Thomas Frank (one of the most far-sighted - and my favorite - journalists of today) lights the fire that should put the put-upon (lazy, profligate, worthless - according to their betters) classes aflame.
And Thomas Piketty conducts the flame to a bright light. (Did I mention I love Thomases?)
Here's the reason why it's currently so blameless to accuse the hungry of being lazy and improvident.
I'll bet you haven't thought of Mugwumps since 11th-grade history class. If then.
Apr 20, 2014
Liberal righteousness is a road to nowhere. Bloomberg and the Koch brothers have same contempt for working peopleThomas Frank
Liberals rejoice. The former mayor of New York City, megabillionaire Michael Bloomberg, recently announced to the New York Times that he will spend some $50 million dollars on an effort to confront the National Rifle Association and advance background-check legislation for gun buyers. I’m a strong supporter of gun control, so hooray, I guess.
What made the story worth noting was when the paper asked Bloomberg, one of the wealthiest men in the world, how much he planned to spend on the matter:
…he tossed the $50 million figure out as if he were describing the tip he left on a restaurant check.
“I put $50 million this year, last year into coal, $53 million into oceans,” he said with a shrug, describing his clean energy and sustainable fishing initiatives.This sounds remarkably nonchalant, even indifferent. The reader naturally wonders what motivates a man who has dumped so many millions over the years with so little concern about results.
Thankfully, Bloomberg gives the answer a few paragraphs later. It seems he has been moved of late to contemplate mortality, and his political deeds — including, I suppose, his push for school “reform” and his wars on soda pop and cigarettes — are all undertaken with this problem in mind.
“I am telling you if there is a God, when I get to heaven I’m not stopping to be interviewed. I am heading straight in. I have earned my place in heaven. It’s not even close.”It’s Pascal’s Wager updated for the age of Citizens United. If God exists, Bloomberg naturally wants to be prepared, and so he has put his money on the most glaringly virtuous politics available.
He will advertise his goodness not as lesser men do — with hemp tote bags and locally made condiments and yoga in public places — but by overwhelming force of political spending, just as he did when persuading the people of New York City to give him a third term as mayor.
His victory there in 2009 was probably a little too narrow for his taste, but this time around it will not even be close. He will spend more. He will be sure he gets premier status with this airline. And when the time comes he will flash his platinum card at the attendant with “St. Peter” on his nametag, and he will proceed directly to enjoy the rewards of a lifetime collecting righteousness miles.
The Times hints that Bloomberg may have meant his theological remark as a joke, but even so it reminds us of something about the patrician strain of reform he represents – that we have seen politicians like Bloomberg before. During the nineteenth century, a long string of saintly aristocrats fought to reform the state and also to adjust the habits and culture of working-class people.
These two causes were the distinctive obsessions of the wealthy liberals of the day: government must be purified, and working people must learn to behave. They had to be coerced into giving up bad habits. They had to learn the ways of thrift and hard work. There had to be sin taxes. Temperance. Maybe even prohibition.
On the single greatest issue of the time, however, these sanctimonious reformers were of no use at all.
They were in favor of clean government, to be sure, but when it came to organized money’s war on the world, which was then bringing impoverishment and industrial combat and dislocations of every description, they were indistinguishable from the most stalwart conservatives.
Describing the patrician “Mugwump type,” the historian Richard Hofstadter writes,
[T]he most serious abuses of the unfolding economic order of the Gilded Age he either resolutely ignored or accepted complacently as an inevitable result of the struggle for existence or the improvidence and laziness of the masses. As a rule, he was dogmatically committed to the prevailing theoretical economics of laissez faire. . . . He imagined that most of the economic ills that were remediable at all could be remedied by free trade, just as he believed that the essence of government lay in honest dealing by honest and competent men.If that description hits uncomfortably close to home, well, good. We’ve returned to the Gilded Age, laissez-faire is common sense again, and Victorian levels of inequality are back.
The single greatest issue of then is the single greatest issue of now, and once again people like Bloomberg — a modern-day Mugwump if ever there was one — have nothing useful to say about it, other than to remind us when it’s time to bow before the mighty.
