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NEW - In 2016 the 2-4-8 Tax Blend will become 2-4-8 Tax Choice
The "choice" would allow all taxpayers to choose an income tax rate between 8% and 28% paired with a net wealth tax rate of 2% going down to zero. Wealth taxes paid would reduce Estate and Gift taxes (also set at 28%). This would encourage wealthy individuals to pay some net wealth taxes as a form of inexpensive life insurance.


C - Corp
4% VAT
8% Income

The Reviewer's Descriptions of a Piketty's Wealth Tax Solution:

How some of the best economists and business writers

respond to a very serious proposal to tax net wealth.


with notes by Eugene Patrick Devany

updated April 23, 2014




Re: Capital in the 21st Century

by Thomas Piketty, translated from the French by Arthur Goldhammer

Belknap Press/Harvard University Press, 685 pp., $39.95


The short guide to Capital in the 21st Century

Vox.com by Matthew Yglesias, April 8, 2014, matt@vox.com


What are some other possible solutions to the problem Piketty diagnoses?

The politically easiest way to avert Piketty's prophesy of doom would be to increase the economic growth rate. Everyone has their favorite ideas about how to do this, but the simplest ones involve mechanically increasing the population growth rate. The pre-war United States was less wealth-dominated than pre-war Europe largely because the population was growing much faster. Pro-fertility measures or more liberal immigration rules might do the trick.

We also might consider wealth-destruction methods that are a little more narrowly tailored than a broad wealth tax (or a world war). For example, much of modern-day wealth appears to take the form of urban land (Silicon Valley houses are much more expensive than houses in the Houston suburbs, not because the houses are bigger but because the land is more expensive), control over oil and other fossil fuel resources, and the value associated with various patents, copyrights, trademarks, and other forms of intellectual property. Land and resources differ from traditional capital in that even a very high rate of taxation on them won't cause the land to go away or the oil to vanish. Intellectual property is deliberately created by the government. Stiff land taxes, and major intellectual property reform could achieve many of Piketty's goals without disincentivizing saving and wealth creation.


E. P. Devany Note: Mr. Yglesias apparently thinks that a wealth tax is a disincentive to saving and wealth creation when it is actually a negative reinforcement as in "use it or lose it". The old adage about getting less of something when it is taxed applies only when there is an alternative for the taxpayer. When all types of wealth are taxed the tax cannot be avoided. The wealth tax provides an incentive for productive use of the capital rather than letting it sit idle. When combined with a low income tax rate it can increase risk.


The return of "patrimonial capitalism": review of Thomas Piketty's Capital in the 21st century

by Branko Milanovic, World Bank, October 2013 - First Draft

Forthcoming in: Journal of Economic Literature No. June 2014


8. Economic policy recommendations and method.

The policy recommendation that has attracted most attention is Piketty’s breathtaking call for global taxation of capital. It follows directly from his concern with r>g inequality. The only way to reverse it, if g is exogenously given, is to reduce r. Despite its grandiose and perhaps unrealistic nature (Piketty calls it, possibly in a nod to John Rawls, a “useful utopia”) one would be wrong to dismiss the proposal out of hand. Nobody believes that it could be implemented hic et nunc, and neither does Piketty. But it is based on several strong points.

First, the analysis sketched so far (if one accepts it fully) shows the dangers of an inheritance based system which favors those who do not need to work for their sustenance. This can be modified precisely by a tax on capital.

Second, taxes on capital, whether in form of taxes on land or inheritance, have a long history, probably the longest of all taxes, precisely because some forms of capital were difficult to hide. Extending this to include all forms of capital seems logically consistent.

Third, technical requirements for such a tax (which in a rudimentary form exists in most advanced economies) are not overwhelming. Housing is already taxed; the market value of different financial instruments is easily ascertainable and the identities of owners known. The problems are, of course, political.

