Taxes: The Tool

by Erik Koht

The redistribution of wealth should be a key issue for any government calling itself socialist, and even for governments that go by other names. The chief instrument used to achieve this is taxes. Another instrument is the motivational factor. People must feel that the system is fair and benefits all. A third way is to promote a compressed income scale, thus making the differences between rich and poor easier to overcome.

Taxes are not just a way for a government to cover its own running costs and pay for new pavements. Taxes are also financial instruments that may be used to confront social issues, fight inflation, encourage saving, influence interest rates and regulate consumer spending power. No doubt there are forces in and on a small, open and free economy that serve to polarize, causing the rich to get richer, the poor poorer, that will cause cities to grow while leaving the countryside empty, not just empty of people and jobs but also empty of schools, health care and social services. Assuming that these effects are undesirable, the state may use taxes to counteract polarization.

Providing services in an urban environment is cheap, doing the same in a low population area is very expensive. Typically, the cost of providing an urban area where 80% of people live with some service, say a postal service or cable TV, costs 20% of budget. Reaching the remaining 20% of population will cost the remaining 80% of the money available. So, naturally, it a capitalistic, privatized society, the more expensive population segment will get nothing. In this way it will be more comfortable to be poor in a city than in the countryside if you are dependent on these services. It is only through government intervention and regulation that the entire nation is certain to get an equal share, not of the budget, but of the service.


City states like Singapore, Luxembourg, Hong Kong and Monaco demonstrate how efficient cites are when it comes to the accumulation of wealth. Running the whole country to the income and service standards of the city is expensive. We can also see this in the United States where whole regions are left behind, the central California valley, the Mississippi delta, the Appalachians and other regions. In China the cities of the east coast serve as growth engines, but the effect does not create parallel growth westward but increasing polarization.

Thus we face at least two kinds of inequality – the geographical and the social. These differences do not heal themselves. Tax measures also have two distinct purposes, the first being the eradication of poverty, the second preventing poverty from arising in the first place. Causes of poverty are not the same for all time, so the tools are unlikely to be suitable for ever. Also, the measurement of what constitutes poverty needs to be redefined from time to time. In Norway and the EU countries we say that poverty are incomes below 60% of the national average.


A nation needs certain prerequisites in order to fight inequality. The main source of taxes is the middle class. Without a large middle class, a nation would not have the resources to lift even a small portion of the population out of poverty. Further, it needs a representative government where also the voices of the poor can be heard. It needs a fair legal system, a neutral source of information and a large, efficient and honest bureaucracy, otherwise money would not reach those that are entitled. The super rich have always had means of avoiding confiscatory taxes, so let's forget about them for now. Besides, they would not be able to sustain the needed taxation levels for long, only the middle class will do as a long term source.

In Norway the government does very well on indirect taxes such as tax on fuel, cigarettes, alcohol, inheritance and v.a.t. (increased value tax, a kind of sales tax). The income tax part of public income may therefore be used in its entirety to redistribute wealth. That does not mean that money is taken from the middle class and rich and handed out to poor people, though this may be the ultimate effect. In means that education and health care is free, that people with many children pay less tax than those with few, that old people get a pension, that the unemployed are helped. In principle everyone is eligible, but not everyone actually needs help.

Since Norway's 430 municipalities also collect taxes based on personal income, those with high tax incomes subsidize poorer municipalities by paying some of their tax income into a municipal redistribution fund. Actually, all municipalities pay money into the fund, but not all get anything in return. The EU runs a similar redistribution model and the its success has been spectacular, helping to lift poorer member nations to new levels of prosperity – Ireland being the prime example.

The central government will also spend money directly in a way that favours the periphery, such as by building roads and bridges, running hospitals, schools and universities, and by establishing various public offices that create employment opportunities outside congested areas. There are also some subsidies and taxes that favour the three northernmost counties.

Beside big cars and big houses, there are other things that define the well-to-do: The accessibility of good health care and healthy food, day care centres, vacations and regular working hours, the best education and a comfortable old age. Making these things available to all makes it easier to bear relative poverty. So that is how we do it in Norway. The psychological effect of these measures is immense. It makes every Norwegian feel as though he or she is a participant in the running of the state, both as a contributor and a recipient, with a stake in its well-being. We have in the main an egalitarian attitude toward each other and care how and by whom it is run. This is the reason why no political party threaten to decimate our welfare system. Its OK to have a finger in the public pie if it's your own pie that you paid for.

How taxes are paid also has a psychological effect. In Norway a wage earner will never touch the tax portion of his income. His employer has already deducted it. No actual payment takes place. Likewise, paying v.a.t. is made as painless as possible since the purchase price without tax is not displayed at the point of sale or in consumer advertising.

