An Immodest Proposal: A Global Tax on the Superrich

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from Bloomberg Businessweek,

Bill Gates is just the most extreme example of the polarization of wealth in the U.S. The top hundredth of 1 percent of U.S. taxpayers—that’s 16,000 people—have a combined net worth of $6 trillion. That’s as much as the bottom two-thirds of the population. Meanwhile, a quarter of American families say they have no money in a checking or savings account to cover an emergency, according to (RATE).

The growth of inequality can sometimes feel as inexorable as the subterranean shifting of tectonic plates. It may be driven by powerful forces, but ultimately it’s a choice, not a fact of nature. What allows Gates to keep getting richer in spite of himself is a web of human-designed institutions and practices, from the tax system to patent law. So the question is not whether society can reduce inequality, but whether it wants to. If the answer to that is yes, the next question is how.

Thomas Piketty, a 42-year-old professor at the Paris School of Economics, has scored a surprise publishing hit, Capital in the Twenty-First Century, that proposes an unusual, possibly impractical, yet intriguing response to what he calls “the central contradiction of capitalism”: the tendency of wealth to grow faster than the gross domestic product, creating inequality that undermines democracy and social justice.

In a review last year, World Bank economist Branko Milanovic wrote that “we are in the presence of one of the watershed books in economic thinking.” In March, New York Times columnist Paul Krugman wrote that Piketty’s 685-page tome “will be the most important economics book of the year—and maybe of the decade.”

Most of the coverage of Piketty’s book has focused on his diagnosis, but the most interesting part is the cure. He proposes a global tax on capital—by which he means real assets such as land, natural resources, houses, office buildings, factories, machines, software, and patents, as well as pieces of paper, such as stocks and bonds, that represent a financial interest in those assets. In his terminology, capital is essentially the same as wealth. So taxing capital is taking a chunk of rich people’s money. His tax would start small but rise to as high as 5 percent to 10 percent annually for fortunes in the billions. The proceeds in Piketty’s view should not fund an expansion of government: “The state’s great leap forward has already taken place: there will be no second leap—not like the first one, in any event,” he writes.

It doesn’t take a Ph.D. to see that Piketty’s tax is a far stretch—or in his words, “utopian.” Today most countries tax the income produced by wealth—dividends, rents, capital gains—but they don’t go after the wealth itself. Doing so smacks of confiscation, which was widely practiced in the French Revolution but not the American one. Even if Congress did pass a wealth tax, the IRS would have trouble collecting because the wealthy might transfer title to their assets abroad. Piketty recognizes that, which is why he insists that the tax be global. But getting every tax haven on earth to tax equally and to share data is highly unlikely.

Is there an undercurrent of envy in the campaign against extremes of wealth? No doubt, and that’s unfortunate. The correct case for a global tax on capital is positive, not negative. It’s about rejuvenation.

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