The application of such a tax by individual countries, even the most important, like the United States, can easily lead to the outflow of capital. Thus, international collaboration is indispensable. That collaboration is unlikely to be supported by the countries that currently benefit the most from the opacity of financial transactions and offer tax havens to the rich. Moreover, some emerging market economies may be unwilling to subscribe to it too. But a more modest proposal built around the OECD members (or EU and the United States) is, Piketty argues, feasible. He takes the recently passed US legislation (Foreign Account Tax Compliance Act) as one of the first steps that could lead to regional taxation of capital. I will not discuss here other pros and cons of such a system. It is a big topic for fiscal specialists, and, as is apparent, it runs into a host of political economy problems. But it is important to put it on the table and not to dismiss it out of hand.


E. P. Devany Note: Mr. Milanovic does not speculate about the different forms of a tax on capital (net wealth) or consider why it should or should not be global, progressive or even if it might be offered as an option with a very low income tax rate. Milanovic acknowledges that, "extending this to include all forms of capital seems logically consistent", but fails to note that this is a necessity in order to avoid tax avoidance, investment distortions and unintended consequences.


Piketty’s Triumph

Three expert takes on Capital in the Twenty-First Century, French economist Thomas Piketty's data-driven magnum opus on inequality.

by Jacob Hacker, Paul Pierson, Heather Boushey, Branko Milanovic

© 2014 by The American Prospect


Piketty is rightly pessimistic about an immediate response. The influence of the wealthy on democratic politics and on how we think about merit and reward presents formidable obstacles. Fierce international competition for the rich and their dollars leads Piketty to believe that without a serious countermovement, capital taxation will trend toward zero. Inequality is becoming a “wicked” problem like climate change—one in which a solution must not only overcome powerful entrenched interests in individual countries but must be global in scope to be effective. Nonetheless, it is capital taxation, and ultimately global capital taxation, that Piketty sees as the eventual solution. Taxing only consumption and labor income violates the notion that citizens should finance the commonwealth on the basis of their ability to pay. A global capital tax— modest, progressive, based on transparency—could reinforce the fraying link between economic standing and individual contributions toward vital collective activities. Moreover, halting progress in this direction has already taken place, as rich countries seek—without great success so far—to crack down on the tax havens and corporate financial engineering that increasingly make taxes voluntary for the superrich. Because wealth is still so concentrated in advanced industrial nations, agreements that covered citizens of and transactions within Europe and North America would go a long way toward bringing these activities into the open. A modest tax on the largest fortunes might also encourage more productive uses of capital, gradually taxing away big estates with small returns. Piketty suggests that the pressures for change will eventually prove overwhelming. Either ever-richer capitalists will tear one another apart in the race for diminishing returns, or the rest of society will rise up and impose a fairer framework. For a book that insists on the primacy of politics, however, Piketty has relatively little to say about how—with organized labor weakened, moneyed interests strengthened, and anti-government forces emboldened—the kind of political movement necessary for a fairer future will emerge. (It was war, after all, not universal suffrage, that ultimately tamed inequality in the 20th century.) Yet perhaps with this magisterial book, the troubling realities Piketty unearths will become more visible and the rationalizations of the privileged that sustain them less dominant. Like Tocqueville, Piketty has given us a new image of ourselves. This time, it’s one we should resist, not welcome.


So these are possible problems [omitted] with Piketty’s analysis. But if we take it at its face value, what are the remedies he suggests? A global tax on capital - needed to curb the tendency of advanced capitalism to generate a skewed distribution of income in favor of property holders. The high taxation of capital, and of inheritance in particular, is not something new, as Piketty amply demonstrates. It is technically feasible since information on the ownership of most assets, from housing to stock shares, is available. (Piketty, by the way, provides lots of specific information on how the tax could be implemented. He also gives some notional rates: no tax on capital below almost 1.4 million dollars, 1 percent on capital between 1.4 million and 6.8 million dollars, and 2 percent on capital above 6.8 million dollars.) For such a global tax to be effective, however, a huge amount of coordination would be required among the leading countries—a task to whose challenges Piketty is not oblivious. Implementation by one or two countries, even the most important economies, could lead to capital flight. The main offshore tax havens would also have to cooperate, although they would lose hugely lucrative business. But an agreement across the Organisation for Economic Co-operation and Development on the uniform taxation of wealth, however farfetched it might seem today, should be put on the table. This is, in Piketty’s view, the only way to “regulate capitalism” and make both capitalism and democracy sustainable in the long run.