Oh, Bloomberg could be relentless in his mayoral days in his quest for sin taxes, for random police authority, for campaigns against sugary soda and trans fats. But put a “living wage” proposal on his desk, and he would denounce it as a Soviet-style interference in private affairs.
During the Occupy Wall Street protests, he declared that we should stop criticizing investment banks; it would cost us jobs: “If you want jobs you have to assist companies and give them confidence to go and hire people.”
Later on, when confronted with a successor who didn’t share his views, he graduated to straight-up trickle-down: “The way to help those who are less fortunate is, number one, to attract more very fortunate people.”
Only by helping the rich, and helping them more, and then helping them even more, can we ever hope to do something for the poor.
And consider the enlightened views of the nation’s other neo-Mugwumps as they address us from the charitable foundations, the NPR airwaves, or the city hall of the burg you live in.
We get rules and more tests, the entrepreneurs get freedom. And I have yet to hear of a liberal billionaire who feels doubts about “free trade” with, well, anyplace.
To say that there is no solidarity in this form of liberalism is to state the obvious. This is not about standing with you, it is about disciplining you: moving you out of the desirable neighborhoods, stopping and frisking you, prodding you to study the right things.
Or, at its very noblest, it is about enlisting you in some fake “grassroots” effort whose primary purpose is to demonstrate the supreme moral virtue of the neo-Mugwump who’s funding the thing — to foam the runway for him as he makes his final approach to Heaven International Airport.
In this new political world, it often feels as though we non-billionaires have been reduced to spectators. Between the Koch brothers of the right and the neo-Mugwumps of the center, we seem to have no choice anymore. Yes, the final decision on Election Day is still up to us, same as it is on “American Idol,” but the spectacle itself is arranged by exalted people who are as distant from us as Zeus was from the ancient Greeks.
And yet. Every now and then something comes up to remind us that there are ways to make our will felt even without the help of some heaven-minded billionaire.
For example, it feels appropriate to note that there was recently a strike by some 2,000 workers at Johns Hopkins Hospital in Baltimore, a world-famous establishment that happens to be attached to the university from which Michael Bloomberg graduated and to which Bloomberg has reportedly donated more money than any living alum has given to any university, anywhere.
The strike was a tactical affair that lasted only three days (I originally heard about it because a friend of mine is an organizer working with the hospital employees’ union), and it is far too early to predict how the matter will turn out.
Still, the situation it was meant to publicize reminds one of the situation in Michael Bloomberg’s New York: Wages for certain classes of workers that are allegedly so low that many of them must rely on food stamps, a top executive who earned compensation amounting to more than $3 million dollars in 2012, and in the background, a controversial public-private gentrification scheme that is transforming the surrounding neighborhood.
Now, maybe this whole thing is wrong-headed. Maybe those striking workers are the kind of people who drink Big Gulps, and maybe the only way to help them is by helping their employer, or by somehow making Baltimore attractive to the wealthy. But I can’t help but suspect that the Bloombergs of the world have the whole thing upside down.
That the way to improve a place — or to get folks to eat better food — actually starts with proper pay for the people who live there. And that this antiquated form of organizing, in which the disenfranchised come together to help one another, is the only truly promising way to avoid the disasters of the last Gilded Age.
(Thomas Frank is a Salon politics and culture columnist. His many books include What's The Matter With Kansas, Pity the Billionaire and One Market Under God. He is the founding editor of The Baffler magazine.)
By Robert Reich, Robert Reich's Blog
15 April 14
t’s tax time again, April 15, when our minds turn toward paying the taxes we owe or possibly getting a tax refund. But what we don’t think about enough is whether our tax system is fair. The richest 1 percent of Americans are now getting the largest percent of total national income in almost a century. So you might think they’d pay a much higher tax rate than everyone else.
But you’d be wrong. Many millionaires pay a lower federal tax rate than many middle-class Americans.