Statistics show that while the group considered poor, those earning less than 60% of the national average, remains fairly constant – 11% – the group does not consist of the same people all the time. A college student may be in the group for a number of years, will then rise out of it and have little need of special attention for many years, unless something bad happens. Others may fall into the poverty category as they grow older. The other group is singles. This may be caused by health problems that hit singles harder (by having only one income and no one to take care of them) or by the economic problems caused by divorce or widowhood. Note that unemployment does not seem to be a cause of poverty, maybe because this state usually does not last long and unemployment benefits are sufficient.

In the beginning of this dissertation I said: "Assuming that these effects are undesirable, the state may use taxes to counteract polarization." Besides creating congested cities and an impoverished countryside, polarization is indeed undesirable. An unequal distribution of wealth has far-reaching consequences beyond the indignity of being poor and the joy of being rich. This goes beyond living in a spacious palace or a hovel, the effect touches on everything that enables a person to access the services that society has to offer and it may perpetuate the situation for generations to come. We are not concerned about the size of people's houses or cars, on the other hand we are concerned about health, education, access to information and all the things that are needed or desirable to lead a "normal" life. I use quotes, because it may vary from country to country what may be considered "normal" or average.

The consequences of polarization are indeed undesirable because they affect the fabric of society in a very negative way. But redistributing wealth does not always mean tearing down the rich and feeding the poor, it may just mean distributing common property more fairly. If a rich person has a month of vacation he does not suffer any loss if everyone else enjoys the same privilege. If a rich person can drive down a four lane highway, will that privilege be any less if a good public transit system uses the same road? If he needs health care in order to save his life or the life of his family, will this care be any less valuable to him if others can enjoy the same care? These services are not meant to be prizes handed out to the privileged, they are the self-evident right of all who share in a common society. The body of a poor man needs the same nutritional food, his children need the same fresh air and schooling as that of a rich man. I could go on listing things that have to with basic welfare, health and childcare that are affected by a person's net disposable income. In Sweden they have even discovered that the children of the poor are significantly shorter than the chidren of the well-to-do. It's absurd! Oslo, my home town, is surrounded by forests and lakes and a beautiful fjord, perfect for sailing. These resources should be available for all citizens, and thus we try to make them accessible at no great cost.

By our welfare system some support is made independent of income. A rich person will get the same child care check as a poor person, it is based on the number of children, not on income. An old person will get a discount on the bus, that discount is based on age, not on income. But these payments mean a lot more for the poor than for those that have plenty of money already. Public pensions are based on former income, but only up to a point. Similarly there is a minimum pension for people who fail to reach a minimum income during their working lives.

Surely an individual has the same need of a safe birth and a dignified funeral regardless of economic and social circumstance. We may discuss why one man is rich and another is poor, what is clear to me is that we need to reduce the consequences of these differences. We welcome children and there is no reason why the number of children in a family should determine living standards. We welcome children and it should not matter if that child is born of a single mother or is born into a large family with father and mother. Being rich usually means being able to pick and chose, to utilize information, to feel secure. We wish to extend these privileges and to use our human resources to their widest extent.

Some will say, knowing no better or wishing to forget, that Norway can maintain this kind of social system because we are so rich. That is not the case. Most of our social security system was in place in the 1960's, and this includes our pension system. But the weath has enabled us to maintain and expand on this system. Remember also that most of our oil and gas income is kept out of our economy entirely, being exported and invested in other countries. I would assert that the situation is reverse. We have been able to spread the wealth because we had the social apparatus and the social thinking that optimized our good fortune. Few countries with great natural windfall resources, including oil, have been able to use that income for more than basic infrastructure – or less. Oil is much overrated as a source of national wealth. In Norway the investments needed were huge, getting a barrel of oil out of the ground costs on the average 12 dollars and the pipelines bringing the gas to market are thousands of kilometres long. It took 25 years from the time oil was found in 1970 until it created a substantial surplus. But the oil and gas fields were kept firmly in the hands of the state. In the future we will need the accumulated funds to pay for pensions. Today our social benefits are paid for out of hand, from the wealth created by ordinary Norwegians, paying taxes.

Other Essays by Erik Koht

Ye twenty-seventh letter of ye alphabet
How to speak Norwegian? Nobody really knows
They said it couldn't be done: Making a profit while caring for human rights
A Soldier Died Today
The Fable of Anti-Americanism
Propaganda and Censorship: My Head Belongs to Daddy...
Freedom: a Resource, a Condition, a State of Mind, a Slogan, a Dream
How to Keep Your Honour:
Try Killing Your Daughter and Stealing without Getting Caught

Multilateral Treaties and the Bully State

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