In a short review, it is impossible to do even partial justice to the wealth of information, data, analysis, and discussion contained in this book of almost 700 pages. Piketty has returned economics to the classical roots where it seeks to understand the “laws of motion” of capitalism. He has reemphasized the distinction between “unearned” and “earned” income that had been tucked away for so long under misleading terminologies of “human capital,” “economic agents,” and “factors of production.” Labor and capital—those who have to work for a living and those who live from property—people in flesh—are squarely back in economics via this great book.


E. P. Devany Note: The reviewers include some suggested progressive wealth tax rates but it is not known why these were selected by Mr. Piketty. Perhaps he is simply adopting the French "soak the rich" method of tax reform. While there seems to be an intent not to tax low wealth families (or individuals) there is no discussion about over taxing income of low wealth families or how the two taxes might best coexist.


Why We’re in a New Gilded Age

by Paul Krugman

New York Review of Books, May 8, 2014 Issue


Capital in the Twenty-First Century is, as I hope I’ve made clear, an awesome work. At a time when the concentration of wealth and income in the hands of a few has resurfaced as a central political issue, Piketty doesn’t just offer invaluable documentation of what is happening, with unmatched historical depth. He also offers what amounts to a unified field theory of inequality, one that integrates economic growth, the distribution of income between capital and labor, and the distribution of wealth and income among individuals into a single frame.

And yet there is one thing that slightly detracts from the achievement—a sort of intellectual sleight of hand, albeit one that doesn’t actually involve any deception or malfeasance on Piketty’s part. Still, here it is: the main reason there has been a hankering for a book like this is the rise, not just of the one percent, but specifically of the American one percent. Yet that rise, it turns out, has happened for reasons that lie beyond the scope of Piketty’s grand thesis.

Piketty is, of course, too good and too honest an economist to try to gloss over inconvenient facts. “US inequality in 2010,” he declares, “is quantitatively as extreme as in old Europe in the first decade of the twentieth century, but the structure of that inequality is rather clearly different.” Indeed, what we have seen in America and are starting to see elsewhere is something “radically new”—the rise of “supersalaries.”

Capital still matters; at the very highest reaches of society, income from capital still exceeds income from wages, salaries, and bonuses. Piketty estimates that the increased inequality of capital income accounts for about a third of the overall rise in US inequality. But wage income at the top has also surged. Real wages for most US workers have increased little if at all since the early 1970s, but wages for the top one percent of earners have risen 165 percent, and wages for the top 0.1 percent have risen 362 percent. ...

... conservative economists love to talk about the high pay of performers of one kind or another, such as movie and sports stars, as a way of suggesting that high incomes really are deserved. But such people actually make up only a tiny fraction of the earnings elite. What one finds instead is mainly executives of one sort or another—people whose performance is, in fact, quite hard to assess or give a monetary value to.

Who determines what a corporate CEO is worth? Well, there’s normally a compensation committee, appointed by the CEO himself. In effect, Piketty argues, high-level executives set their own pay, constrained by social norms rather than any sort of market discipline. And he attributes skyrocketing pay at the top to an erosion of these norms. In effect, he attributes soaring wage incomes at the top to social and political rather than strictly economic forces.

