On February 11, 2019, Thomas Piketty writes on The Boston Globe:
What if the final blow for French President Emmanuel Macron came not from the yellow vests but from US Senator Elizabeth Warren of Massachusetts? Warren, who announced her candidacy for president on Saturday, has proposed what will doubtless be one of the key points of her campaign — the creation of a genuine federal progressive wealth tax.
Carefully calculated by Emmanuel Saez and Gabriel Zucman, the Warren proposal sets a rate of 2 percent on fortunes valued between $50 million and $1 billion, and 3 percent above $1 billion. The proposal also provides for an exit tax equal to 40 percent of total wealth for those who relinquish their American citizenship. The tax would apply to all assets, with no exemptions, with dissuasive sanctions for people and governments that do not transmit appropriate information on assets held abroad.
The debate has only just begun and the proposed schedule could still be extended and made more progressive — with rates rising, for example, to 5 to 10 percent per annum for multibillionaires. What is certain is that the issue of fiscal justice will be central to the presidential campaign. US Representative Alexandria Ocasio-Cortez of New York has suggested a rate of 70 percent on the highest incomes, while Senator Bernie Sanders of Vermont defends a tax rate of 77 percent on the highest inherited estates. While the Warren proposal is the most innovative, the three approaches are complementary and should be mutually beneficial.
To understand this, let’s look back. Between 1880 and 1910, while the concentration of industrial and financial wealth was gaining momentum in the United States and the country was threatening to become almost as unequal as old Europe, a powerful political movement in favor of an improved distribution in wealth was developing. This led to the creation of a federal tax on income in 1913 and on inheritances in 1916.
Between 1930 and 1980, the rate applied on the highest incomes was on average 81 percent, and the rate applied to the highest inherited estates was 74 percent. Clearly this did not destroy American capitalism. Far from it. It made it more egalitarian and more productive, at a time when the United States had not forgotten that educational advancement and investment in training and skills — not the religion of property and inequality — were the backbone of prosperity.
Presidents Ronald Reagan, George W. Bush, and Donald Trumpsubsequently endeavored to destroy this heritage. They turned their backs on the egalitarian origins of the country by counting on historical amnesia and by fueling identity-based divisions. With the hindsight we have today, it is obvious that the outcome of this policy was disastrous. Between 1980 and 2020, the rise in per capita national income was halved in comparison with the period 1930-1980. What little growth there was ended up being swept up by the richest, the consequence being a complete stagnation in income for the poorest 50 percent. There is something obvious about the movement of a return to progressive taxation and greater fiscal justice that is emerging today and which is long overdue.
The innovation is that it is now a question of creating an annual wealth tax in addition to the income and inherited estate taxes. This is a crucial innovation in terms of justice and efficiency. Numerous one-shot capital levies have been successfully applied to real estate, professional, and financial assets subsequent to the world wars to pay off public debts, in particular in Japan, Germany, Italy, France and in many European countries. Collected only once, the rates applied to the largest private estates often rose to 40 and 50 percent, or even more.
With an annual wealth tax designed to be applied on a permanent basis, the rates are of necessity more restricted. However, they must be high enough to enable genuine mobility of wealth. From this point of view, the tax on inherited wealth comes much too late. We are not going to wait until Jeff Bezos or Mark Zuckerberg reach the age of 90 before they begin to pay taxes. With the 3 percent annual rate proposed by Warren, a static estate worth $100 billion would return to the community in 30 years. This is a good beginning but, given the average rate of progression of the highest financial assets, the aim should undoubtedly be higher (5 to 10 percent or more).
It is also crucial to allocate all the revenue to the reduction of inequalities. In particular, the American property tax, like the French real estate tax, weighs heavily on those with limited resources. Those two venerable property taxes, contrary to what is sometimes stated, tax not only the ownership of housing but also tax business assets (offices, plots of land, warehouses, etc.). The problem is that they have never been genuinely rethought since the 18th century. The time has come for them to become progressive taxes with graduated rates on net assets, with the key element being strong reductions for indebeted households who are seeking to accede to property ownership. Let’s hope that the forthcoming American campaign, like the French discussion around the yellow vests, will at last afford the opportunity for an in-depth discussion on the taxation of property and fiscal justice.
Gary Reber Comments:
The idea that rich capitalists have an unfair ability to turn their current wealth into a lazy dynasty of self-reinforcing investments was made famous by French economist Thomas Piketty, the author of this article. Piketty has argued that wealth is concentrating in the 1% because more money can be made by investing in machines and land [capital] than paying people to perform work [wages]. Because capital is worth more than wages, those with an advantage to invest now in capital become the source of long-term dynasties of wealth and inequality.
Capital acquisition takes place on the logic of self-financing and asset-backed credit for productive uses. People invest in capital ownership on the basis that the investment will pay for itself. The basis for the commitment of loan guarantees, that I advocate, is the fact that nobody who knows what he or she is doing buys a physical capital asset or an interest in one unless he or she is first assured, on the basis of the best advice one can get, that the asset in operation will pay for itself within a reasonable period of time––5 to 7 or, in a worst case scenario, 10 years (given the current depressive state of the economy). And after it pays for itself within a reasonable capital cost recovery period, it is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.
Piketty, in his writings in Capital In The Twenty-First Century, is correct in his assessment that the role of physical productive capital is to do ever more of the work, which produces wealth and thus income to those who own productive capital assets.
But unlike Piketty’s and now Elizabeth Warren’s, Alexandria Ocasio-Cortez and Bernie Sanders’ call for a global wealth tax and redistribution, his and their reasoning is faulty as viable solutions. The reasoning should be that if productive capital is increasingly the source of the world’s economic growth, therefore, productive capital should become the source of added property ownership incomes for all. If both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all.
Yes, economic inequality is the problem we should be focused on. But It appears to be in vogue to envy the rich––the small wealthy capital assets ownership class that owns the businesses that employ propertyless workers and who, with their access to capital credit, have developed the United States economy.
While I am certain that a higher progressive tax reform will be achieved as the swell of support forces law makers to up the tax rates in order to redistribute high-wage/salary earners and the earnings of the nation’s productive capital wealth, no politician or academician, including Piketty, Warren, Ocasio-Cortez and Bernie Sanders, is advocating for broadening the ownership of new productive capital to be formed in the future (meaning now!) as a new source of growing income for EVERY child, woman, and man.
I believe there needs to be a serious focus on creating an Own The Future Deal, which empowers EVERY citizen to acquire overtime significant ownership stakes in the viable corporations and new startups growing the economy. This can be achieved using insured, interest-free capital credit to be specifically used for this purpose, without the requirement of past savings, and repayable strictly out of the future earnings of the investments.
Our political representatives and academicians should support Monetary Justice at http://capitalhomestead.org/page/monetary-justice and the enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/…/capital-homestead-act-a-plan-for-get…/, http://www.cesj.org/…/capita…/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/…/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts at http://www.cesj.org/…/ch-v…/capital-homestead-accounts-chas/