Some don’t pay any federal taxes at all. That’s because they‘re allowed to deduct from their taxable income such things as large interest payments on mortgages for huge homes, also the costs of business entertainment and conferences (aka vacations at golf resorts), and gold plated health care plans.
Some also take advantage of tax loopholes that let them park some of their earnings in offshore tax havens like the Bahamas or the Netherlands Antilles.
And other loopholes that allow them to treat some income as capital gains – subject to a much lower tax rate than ordinary income.
If you happen to be a hedge-fund or private-equity manager, there’s a capital gains loophole designed especially for you.
Consider the Social Security payroll tax and the situation is even more lopsided. That tax applies to every dollar of income up to a cap — which this year is $117,000. Anything earned above the cap is not subject to Social Security taxes at all – meaning anyone with a high income pays a much smaller percentage of it in Social Security taxes than most people do.
Put these all together and you see why Warren Buffet, the second richest person in America, pays a lower tax rate than his secretary, as he readily admits.
State and local taxes are even more regressive. The poorest fifth of Americans pay an average state and local tax rate of over 11 percent, while the richest fifth pay only 5.6 percent.
This isn’t small change. State and local taxes account for about 40 percent of all government revenues.
Believe it or not, Republicans want to make all this worse by cutting taxes on the wealthy even more.
Paul Ryan’s new budget doesn’t just slice Medicare, education, and food stamps. It also lowers the top federal tax rate to 25 percent.
When the rich are let off the hook in all these ways, the rest of America has to pay more in taxes to make up the difference – or have services cut because government doesn’t have the funds.
# 2014-04-16 06:22
Can we all agree that the huge majority of people have been victimized by a professionally executed long term class war. The real question seems; "What is the best course of action to start waking people up to their slowly boiling water rising on their friends and family before we are all cooked?" I've read that the only successful revolutions have been nonviolent . History seems to teach that directly attacking those with the really Big Guns is really close to mass suicide. There are brave people quietly standing for peace, justice and brotherly love and maybe they know something.
# 2014-04-16 08:36
To paraphrase Itt Romney, every sucker who runs a company, like I do, and takes his pay in anything but capital gains, is a dunce unqualified to be president."
We 99% have been carrying rich folks ever since capital gains. Income tax is not the only regressive tax, so are sales tax (and property tax that even renters pay in rent).
Is it any wonder that Congress can't find money to fund public services? Congress gives it to fellow millionaires. We carry 1% who never pay their fair share!
As you read the next essay, don't forget who was running the New York Fed (our boy Timmy Geithner). He did such a good job that he was due several promotions!
April 14, 2014
By Ellen Brown
Taxpayers are paying billions of dollars for a swindle pulled off by the world's biggest banks, using a form of derivative called interest-rate swaps; and the Federal Deposit Insurance Corporation has now joined a chorus of litigants suing over it. . . It is not just that local governments, universities and pension funds made a bad bet on these swaps. The game itself was rigged, as explained below.
Rigging the game. by Pinerest
Derivatives . . . have turned into a windfall for banks and a nightmare for taxpayers. . . . While banks are still collecting fixed rates of 3 to 6 percent, they are now regularly paying public entities as little as a tenth of one percent on the outstanding bonds, with rates expected to remain low in the future. Over the life of the deals, banks are now projected to collect billions more than they pay state and local governments - an outcome which amounts to a second bailout for banks, this one paid directly out of state and local budgets.It is not just that local governments, universities and pension funds made a bad bet on these swaps. The game itself was rigged, as explained below. The FDIC is now suing in civil court for damages and punitive damages, a lead that other injured local governments and agencies would be well-advised to follow. But they need to hurry, because time on the statute of limitations is running out.
The Largest Cartel in World HistoryOn March 14, 2014, the FDIC filed suit for LIBOR-rigging against sixteen of the world's largest banks - including the three largest US banks (JPMorgan Chase, Bank of America, and Citigroup), the three largest UK banks, the largest German bank, the largest Japanese bank, and several of the largest Swiss banks.
Bill Black, Professor of Law and Economics and a former bank fraud investigator, calls them "the largest cartel in world history, by at least three and probably four orders of magnitude."