Now, to be fair, he then advances a possible economic analysis of changing norms, arguing that falling tax rates for the rich have in effect emboldened the earnings elite. When a top manager could expect to keep only a small fraction of the income he might get by flouting social norms and extracting a very large salary, he might have decided that the opprobrium wasn’t worth it. Cut his marginal tax rate drastically, and he may behave differently. And as more and more of the supersalaried flout the norms, the norms themselves will change.

There’s a lot to be said for this diagnosis, but it clearly lacks the rigor and universality of Piketty’s analysis of the distribution of and returns to wealth. Also, I don’t think Capital in the Twenty-First Century adequately answers the most telling criticism of the executive power hypothesis: the concentration of very high incomes in finance, where performance actually can, after a fashion, be evaluated. ...

... Even if the surge in US inequality to date has been driven mainly by wage income, capital has nonetheless been significant too. And in any case, the story looking forward is likely to be quite different. The current generation of the very rich in America may consist largely of executives rather than rentiers, people who live off accumulated capital, but these executives have heirs. And America two decades from now could be a rentier-dominated society even more unequal than Belle Époque Europe.

But this doesn’t have to happen.


At times, Piketty almost seems to offer a deterministic view of history, in which everything flows from the rates of population growth and technological progress. In reality, however, Capital in the Twenty-First Century makes it clear that public policy can make an enormous difference, that even if the underlying economic conditions point toward extreme inequality, what Piketty calls “a drift toward oligarchy” can be halted and even reversed if the body politic so chooses.

The key point is that when we make the crucial comparison between the rate of return on wealth and the rate of economic growth, what matters is the after-tax return on wealth. So progressive taxation—in particular taxation of wealth and inheritance—can be a powerful force limiting inequality. Indeed, Piketty concludes his masterwork with a plea for just such a form of taxation. Unfortunately, the history covered in his own book does not encourage optimism.

It’s true that during much of the twentieth century strongly progressive taxation did indeed help reduce the concentration of income and wealth, and you might imagine that high taxation at the top is the natural political outcome when democracy confronts high inequality. Piketty, however, rejects this conclusion; the triumph of progressive taxation during the twentieth century, he contends, was “an ephemeral product of chaos.” Absent the wars and upheavals of Europe’s modern Thirty Years’ War, he suggests, nothing of the kind would have happened.

... Why didn’t the universally enfranchised citizens of France vote in politicians who would take on the rentier class? Well, then as now great wealth purchased great influence—not just over policies, but over public discourse. Upton Sinclair famously declared that “it is difficult to get a man to understand something when his salary depends on his not understanding it.” Piketty, looking at his own nation’s history, arrives at a similar observation: “The experience of France in the Belle Époque proves, if proof were needed, that no hypocrisy is too great when economic and financial elites are obliged to defend their interest.”

... Nor is this orientation toward capital just rhetorical. Tax burdens on high-income Americans have fallen across the board since the 1970s, but the biggest reductions have come on capital income—including a sharp fall in corporate taxes, which indirectly benefits stockholders—and inheritance. Sometimes it seems as if a substantial part of our political class is actively working to restore Piketty’s patrimonial capitalism. And if you look at the sources of political donations, many of which come from wealthy families, this possibility is a lot less outlandish than it might seem.

Piketty ends Capital in the Twenty-First Century with a call to arms—a call, in particular, for wealth taxes, global if possible, to restrain the growing power of inherited wealth. It’s easy to be cynical about the prospects for anything of the kind. But surely Piketty’s masterly diagnosis of where we are and where we’re heading makes such a thing considerably more likely. So Capital in the Twenty-First Century is an extremely important book on all fronts. Piketty has transformed our economic discourse; we’ll never talk about wealth and inequality the same way we used to.


E. P. Devany Note: The style of Krugman's review is long and elegant befitting Capital but also a bit too political and argumentative. Krugman seems to want to make sure that the audience knows it is he who won the Pulitizer Prize not Piketty - at least not yet. Krugman is a liberal partisan whereas Piketty embraces a global style that renders local partisan politics as petty in the larger scheme. Krugman is obsessed with the politics of the 1% while Piketty sees them as heirs and statically noteworthy.


