Piketty-Poketty-Poo: Some people are just itching to up tax to capital ...

... no matter what economists say


Inequality? Where from...

But some obviously disagree: and this is where I think Piketty et al come in. There are actually three of them who lean this way in their writing: Piketty, Emmanuel Saez and Gabriel Zucman. All three of them are Frenchmen, and all highly proficient at the technical aspects of the research they're doing. They are also all collaborators with one another on this or that paper.

I've complained before here at El Reg about what I think is the trick being played upon us with these measurements of wealth inequality. My complaint is that the "inequality" thesis only looks at certain forms of wealth: essentially marketable financial wealth – for instance, stocks and bonds, private housing and private pension (with a small bit of art and antiques to add in). It quite deliberately does not include human capital: so that newly minted Oxbridge graduate, double starred first leading to the fast stream at Goldman Sachs, is regarded as having less wealth than the builder's mate who doesn't have a student loan behind him. And that's not really a very accurate way to measure wealth.

Similarly, unfunded pensions are excluded: so a retired GP, whose pension is funded by the current payments of working GPs, is regarded as having no pensions wealth. When you see the amounts they're getting paid, that doesn't make much sense either. And as I've moaned, they entirely exclude the effects of the entire welfare state. And it's that last one that allows them to talk about our going back to Victorian levels of inequality. And how is this done? By simply ignoring, in toto, the largest thing we do to reduce inequality.

But my “Aha!” moment arrived when I looked at the latest paper. This one was penned by Saez and Zucman. A simple version is here, the full paper here. When I read this line, all became clear:

First, current preferential tax rates on capital income compared to wage income are hard to defend in light of the rise of wealth inequality and the very high savings rate of the wealthy.

That's what I think it's all about: the search for some reason, possibly any reason, to overturn the standard result that we'd really all be much better off in the future if we didn't tax the returns to capital.

Yes, I'm aware that there's more than a hint of conspirazoid paranoia here: I'll be appearing on stage as a Grey Lizard with David Icke in the panto season no doubt. But it is still true that my view is some economists are deliberately setting out to overturn optimal taxation theory on political grounds.

We might call it just that, or we could call it a principled, just and righteous reminder that equity is just as important as efficiency in the design of real world taxation systems: your call on that.

One final observation: this greater amount of tax they're going to nick off the rich. It's not actually going to reduce wealth inequality very much given the way that they measure it. Because, obviously, that greater tax is going to be fed back to the poorer people as cash, goods and or services. Of course, this does increase income and an increase in guaranteed income is indeed an increase in wealth. But they've deliberately excluded from their calculations of inequality the things that government does and pays for from tax revenue to decrease inequality. Thus the amount of inequality reduction that is done by the government spending from taxation won't EVEN SHOW UP in their calculations after we've taxed the snot out of the rich.

Funny that, then they'll be able to claim that we should tax them even more, eh? ®


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