LIBOR (the London Interbank Offering Rate) is the benchmark rate by which banks themselves can borrow. It is a crucial rate involved in hundreds of trillions of dollars in derivative trades, and it is set by these sixteen megabanks privately and in secret.
Interest rate swaps are now a $426 trillion business. That's trillion with a "t" -- about seven times the gross domestic product of all the countries in the world combined.
According to the Office of the Comptroller of the Currency, in 2012 US banks held $183.7 trillion in interest-rate contracts, with only four firms representing 93% of total derivative holdings; and three of the four were JPMorgan Chase, Citigroup, and Bank of America, the US banks being sued by the FDIC over manipulation of LIBOR.
Lawsuits over LIBOR-rigging have been in the works for years, and regulators have scored some very impressive regulatory settlements. But so far, civil actions for damages have been unproductive for the plaintiffs. The FDIC is therefore pursuing another tack.
But before getting into all that, we need to look at how interest-rate swaps work. It has been argued that the counterparties stung by these swaps got what they bargained for -- a fixed interest rate. But that is not actually what they got. The game was rigged from the start.
The StingInterest-rate swaps are sold to parties who have taken out loans at variable interest rates, as insurance against rising rates. The most common swap is one where counterparty A (a university, municipal government, etc.) pays a fixed rate to counterparty B (the bank), while receiving from B a floating rate indexed to a reference rate such as LIBOR.
If interest rates go up, the municipality gets paid more on the swap contract, offsetting its rising borrowing costs. If interest rates go down, the municipality owes money to the bank on the swap, but that extra charge is offset by the falling interest rate on its variable rate loan. The result is to fix borrowing costs at the lower variable rate.
At least, that is how it's supposed to work. The catch is that the swap is a separate financial agreement -- essentially an ongoing bet on interest rates. The borrower owes both the interest on its variable rate loan and what it must pay out on this separate swap deal. And the benchmarks for the two rates don't necessarily track each other. As explained by Stephen Gandel on CNN Money:
The rates on the debt were based on something called the Sifma municipal bond index, which is named after the industry group that maintains the index and tracks muni bonds. And that's what municipalities should have bought swaps based on. Instead, Wall Street sold municipalities Libor swaps, which were easier to trade and [were] quickly becoming a gravy train for the banks.Historically, Sifma and LIBOR moved together. But that was before the greatest-ever global banking cartel got into the game of manipulating LIBOR. Gandel writes:
In 2008 and 2009, Libor rates, in general, fell much faster than the Sifma rate. At times, the rates even went in different directions. During the height of the financial crisis, Sifma rates spiked. Libor rates, though, continued to drop. The result was that the cost of the swaps that municipalities had taken out jumped in price at the same time that their borrowing costs went up, which was exactly the opposite of how the swaps were supposed to work.The two rates had decoupled, and it was chiefly due to manipulation. As noted in the SEUI report:/div>
[T]here is . . . mounting evidence that it is no accident that these deals have gone so badly, so quickly for state and local governments.
Ongoing investigations by the U.S. Department of Justice and the California, Florida, and Connecticut Attorneys General implicate nearly every major bank in a nationwide conspiracy to rig bids and drive up the fixed rates state and local governments pay on their derivative contracts.
Changing the Focus to Fraud
Suits to recover damages for collusion, antitrust violations and racketeering (RICO), however, have so far failed. In March 2013, SDNY Judge Naomi Reece Buchwald dismissed antitrust and RICO claims brought by investors and traders in actions consolidated in her court, on the ground that the plaintiffs lacked standing to bring the claims.She held that the rate-setting banks' actions did not affect competition, because those banks were not in competition with one another with respect to LIBOR rate-setting; and that "the alleged collusion occurred in an arena in which defendants never did and never were intended to compete."
Okay, the defendants weren't competing with each other. They were colluding with each other, in order to unfairly compete with the rest of the financial world - local banks, credit unions, and the state and local governments they lured into being counterparties to their rigged swaps. The SDNY ruling is on appeal to the Second Circuit.