Capital in partial equilibrium

by Ryan Decker

Updated Priors, March 25, 2014


... Many reviews have been very positive; there are a lot of positive things I could say about it, but I will leave that to others. The book suffers from some fundamental flaws; in short, while it is heavy on data it is light on serious economics. ...

Piketty's data on inheritance are the most interesting and persuasive to me. Inheritance still matters and plays a nontrivial role in the wealth and income distribution. Reducing wealth inequality over time, should we decide to do so, will require serious attention to the issue of inheritance, which more than any other issue lacks a tie to meritocracy (but that does not mean incentives stop mattering!). There may be other arguments, not based solely on inequality, for thinking about inheritance. That said, not all capital is created equal, and the book could have benefited from some focus on distinctions between capital types--particularly in the context of inheritance.

Most of the analysis in the book is more about accounting than economics. Piketty takes nearly everything as exogenous then divides things arithmetically. His ubiquitous r > g heuristic takes both sides of the inequality as given for almost the entire book. ...

... Piketty attributes the rise of the "patrimonial middle class"--the great home-owning middle class of developed countries--entirely to the rise of capital taxation (373) ... Denying that economic forces played any role in bringing wealth to the middle class helps Piketty claim that inequality will spiral out of control and leave us all in poverty unless serious tax reform is effected. This argument also requires him to assure readers that there are no tradeoffs associated with capital taxation: "It is important to note that the effect of the tax on capital income is not to reduce the total accumulation of wealth" (373). We also learn that there is "no doubt that the increase of inequality in the United States contributed to the nation's financial instability" (297).

... Piketty never mentions optimal taxation literature aside from a handful of his own papers. His central recommendation of a global wealth tax does not read like a result of optimal taxation analysis. He claims that "it is hard to think of an economic principle that would explain why some assets should be taxed at one-eighth the rate of others" (529), as if "elasticity" and other drivers of optimal tax models are not economic principles.


E. P. Devany Note: Mr. Decker has done a good job identifying what Capital is not but wishing that Piketty should have stressed that the poor don't have it so bad is not much of a review. Decker's belief in unspecified "optimal taxation literature", analysis and principles that should have been utilized by Piketty sounds more like a complaint from Oscar the Grouch.


The New Marxism

A prominent liberal economist contends capitalism will inevitably increase inequality.

By James Pethokoukis (blogs for the American Enterprise Institute)

National Review Online, March 24, 2014


... Piketty’s case, though well argued, is far from airtight. He makes a number of contestable assumptions, including a) output will grow more slowly than the return on capital, b) the return on capital will stay high despite slower growth, and c) skyrocketing corporate pay doesn’t much reflect how technology and globalization have enabled top executives to manage or perform on a larger scale.

... Piketty and fellow French economist and University of California, Berkeley, inequality researcher Emmanuel Saez are arguably the most important public intellectuals in the world today. Their research is driving the economic agenda pushed by Washington Democrats and promoted by the mainstream media. The soft Marxism in Capital, if unchallenged, will spread among the clerisy and reshape the political economic landscape on which all future policy battles will be waged. We’ve seen this movie before.


E. P. Devany Note: Mr. Pethokoukis blogs for the American Enterprise Institute and this may be why his review does not specifically mention a tax on capital or net wealth tax. Indeed, AEI may have shot themselves in the foot on March 13, 2014 when they invited Bill Gates to speak and he suggested that a replacement of the regressive payroll taxes was needed to create more U.S. jobs.

Thomas Piketty Is Right

Everything you need to know about 'Capital in the Twenty-First Century'

by Robert M. Solow [Robert M. Solow is Institute Professor of Economics emeritus at MIT. He won the Nobel Prize in Economics in 1987.]

