Thomas Piketty's ideas on Wealth taxes

For the last couple of weeks I have been particularly active exploring an idea that I think could be important - the proposal that we should introduce a universal 1% annual tax on all assets whether they are financial, real estate or simple possessions. The tax would be paid on everything, wherever it is located in the world, and irrespective of who was the owner. Individuals, trusts, companies and corporations would all be required to pay. It is essentially a tax on wealth. 

One other person who has been arguing strongly for wealth taxes is French economist Thomas Piketty. His book "Le Capital au XXIe siécle", published in French August 2013, and translated into English as "Capital in the Twenty-First Century" which came out in April 2014 has been an international best seller; despite being 700 pages long. It analysed the increase of inequality, and argued that a progressive annual global wealth tax of up to 2%, combined with a progressive income tax reaching as high as 80% would be needed. 

In September 2019, he published an even longer book (1200 pages) called "Capital et Idéologie" that came out in English as "Capital and Ideology" in March 2020. It's a very impressive work of scholarship, and again makes a strong case for using wealth taxes. There is a great deal that I can agree with in Piketty's book, and he does a splendid job of presenting the various forms of wealth tax that have been used in the past, and which continue to be used to the present day. Like me, Piketty would like to see all young adults receive a capital endowment so that not only the children of the wealthy could have have a decent chance of making something of their lives. He suggests that this could be done at age 25, whereas I have been proposing the same thing at age 18 because it would allow the funds to be used to finance higher education.

Here are a few illustrations that demonstrate Piketty's commitment to scholarship. Here's a chart of the top tax rates for 4 countries since 1900. It shows for three of them, there was no income tax at all until around 1910, but it over 90% in the US for most of the period from 1940 to the late 1970s when it was an impressive 98%. Such high rates clearly didn't prevent the US economy from expanding.

Another fascinating graph plots the overall rate of taxation for people in France as a function of their income percentile. You can see that while people in the bottom 30% pay less than 50% tax, the overall tax rate also drops below 50% for the top 0.1% of earners. And everyone in the middle is paying 52% or more.

But Piketty's proposed solution involves the use of an extremely progressive tax system for both wealth taxes, and income taxes that would mean that the taxation rates would range from 0.1% to 90% for the richest. You can see the details in the following table. 

I must admit that here, I have serious problems. If the scheme could be implemented, it would indeed have the desired effect of massively reducing inequality. But that is a very big if. Piketty argues that one of the period where the US economy grew most rapidly was the period when top tax rates were indeed as high as 90%. 

 

But Piketty's suggestions really aimed at selectively targeting the rich and powerful. And, because of that, you can be sure that they will trigger very strong resistance from the people who control the media. I have major doubts that such a scheme could be pushed through.

That is why I am personally convinced that the smartest strategy is to introduce schemes that treat everyone in the same way. All my current propositions are like that. 

1. Give everyone a basic income at around 50% of median income. 
2. Tax all additional income (whatever the source) at 30% 
3. Tax all financial transactions at around 0.1%
4. Tax all wealth at 1% per annum

Combining such moves with the complete suppression of tax breaks, and replacement with direct subsidies for desirable behavior that are available to all citizens, and you have a set of proposals where it is impossible to argue that you are being treated unfairly.  The amounts of revenue that can be generated by such taxes mean that it would be easy to suppress several other taxes (including VAT) and social security contributions, and still pay for all the other vital services.

I don't know if there is much chance that Thomas Piketty could read this. But, if he did, I would be delighted to exchange with him on the subject.