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
3.
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.
4.
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.
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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