New Republic, April 22, 2014

Capital is indeed very unequally distributed. Currently in the United States, the top 10 percent own about 70 percent of all the capital, half of that belonging to the top 1 percent; the next 40 percent—who compose the “middle class”—own about a quarter of the total (much of that in the form of housing), and the remaining half of the population owns next to nothing, about 5 percent of total wealth.


So Piketty’s foreboding vision of the twenty-first century remains to be dealt with: slower growth of population and productivity, a rate of return on capital distinctly higher than the growth rate, the wealth-income ratio rising back to nineteenth-century heights, probably a somewhat higher capital share in national income, an increasing dominance of inherited wealth over earned wealth, and a still wider gap between the top incomes and all the others. Maybe a little skepticism is in order. For instance, the historically fairly stable long-run rate of return has been the balanced outcome of a tension between diminishing returns and technological progress; perhaps a slower rate of growth in the future will pull the rate of return down drastically. Perhaps. But suppose that Piketty is on the whole right. What, if anything, is to be done?

Piketty’s strong preference is for an annual progressive tax on wealth, worldwide if possible, to exclude flight to phony tax havens. He recognizes that a global tax is a hopeless goal, but he thinks that it is possible to enforce a regional wealth tax in an area the size of Europe or the United States. An example of the sort of rate schedule that he has in mind is 0 percent on fortunes below one million euros, 1 percent on fortunes between one and five million euros, and 2 percent above five million euros. (A euro is currently worth about $1.37.) Remember that this is an annual tax, not a onetime levy. He estimates that such a tax applied in the European Union would generate revenue equal to about 2 percent of GDP, to be used or distributed according to some agreed formula. He seems to prefer, as would I, a slightly more progressive rate schedule. Of course the administration of such a tax would require a high degree of transparency and complete reporting on the part of financial institutions and other corporations. The book discusses in some detail how this might work in the European context. As with any tax, there would no doubt be a continuing struggle to close loopholes and prevent evasion, but that is par for the course.

Annual revenue of 2 percent of GDP is neither trivial nor enormous. But revenue is not the central purpose of Piketty’s proposal. Its point is that it is the difference between the growth rate and the after-tax return on capital that figures in the rich-get-richer dynamic of increasing inequality. A tax on capital with a rate structure like the one suggested would diminish the gap between the rate of return and the growth rate by perhaps 1.5 percent and would weaken that mechanism perceptibly.

This proposal makes technical sense because it is a natural antidote to the dynamics of inequality that he has uncovered. Keep in mind that the rich-get-richer process is a property of the system as it operates on already accumulated wealth. It does not work through individual incentives to innovate or even to save. Blunting it would not necessarily blunt them. Of course a lower after-tax return on capital might make the accumulation of large fortunes somewhat less attractive, though even that is not at all clear. In any case, it would be a tolerable consequence.

Piketty writes as if a tax on wealth might sometime soon have political viability in Europe, where there is already some experience with capital levies. I have no opinion about that. On this side of the Atlantic, there would seem to be no serious prospect of such an outcome. We are politically unable to preserve even an estate tax with real bite. If we could, that would be a reasonable place to start, not to mention a more steeply progressive income tax that did not favor income from capital as the current system does. But the built-in tendency for the top to outpace everyone else will not yield to minor patches. Wouldn’t it be interesting if the United States were to become the land of the free, the home of the brave, and the last refuge of increasing inequality at the top (and perhaps also at the bottom)? Would that work for you?

E. P. Devany Note: Mr. Solow acknowledges that a net wealth tax, "does not work through individual incentives to innovate or even to save" and thus may be a better means of raising tax revenue. It is not clear where he gets his data for the U.S. distribution of wealth and he certainly needs to review his estimate of 5% for the poorer half of the U.S. population when the U.S. survey data for 2010 suggests a mere 1.1%. See here. Mr. Solow should also consider an optional net wealth tax before speculation about political viability on either side of the Atlantic.