In the meantime, the FDIC is taking another approach. Its 24-count complaint does include antitrust claims, but the emphasis is on damages for fraud and conspiring to keep the LIBOR rate low to enrich the banks. The FDIC is not the first to bring such claims, but its massive suit adds considerable weight to the approach.
Why would keeping interest rates low enrich the rate-setting banks? Don't they make more money if interest rates are high?
The answer is no. Unlike most banks, they make most of their money not from ordinary commercial loans but from interest rate swaps.
The FDIC suit seeks to recover losses caused to 38 US banking institutions that did make their profits from ordinary business and consumer loans - banks that failed during the financial crisis and were taken over by the FDIC.
They include Washington Mutual, the largest bank failure in US history. Since the FDIC had to cover the deposits of these failed banks, it clearly has standing to recover damages, and maybe punitive damages, if intentional fraud is proved.
The Key Role of the Federal Reserve
The rate-rigging banks have been caught red-handed, but the greater manipulation of interest rates was done by the Federal Reserve itself. The Fed aggressively drove down interest rates to save the big banks and spur economic recovery after the financial collapse. In the fall of 2008, it dropped the prime rate (the rate at which banks borrow from each other) nearly to zero.
This gross manipulation of interest rates was a giant windfall for the major derivative banks. Indeed, the Fed has been called a tool of the global banking cartel. It is composed of 12 branches, all of which are 100% owned by the private banks in their districts; and the Federal Reserve Bank of New York has always been the most important by far of these regional Fed banks. New York, of course is where Wall Street is located.
LIBOR is set in London; but as Simon Johnson observed in a New York Times article titled The Federal Reserve and the LIBOR Scandal, the Fed has jurisdiction whenever the "safety and soundness" of the US financial system is at stake. The scandal, he writes, "involves egregious, flagrant criminal conduct, with traders caught red-handed in e-mails and on tape." He concludes:
This could even become a "tobacco moment," in which an industry is forced to acknowledge its practices have been harmful - and enters into a long-term agreement that changes those practices and provides continuing financial compensation.Bill Black concurs, stating, "Our system is completely rotten. All of the largest banks are involved - eagerly engaged in this fraud for years, covering it up." The system needs a complete overhaul.
In the meantime, if the FDIC can bring a civil action for breach of contract and fraud, so can state and local governments, universities, and pension funds.
The possibilities this opens up for California (where I'm currently running for State Treasurer) are huge. Fraud is grounds for rescission (terminating the contract) without paying penalties, potentially saving taxpayers enormous sums in fees for swap deals that are crippling cities, universities and other public entities across the state.
Fraud is also grounds for punitive damages, something an outraged jury might be inclined to impose. My next post will explore the possibilities for California in more detail. Stay tuned.______
(Ellen Brown is an attorney, founder of the Public Banking Institute , and a candidate for California State Treasurer running on a state bank platform. She is the author of twelve books, including the best-selling Web of Debt and her latest book, The Public Bank Solution , which explores successful public banking models historically and globally. See http://EllenBrown4Treasurer.org, http://EllenBrown.com.)
Have you been getting the idea lately that capitalism (which is screamed to the rooftops by platinumed grifters and the basest of common crooks alike) may not actually have been the best system for a democratic nation after all?
FYI: the revealing statistics:
April 14, 2014
Capitalism Is Not Working - Analysis of 200 Years of Data Shows Worsening Inequality Is an Inevitable Outcome of Free Market Capitalism
What are the grand dynamics that drive the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories.
In Capital in the Twenty-First Century, Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality.
UPDATE : A look at the reviews of other economists to the Piketty work and a look a central Piketty prediction that global growth will collapse from 2020-2100.
Piketty shows that modern economic growth and the diffusion of knowledge have allowed us to avoid inequalities on the apocalyptic scale predicted by Karl Marx. But we have not modified the deep structures of capital and inequality as much as we thought in the optimistic decades following World War II.
The main driver of inequality - the tendency of returns on capital to exceed the rate of economic growth - today threatens to generate extreme inequalities that stir discontent and undermine democratic values.
