Is Wealth Confiscation and Redistribution A Good Idea?

Updated: Sep 6, 2021

If Jeff Bezos liquidated his wealth and distributed it to every American, each American would receive roughly 583 dollars. That may not seem like much, but he is only one man. What if we did this to every person in the top 1%? Imagine all the good the government could do with that amount of money. It is a valid argument. One that sounds great at first glance. So just how great is this idea, and how could we implement it? Before we begin talking about closing the wealth gap, we should first understand why it exists.


How many authors can you name off of the top of your head? Probably one to ten, depending on how much you read. But there are millions of authors in the world. So why can we only name a few? This is because of a mathematical phenomenon called the Pareto distribution, which occurs naturally all around us.


The Pareto distribution is responsible for something called the "80:20 rule" which, using the previous example, states that 80% of bestseller novels likely came from 20% of the authors. In most skill and merit-based systems, the distribution of success looks something like this.



Because of this, a very, very small amount of people end up having around 99% of the success in most realms of our lives. There are millions of people who play basketball, yet only about 1% of people who play basketball are good enough to be professionals, and only a small portion of those people are going to be better than their peers. This happens with reporters, actors, athletes, writers, YouTubers, politicians, and pretty much anything that requires any amount of skill. It is a small percentage of people having a large percentage of the success.


The same is true for wealth. A very small portion of the population was hyper-successful in the realm of business and as a result, have accumulated the majority of the wealth. It is a fundamental law of nature.


Now back to the question at hand. Should we take the wealth that the top 1% has generated and distribute it to the bottom 99%? I would argue no. Not because I believe it to be stealing (though I do believe it to be stealing) but because it would not solve the problem at hand. The wealth that is redistributed would simply end up back into the hands of 1% of the population, it just won't be the same 1%. Because in a free society, the distribution of wealth always ends up looking like the Pareto distribution.


The Soviet Union did an excellent job in closing the wealth gap. Extensive land and wealth confiscation led to Soviet citizens being some of the most equal in the world. But, of course, they were all equally poor, since the government simply confiscated the wealth and spent it however it chose. And that brings up the other pesky problem with wealth confiscation. It's run by the government. By giving the government the power to confiscate wealth from the top 1%, we would be giving it the power to confiscate wealth from anyone.


When the 16th amendment was signed into law in 1913, it gave the government the ability to levy an income tax. It was paraded as a way to get the rich to pay their "fair share". The original income tax rate was between 1 - 7% based on income. Today, it ranges between 10 - 37%. But in 1945, the range was between 24 - 94%.

Once a government has power, it is very difficult to take away that power. We as a nation should be very wary of trying to make the rich pay their "fair share". People in 1913 likely did not think a 1% income tax rate was that big of a deal. But the government now has that power, and they always will.


In order to obtain a society in which the distribution of wealth is relatively equal, that society must forfeit its freedom to choose. If given the ability to choose, societies create people like Bill Gates and Jeff Bezos. 80% of the wealth is controlled by 20% of Americans. Not because our society is unfair, but because millions of people in America deal with money every day. 99% of them don't make hyper-successful businesses. And only 1% of those who do make hyper-successful businesses end up making businesses like Microsoft or Amazon.


These men created their wealth through free markets. Without an incentive to be successful, Steve Jobs would not have created the iPhone, Jeff Bezos would not have made it possible for you to receive packages in two days, and Mark Zuckerburg would not have revolutionized social media.


By confiscating the wealth from the top 1%, you remove that incentive to be successful, and with it, you lose exactly what makes capitalism so beneficial for society: competition, and motivation to be better than your peers.


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Sources:

Income tax rates throughout history: https://files.taxfoundation.org/legacy/docs/fed_individual_rate_history_nominal.pdf

Soviet Union distribution of wealth: http://www.socialisteconomist.com/2017/10/how-ussr-radically-reduced-income.html

Jeff Bezos net worth: https://www.businessinsider.in/business/news/top-10-richest-people-in-the-world/articleshow/74415117.cms

The U.S. population: https://www.census.gov/quickfacts/fact/table/US/PST045219

Pareto distribution explained: https://corporatefinanceinstitute.com/resources/knowledge/economics/pareto-distribution/

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