A wealth tax is an idea whose time hasn’t come
PremiumWhile a revelation of how little tax the world’s wealthiest pay could lend Piketty’s proposal a wave of support, amid all the mass misery, a levy on the wealthy is too idealistic to work
In terms of its capacity to make us sit up, the G-7’s global tax pact was no patch on an academic proposal made nearly a decade ago by a French economist whose very name tends to evoke visions of billionaires being squeezed to part with some of their billions. Thomas Piketty had argued for a tax on wealth instead of just income, an idea that a covid-led surge in inequality was sure to grant popular appeal. What has come as a windfall for its advocates is this week’s revelations of how little tax America’s richest folks have been paying. A New York-based news website, ProPublica, claims to have landed a “vast trove" of US Internal Revenue Service data—via a leak now to be probed by US authorities—on the tax returns filed by Jeff Bezos, Elon Musk, Warren Buffett and many others. According to it, the country’s 25 richest people, as tracked by Forbes, saw their combined wealth expand by over $400 billion from 2014 to 2018, but together paid only $13.6 billion in income tax over that period. By the website’s calculations, they have been paying an average 15.8% of their adjusted gross intake, less than what most US taxpayers do. This is no big surprise, given the means of tax navigation at their disposal. Their fortunes are mostly in the form of shares, taxable inflows are usually a trickle, and it is easy for them to live lavishly off asset-backed loans and then claim tax deductions on interest payments. Even assets can be juggled without much of a capital-gains burden.
None of this is new. What’s novel here is the exposure of scandalous figures amid a sharp divergence of money and misery caused by a pandemic. Numbers are misnomers, in a way, for they often stimulate far more than numb. Piketty’s 2013 book, Capital In The Twenty-First Century, startled the world not with its tax advocacy, which was old hat, nor with its core proposition, which was ho-hum, but with data laid out over a span of centuries to make an elegant point. Inequality, he argued, was sure to worsen so long as the rate of return on capital exceeded that of economic expansion. Left untaxed, capital would grow faster than folks’ incomes, which were only a part of national output, and thus leave pay-earners with no hope of catching up. The book had disparity charts that aimed a glare at the West’s closer embrace in the 1980s of free-market policies. To those who had watched India’s own uneven adoption of market ideals, however, it looked like a statement of the obvious. It was always clear that liberalization would enrich the rich wildly beyond the dreams of workers. India’s policy bet on a more open economy was meant to be on the rapid generation of resources to invest in all that would help us achieve a less unequal country. To the extent that market mechanisms lure investment and propel us forth, they’re allies in this strategic approach.
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That does not mean that a crisis of K-shaped outcomes can be overlooked. Taxation is a valid tool of equilibration. Its gaming by the wealthy, even if entirely legal, is difficult to condone. But is a tax on wealth the answer? Taxing a flow like income is a breeze, as its movement allows data capture. But a billionaire’s stash largely stays put, can be easily encrypted or hidden, and we do not have a way to get a slice of it that won’t be an incentive for opacity. It’s an idea whose time hasn’t come.
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