Economic justice

Economic justice requires more than a wealth tax

The plans of Emmanuel Saez and Gabriel Zucman to tax wealth represent a welcome and, frankly, too late shift in the attention the economics profession pays to issues of wealth inequality. At the heart of this change, of course, has been their occasional co-author, Thomas Piketty, whose 2014 book Capital in the 21st century followed the relentless redistribution of economic rewards over the past four decades from workers—those whose income comes primarily from wage labor—to capitalists, those whose income comes instead from the rents and profits their wealth provides. Zucman and Saez provide a powerful proposition for how we might begin to solve this problem – what RH Tawney called “the wealth problem” – through ambitious political action. But in some cases we have to be more radical than they suggest, and there is also a lot to do outside of the tax system itself. (Some of what Piketty himself describes in his new book, Capital and ideology.)

In some cases, we need to be more radical than Saez and Zucman suggest, and there is also much to do outside of the tax system itself.

Start with our reasons to care about wealth inequality. Zucman and Saez are correct that wealth inequality is not only important insofar as it determines income inequality. As they say, “wealth is power”. Great wealth can be both cause and effect: a source of unacceptable forms of economic power as well as a consequence of that power. Wealth is not just a means of storing opportunities for future private consumption, as in the models of some rather innocent economists. It is most often a means of steering political agendas towards the wealthy by converting economic power into political power, or buying educational and social benefits for family members at the expense of their fellow citizens.

In this way, extreme wealth inequality corrodes the possibility of genuine democratic politics and economic justice. And these effects create accelerated feedback loops – cascades of inequality – that only reinforce the power of the wealthy to organize society for their own benefit. The result is the inadmissible form of economic and political domination that we see today, which undermines the position and status of all citizens. In a thriving economy, wealth flows and flows between and through individuals and generations. In our relatively sick economies, by contrast, this recirculating flow is blocked; instead, wealth concentrates in particular places, creating a distorting over-concentration of power, like a malignant growth that redirects the body’s blood flow to sustain itself. Radical surgery is a reasonable course of action in the face of such serious disease.

We should therefore not be troubled even remotely by the most “radical” version of the wealth tax proposed by Zucman and Saez. A 10% marginal tax rate on assets over $1 billion may go beyond anything Elizabeth Warren or Bernie Sanders are proposing, but it is a proportionate response to a deep and difficult problem. Nevertheless, while billionaires may constitute an easily identifiable group at the very top of the wealth distribution, the problems of wealth inequality – and the corresponding concentration of social, political and economic power – extend much further down that distribution. .

There is therefore also a strong case for serious wealth tax rates applied to those who are only among the deca-millionaires and the centa-millionaires. Furthermore, although Zucman and Saez focus on taxing wealthy citizens through a consolidated wealth tax, there are pragmatic reasons for retaining specific forms of property taxation on residential real estate, such as way to tax some members of the wealthier groups who manage to find ways to transcend international borders. Just think here of how many wealthy Russian plutocrats have stored their money outside their national jurisdiction by buying residential property in London, Paris or New York.

Tax avoidance also points to a troublesome trap: the very characteristics of wealth inequality that make it so corrosive simultaneously make it so difficult to solve.

There are also good reasons to withhold a separate inheritance tax in addition to the consolidated wealth tax. The multigenerational transmission of inherited wealth makes particularly striking the incompatibility of extreme levels of untaxed wealth with the aspiration to a society that rewards industry, intelligence or individual ingenuity. This problem is particularly salient in countries like the United Kingdom, which counts among its native billionaires figures such as the 7th Duke of Westminster, a twenty-nine-year-old deca-billionaire who owes his good fortune to a 17th-century ancestor. . take possession of rural lands over which London later expanded. Needless to say, given the political power of the super-rich and the way today’s tax codes are designed to promote their interests, the Duke managed to avoid almost all inheritance tax after making his fortune at age twenty-five years, through the use of various trusts and other legal mechanisms. This type of avoidance is more a reason to redesign a more efficient inheritance tax system, rather than to think that we should do without it.

The Duke of Westminster’s tax avoidance also points to a troublesome trap: The very characteristics of wealth inequality that make it so corrosive simultaneously make it so difficult to solve. There is no magic wand; it is precisely because wealth generates political power that it is so difficult for radical progressive politicians to get elected. But even putting this hurdle aside, there remains the problem of reversibility: a future government can easily dismantle everything that a progressive government is able to achieve by reconfiguring the fiscal state. It is a major political project to create a significant change in the functioning of the tax system. And even if won, such a victory would be relatively fragile, unless other things could be changed to disperse economic and political power. This is why the fiscal response to inequality can only be part of a larger story.

Despite being defeated in the December 2019 general election, Britain’s recent Labor Party platform provides a powerful model of what this sort of institutional shift in economic thinking might look like. Labour’s 2019 manifesto presented a comprehensive vision that sees the use of the tax system as one tool among others, while also seeking to strengthen the bargaining position of trade unions, reform corporate governance and create – as a new type of institution – “Inclusive Ownership Fund” giving workers in large corporations a share of capital returns and a voice in decision-making.

An overhaul of the tax system would be relatively fragile unless other things could be changed to disperse economic and political power.

These kinds of deep structural changes would transform the day-to-day functioning of the economy, rebalancing power between workers and employers. And, more importantly, these structural reforms would not be as easily reversible as changes to the tax code. Institutional changes can be part of everyday life, having the ability to create the conditions for their own support, beyond the fragility of excessive dependence on taxation. That is why, to take an American example, Bernie Sanders’ adoption of a version of the Inclusive Ownership Fund proposal is at least as important as his proposals on wealth taxation as part of a new deal. economic. And that’s also why Piketty, in his new book Capital and ideologyplaces its proposals for wealth and inheritance taxation within a broader set of proposals aimed at creating a form of 21st century “participatory socialism”, involving the reorganization of corporate governance and the creation of a new economic architecture that disperses power within economic institutions.

It is not so much a question of criticizing the work of Zucman and Saez as of identifying its important limits: I am sure that they will agree that taxation can only do part of the job of restructuring the balance of power in the within our economies. But the fact is that wealth inequality is more than a matter of public policy options. It is a political problem that requires a political solution, a collective political project to restructure our unequal societies. The hard work of building forms of checks and balances against the power of the rich is a long task and one that must be carried out at all levels and in all localities. It is about creating unions in the workplace and strengthening local democratic institutions capable of defending the interests of citizens to the detriment of the interests of capital. It is a struggle that must necessarily take several forms. An essential part of this larger project is to show with clarity and confidence, as Zucman and Saez do, that the tax system can be reconfigured to help create a fairer society – that we don’t need to accept dismal orthodoxies that cannot imagine an economy that frees itself from the disfiguring effects of extreme inequality.