But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, Piketty says, and may do so again
A work of extraordinary ambition, originality, and rigor, Capital in the Twenty-First Century reorients our understanding of economic history and confronts us with sobering lessons for today.
The book draws on reams of data from the United States and numerous other countries. Most of the data comes from income tax records and estate tax/inheritance records. The sheer quantity of data that underlies Piketty's conclusions is unprecedented, and as a result his work deserves a great deal of credibility.
While the book is quite long, the major conclusion can be summarized very briefly: Piketty has found that, over the long run, the return on capital is higher than the growth rate of the overall economy. In other words, accumulated and inherited wealth becomes a larger fraction of the economic pie over time. This happens more or less automatically, and there is no reason to believe this trend will change or reverse course.
Piketty argues that the reduction in inequality in developed countries after World War II was a "one-off" that was driven entirely by political choices and policies. It did not happen automatically. Those policies have now been largely reversed, especially in the United States. As a result the drive toward increased inequality is likely to be relentless.
Piketty's solution is a global wealth tax. While this seems politically unfeasible, he argues that it is the only thing likely to work.
Click picture to enlarge.
[From the New Yorker] - At first, Piketty concentrated on getting the facts down, rather than interpreting them. Using tax records and other data, he studied how income inequality in France had evolved during the twentieth century, and published his findings in a 2001 book. A 2003 paper that he wrote with Emmanuel Saez, a French-born economist at Berkeley, examined income inequality in the United States between 1913 and 1998.
It detailed how the share of U.S. national income taken by households at the top of the income distribution had risen sharply during the early decades of the twentieth century, then fallen back during and after the Second World War, only to soar again in the nineteen-eighties and nineties.
With the help of other researchers, including Saez and the British economist Anthony Atkinson, Piketty expanded his work on inequality to other countries, including Britain, China, India, and Japan. The researchers established the World Top Incomes Database, which now covers some thirty countries, among them Malaysia, South Africa, and Uruguay.
Piketty and Saez also updated their U.S. figures, showing how the income share of the richest households continued to climb during and after the Great Recession, and how, in 2012, the top one per cent of households took 22.5 per cent of total income, the highest figure since 1928.
The question is what’s driving the upward trend. Piketty didn’t think that economists’ standard explanations were convincing, largely because they didn’t pay enough attention to capital accumulation — the process of saving, investing, and building wealth which classical economists, such as David Ricardo, Karl Marx, and John Stuart Mill, had emphasized.
Piketty defines capital as any asset that generates a monetary return. It encompasses physical capital, such as real estate and factories; intangible capital, such as brands and patents; and financial assets, such as stocks and bonds.
In modern economics, the term “capital” has been purged of its ideological fire and is treated as just another “factor of production,” which, like labor and land, earns a competitive rate of return based upon its productivity. A popular model of economic growth developed by Robert Solow, one of Piketty’s former colleagues at M.I.T., purports to show how the economy progresses along a “balanced growth path,” with the shares of national income received by the owners of capital and labor remaining constant over time.
This doesn’t jibe with modern reality. In the United States, for example, the share of income going to wages and other forms of labor compensation dropped from sixty-eight per cent in 1970 to sixty-two per cent in 2010 — a decline of close to a trillion dollars.
Some people claim that the takeoff at the very top reflects the emergence of a new class of “superstars” — entrepreneurs, entertainers, sports stars, authors, and the like — who have exploited new technologies, such as the Internet, to enlarge their earnings at the expense of others in their field. If this is true, high rates of inequality may reflect a harsh and unalterable reality: outsized spoils are going to go to Roger Federer, James Patterson, and the WhatsApp guys.
Piketty rejects this account. The main factor, he insists, is that major companies are giving their top executives outlandish pay packages. His research shows that “supermanagers,” rather than “superstars,” account for up to seventy per cent of the top 0.1 per cent of the income distribution. (In 2010, you needed to earn at least $1.5 million to qualify for this élite group.) Rising income inequality is largely a corporate phenomenon.
