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National Income & Wealth – What is the right model of distribution?

King Trisong Duetsen, the seventh century Chogyal (Dharma King) of Tibet was once deeply saddened to see his kingdom divided between the rich and the poor. The compassionate king grieved over the wide disparity of wealth among his subjects and envisioned a kingdom where everyone prospered equally.

To bring about this equality, the king mobilized wealth from his prosperous subjects and distributed them among the poor, thus making everyone equal. The King waited a year until he realized that his plan had failed utterly. The same people who were rich earlier became even wealthier and there were still many poor people around.

This was not fair to the king who wanted everyone to be equal. But despite repeated attempts, the king was unsuccessful. It finally dawned onto the king that people became either rich or poor based on their own merit. It was in the nature of human beings that how well one does in their life depended entirely on one’s own merits. The socialist ideology, which believes in equality, is said to have taken root thereafter.

In the modern day context, socialist minds like Karl Marx and Lenin espoused a socialist economic model that emanated from a deep sense of dislike towards ‘meritorious’ or elite citizens. This led to a conflict in economic ideologies.

The difference in ideology, particularly over the mode of distribution of income and wealth continues even today.  In fact, it has become a most sensational issue that is often used by politicians as a political tool to garner votes.

Although the world today has seen transformational development and growth, inequality still exists. Nations, cities, towns, villages, families and individuals still remain unequal. Even children borne of the same parent grow up unequal in economic status.

Therefore, what is the reason for equality or inequality in a society? Could there be a right model for equal distribution of nation’s income and wealth? Is there truly an economic model that brings about equal distribution of income and wealth and yet nurtures innovation, creativity and productivity of the citizens?

Generally speaking, innovation and creativity thrives on incentives. For an entrepreneur, the incentive for venturing into business is the prospect of ‘profit’ and that profit is the incentive for taking risk.  For a monk or a Buddhist practitioner, the incentive for upholding the Buddhist precepts and undertaking lifelong celibacy is Enlightenment or Nirvana. Therefore, a progressive society that incentivizes creativity and innovation will have large population of entrepreneurs, risk takers, innovators and creators.

In the recent past, many nations have explored a credible system and model of economy. Besides many other ideologies, Communism, which was achieved through nationalization of all resources once emerged as a dominant economic ideology. But economic models such as this either failed or did not bear any result. It rather destroyed the sense of entrepreneurship, innovation and creativity, making everyone equally dull and poor.

An alternative model based on the idea of a liberal market based economy, called the Laissez-faire system emerged. Nations that embraced this new capitalist model of economy progressed rapidly. It made optimum use of all the resources in the nation including human resources.

However, this model had its own share of flaws. Those who were efficient became more efficient and likewise the less efficient ones. The phrase such as rich becoming richer and poor becoming poorer became clichéd.

Lessons such as this suggest that if the ultimate goal of a nation is to have a progressive society, it has to create a platform to nurture innovation, creativity and a spirit of free enterprise.

For Bhutan, the ultimate vision of our King is to create a just, equal and fair society. To build an equal and fair society that encourages innovation and creativity, an efficient taxation policy is essential.

A nation that strives to have equal income and wealth must first have enough income and wealth to have it distributed among its populace. This can only be achieved by a productive and creative population.

The state must therefore create an environment which accommodates a moderate level of income and wealth inequality, where creativity, ideas and innovation are encouraged and nurtured. Legislative and regulatory infrastructure must be in favor of promoting entrepreneurship and startups. It should accommodate a system that provides equal opportunities to all and appreciates business failures. The environment must be conducive for creating a system that rewards and supports productive citizens.

If Bhutan’s priority is to generate more income and wealth and address income disparity, fiscal tools must be utilized by creating an effective taxation system. This will fulfill many objectives including revenue generation, corrective measures and behavioral discouragement, curbing inequality, resource distribution and economic stabilization.

Taxes should not only be levied on the income of the individual, but on the wealth that an individual has accumulated. An effective tax system can be achieved by having a broader taxpayer base, and the ability to assess the income of every individual and businesses across the country.

Besides levying a flat tax rate across all business houses, multiple tax rates should also be levied for different industries based on their ability to generate revenue or meet social objectives. The financial sector is often considered one of the most lucrative business to operate, therefore all financial institutions should be levied a higher tax rate than other industries that are not as lucrative.

The broader objective of such measure is to create a system where people who benefitted from the incentives and the system created by the government contribute more to the society in return.  In a liberal society, with proper incentives, business friendly regulations and legislation, where creativity is rewarded, citizens will be more willing and inspired to contribute to the society to a specific national cause.

Having an efficient taxation system will also help the government in terms of meeting social objectives such as poverty alleviation and improving education and health standards. A separate tax rate dedicated to poverty alleviation may be introduced.

A nation can either have a stagnant tax system with unfriendly legislation and regulation or a dynamic and progressive tax system with liberal legislation and regulation that nurtures innovation and offers opportunities.

If Bhutan’s priority is also to curb inequality and encourage entrepreneurship, the next government in 2018 has the opportunity to look upon the issue and adopt a right model of distributing national income and wealth among the citizens.

The Dharma king Trisong Duetsen envisioned creating a just, equal and fair society. Our great monarchs have visualized a similar society. One way to realize this would be by upholding the principles of free enterprise accompanied by a dynamic and efficient taxation system in the country.

Contributed by 

Sonam Dorji

Thimphu

Former Executive Director of RICB. The view expressed in this article reflects his views and in no way represents the organization’s view.

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