Thomas Piketty Revives Marx for the 21st Century

by Daniel Shuchman, [Mr. Shuchman is a New York fund manager who often writes on law and economics.]

Wall Street Journal, April 21, 2014


Thomas Piketty likes capitalism because it efficiently allocates resources. But he does not like how it allocates income. There is, he thinks, a moral illegitimacy to virtually any accumulation of wealth, and it is a matter of justice that such inequality be eradicated in our economy. The way to do this is to eliminate high incomes and to reduce existing wealth through taxation. ...

... extremely limited samples of estate tax records and dubious extrapolation—is ultimately of little consequence. For this book is less a work of economic analysis than a bizarre ideological creed.

... Soaring pay for corporate "supermanagers" has been the largest source of increased inequality, according to Mr. Piketty, and these executives can only have attained their rewards through luck or flaws in corporate governance. ... But the author believes that no CEO could ever justify his or her pay based on performance. ...

So what is to be done? Mr. Piketty urges an 80% tax rate on incomes starting at "$500,000 or $1 million." This is not to raise money for education or to increase unemployment benefits. Quite the contrary, he does not expect such a tax to bring in much revenue, because its purpose is simply "to put an end to such incomes." It will also be necessary to impose a 50%-60% tax rate on incomes as low as $200,000 to develop "the meager US social state." There must be an annual wealth tax as high as 10% on the largest fortunes and a one-time assessment as high as 20% on much lower levels of existing wealth. He breezily assures us that none of this would reduce economic growth, productivity, entrepreneurship or innovation.

Not that enhancing growth is much on Mr. Piketty's mind, either as an economic matter or as a means to greater distributive justice. He assumes that the economy is static and zero-sum; if the income of one population group increases, another one must necessarily have been impoverished. He views equality of outcome as the ultimate end and solely for its own sake. Alternative objectives—such as maximizing the overall wealth of society or increasing economic liberty or seeking the greatest possible equality of opportunity or even, as in the philosophy of John Rawls, ensuring that the welfare of the least well-off is maximized—are scarcely mentioned. ...

... societies need markets and private property to have a functioning economy. He says that his solutions provide a "less violent and more efficient response to the eternal problem of private capital and its return." Instead of Austen and Balzac, the professor ought to read "Animal Farm" and "Darkness at Noon."


E. P. Devany Note: Mr. Shuchman has not tried to understand Mr. Piketty or the economic importance of his work and simply wrote the hatchet job required by the Wall Street Journal whenever the subject of a net wealth tax comes up. Shuchman has taken a passing reference to a, "wealth tax as high as 10% on the largest fortunes and a one-time assessment as high as 20%" to justify his fake argument that Piketty, "Revives Marx". In July of 2000, Donald Trump wrote a book titled, "The America We Deserve" which included a proposal to impose a one-time 14.25% wealth tax. In truth, Mr. Piketty is no more and no less of a Marxist than Donald Trump. See the list of U.S. Wealth Tax Pioneers.

The Inequality Puzzle

Thomas Piketty’s tour de force analysis doesn’t get everything right, but it’s certainly gotten us pondering the right questions.

by Lawrence H. Summers [Lawrence H. Summers is the Charles W. Eliot University Professor and President Emeritus at Harvard University. He served as the 71st Secretary of the Treasury for President Clinton and the Director of the National Economic Council for President Obama.]

Democracy, A Journal of Ideas, Issue #32, Spring 2014

... Piketty has emerged as a rock star of the policy-intellectual world. His book was for a time Amazon’s bestseller. Every pundit has expressed a view on his argument, almost always wildly favorable if the pundit is progressive and harshly critical if the pundit is conservative.

... it exudes erudition from each of its nearly 700 pages, drips with literary references, and goes on to propose easily understood laws of capitalism that suggest that the trend toward greater concentration is inherent in the market system and will persist absent the adoption of radical new tax policies.