Many C.E.O.s receive a lot of stock and stock options. Over time, they and other rich people earn a lot of money from the capital they have accumulated: it comes in the form of dividends, capital gains, interest payments, profits from private businesses, and rents.
Income from capital has always played a key role in capitalism. Piketty claims that its role is growing even larger, and that this helps explain why inequality is rising so fast. Indeed, he argues that modern capitalism has an internal law of motion that leads, not inexorably but generally, toward less equal outcomes.
The law is simple. When the rate of return on capital — the annual income it generates divided by its market value — is higher than the economy’s growth rate, capital income will tend to rise faster than wages and salaries, which rarely grow faster than G.D.P.
If ownership of capital were distributed equally, this wouldn’t matter much. We’d all share in the rise in profits and dividends and rents. But in the United States in 2010, for example, the richest ten per cent of households owned seventy per cent of all the country’s wealth (a good surrogate for “capital”), and the top one per cent of households owned thirty-five per cent of the wealth.
By contrast, the bottom half of households owned just five per cent. When income generated by capital grows rapidly, the richest families benefit disproportionately.
80% Tax On Income Over 1 Million Dollars A Year and Net Worth Tax
Given that inequality is a worldwide phenomenon, Piketty aptly has a worldwide solution for it: a global tax on wealth combined with higher rates of tax on the largest incomes.
How much higher? Referring to work that he has done with Saez and Stefanie Stantcheva, of M.I.T., Piketty reports, “According to our estimates, the optimal top tax rate in the developed countries is probably above eighty per cent.” Such a rate applied to incomes greater than five hundred thousand or a million dollars a year “not only would not reduce the growth of the US economy but would in fact distribute the fruits of growth more widely while imposing reasonable limits on economically useless (or even harmful) behavior.”
Piketty is referring here to the occasionally destructive activities of Wall Street traders and investment bankers. His new wealth tax would be like an annual property tax, but it would apply to all forms of wealth.
Households would be obliged to declare their net worth to the tax authorities, and they would be taxed upon it. Piketty tentatively suggests a levy of one per cent for households with a net worth of between one million and five million dollars; and two per cent for those worth more than five million.
“Or one might prefer a much more steeply progressive tax on large fortunes (for example a rate of 5 to 10 percent on assets above one billion euros),” he adds.
A wealth tax would force individuals who often manage to avoid other taxes to pay their fair share; and it would generate information about the distribution of wealth, which is currently opaque.
“Some people think that the world’s billionaires have so much money that it would be enough to tax them at a low rate to solve all the world’s problems,” Piketty notes. “Others believe that there are so few billionaires that nothing much would come of taxing them more heavily. . . . In any case, truly democratic debate cannot proceed without reliable statistics.”
Reality Of Attempts To Implement Wealth Taxes
The nations of the world can’t agree on taxing harmful carbon emissions, let alone taxing the capital of their richest and most powerful citizens. Piketty concedes as much. Still, he says, his proposal provides a standard against which to judge other proposals; it points to the need for other useful reforms, such as improving international banking transparency; and it could be introduced in stages.
A good place to begin, he thinks, would be a European wealth tax that would replace the property tax, which “in most countries is tantamount to a wealth tax on the propertied middle class.”
But that may be utopian, too. If the European Union moved ahead with Piketty’s proposal, it would produce a rush to tax havens like Switzerland and Luxembourg. Previous efforts to introduce wealth taxes at the national level have run into problems.
Spain, for example, adopted a wealth tax in 2012 and abolished it at the start of this year. In Italy, a wealth tax proposed in 2011 never went through. Such difficulties explain why governments still rely on other, admittedly imperfect, tools to tax capital, such as taxes on property, estates, and capital gains.
In the United States, the very idea of a new wealth tax looks like a nonstarter politically, as would the notion of raising the top rate of income tax to eighty per cent.
SOURCES - Amazon, Guardian UK, New Yorker, youtube
If you liked this article, please give it a quick review on ycombinator or StumbleUpon. Thanks
Posted by brian wang