The right argues there are specific reasons for high inflation such as COVID-19, the war in Ukraine and the US-Israel conflict with Iran; but the real reasons for inequality are structural. From a neo-liberal perspective, the state is too big, inefficient and bureaucratic, with government expenditures crowding out private investment and job creation. Social benefits are too generous which encourages economic inactivity. The solution lies in unleashing the private sector; reducing taxes, particularly on rich wealth creators, substituting state provision by private sector providers, while reducing benefits incentivising work over reliance on social security.
The Left, on the other hand, argues that it’s the concentration of wealth in the hands of a few super-rich that perpetuates inequality. Tech Bros like Bezos, Musk, Zuckerberg are just three billionaire elites controlling trillion-dollar corporations, which pay very little in taxes yet extract huge benefits from society. From a socialist/Marxist perspective, these new capitalists together with legacy land-owning gentry have hoarded the most powerful economic means of production: land and capital. As prices rise, they outbid everyone else and capture even more of the economic land, property and capital which increases inequality. The social contract that binds society necessitates that governments tax the super wealthy and their wealth (capital and land) and plough this money into public goods and services that benefit wider society and reduce inequality.
Wealth creation versus wealth distribution
Islam acknowledges that man has an internal drive to secure his living. In fact, this survival instinct has been created by God. Wealth generation is therefore not a problem. Indeed, differences in the survival instinct among people will naturally lead to differences in the level of wealth among individuals. Taxing the rich will therefore not work.
Islam does not put an arbitrary limit on wealth as that disincentivises productivity. Islam controls ownership through regulating how things are owned and prohibits ownership of some types of goods and services. So, nothing can be owned through interest-based credit and gambling for example while buying and selling alcohol or things not in your possession is totally prohibited. This promotes ethical/halal wealth creation without arbitrary limits on wealth or the wealthy.
At the same time the Sharia actively promotes wealth distribution through the following:
● Money is not allowed to be hoarded (unless saved for a specific purpose) and must be spent or invested.
● Spending creates economic activity incentivising production and jobs which in turn circulates wealth.
● Islam only taxes wealth and not income, as this disincentivises productivity.
● Investment here isn’t hoarding wealth in the financial markets or interest-bearing bank accounts. In Islam investment is in the real economy which promotes jobs and further circulates wealth.
● Zakat is a tax of 2.5% on accumulated annual wealth over a relatively low threshold so the poor do not pay and only receive.
● Kharaj is a tax on the agricultural capacity of the land to ensure land is productively utilized and not hoarded.
● The three-year rule on agricultural land means that if land is not productively utilized for three years it is taken away from the owners and redistributed to the poor and needy who will utilize it. This prevents a permanent land-owning class and gentry and actively redistributes wealth to those in need.
● Islam necessitates that man has a right to food, clothing and shelter as a social contract and these must be provided as a right, not as charity or a gift, ensuring that not one individual is left hungry and destitute at any time.
● The classification of public goods in Islam – water, land pastures and energy minerals – means that every individual has a right to these and they cannot be privately owned or hoarded, eliminating fuel poverty or steep energy costs.
The wealth tax debate in the west has polarised opinion as the wealthiest in society use their resources, media and government connections to stifle any real change. The left are likely to respond with even more radical proposals to counter ever increasing wealth inequality.
Islam and the Sharia takes an enlightened and non-reactionary stand recognizing the innate nature in man that will inevitably lead to differences in wealth and proposing systemic solutions to encourage redistribution while ensuring everyone has access to food, clothing and shelter, as a right, to eliminate poverty and destitution.