... And the trends are all in the wrong direction, particularly for the less skilled, as the capacity of capital embodying artificial intelligence to replace white-collar as well as blue-collar work will increase rapidly in the years ahead.

Where does this leave policy?

Piketty’s argument is that a tendency toward wealth accumulation and concentration is an inevitable byproduct of the workings of the capitalist system. From his perspective, differences between capitalism as practiced in the English-speaking world and in continental Europe are of second order relative to the underlying forces at work. So he is led to far-reaching policy proposals as the principal redress for rising inequality.

In particular, Piketty argues for an internationally enforced progressive wealth tax, where the rate of tax rises with the level of wealth. This idea has many problems, starting with the fact that it is unimaginable that it will be implemented any time soon. Even with political will, there are many problems of enforcement. How does one value a closely held business? Even if a closely held business could be accurately valued, will its owners be able to generate the liquidity necessary to pay the tax? Won’t each jurisdiction have a tendency to undervalue assets within it as a way of attracting investment? Will a wealth tax encourage unseemly consumption by the wealthy?

Perhaps the best way of thinking about Piketty’s wealth tax is less as a serious proposal than as a device for pointing up two truths. First, success in combating inequality will require addressing the myriad devices that enable those with great wealth to avoid paying income and estate taxes. It is sobering to contemplate that in the United States, annual estate and gift tax revenues come to less than 1 percent of the wealth of just the 400 wealthiest Americans. With respect to taxation, as so much else in life, the real scandal is not the illegal things people do—it is the things that are legal. And second, such efforts are likely to require international cooperation if they are to be effective in a world where capital is ever more mobile. The G-20 nations working through the OECD have begun to address these issues, but there is much more that can be done. Whatever one’s views on capital mobility generally, there should be a consensus on much more vigorous cooperative efforts to go after its dark side—tax havens, bank secrecy, money laundering, and regulatory arbitrage.

Beyond taxation, however, there is, one would hope, more than Piketty acknowledges that can be done to make it easier to raise middle-class incomes and to make it more difficult to accumulate great fortunes without requiring great social contributions in return. Examples include more vigorous enforcement of antimonopoly laws, reductions in excessive protection for intellectual property in cases where incentive effects are small and monopoly rents are high, greater encouragement of profit-sharing schemes that benefit workers and give them a stake in wealth accumulation, increased investment of government pension resources in riskier high-return assets, strengthening of collective bargaining arrangements, and improvements in corporate governance. Probably the two most important steps that public policy can take with respect to wealth inequality are the strengthening of financial regulation to more fully eliminate implicit and explicit subsidies to financial activity, and an easing of land-use restrictions that cause the real estate of the rich in major metropolitan areas to keep rising in value.

Hanging over this subject is a last issue. Why is inequality so great a concern? Is it because of the adverse consequences of great fortunes or because of the hope that middle-class incomes could grow again? If, as I believe, envy is a much less important reason for concern than lost opportunity, great emphasis should shift to policies that promote bottom-up growth. At a moment when secular stagnation is a real risk, such policies may include substantially increased public investment and better training for young people and retraining for displaced workers, as well as measures to reduce barriers to private investment in spheres like energy production, where substantial job creation is possible.

... Books that represent the last word on a topic are important. Books that represent one of the first words are even more important. By focusing attention on what has happened to a fortunate few among us, and by opening up for debate issues around the long-run functioning of our market system, Capital in the Twenty-First Century has made a profoundly important contribution.

E. P. Devany Note: Mr. Summers review is one of the best leaving consideration of better taxes and other reforms for what might be Mr. Piketty's sequel. Piketty, after all, has the data of many countries over centuries to support his analysis and trends even if the economic formuli can always be tweaked. If Piketty accepts his new role as the point man in tax and policy reform (and lears a lesson or two from Pope Francis) his next book will be better (and shorter) than his last.

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Copyright 1985 to 2015 by Eugene Patrick Devany