Thomas Piketty’s Capital in the 21st century: an ABC

Thomas Piketty: a progressive global tax on capital

Part 5

26 April by CADTM


About Piketty’s central idea to create a global progressive tax on capital

Piketty declares that “appropriate updating of the last century’s social-democratic and fiscal-liberal program is essential.” He believes that we must defend and improve both the welfare state and the progressive income tax system. We must also innovate and levy “a progressive global tax on capital, coupled with a very high level of international financial transparency. Such a tax would provide a way to avoid an endless inegalitarian spiral and to control the worrisome dynamics of global capital wealth.” [1]

Piketty declares that appropriate updating of the last century’s social-democratic and fiscal-liberal program is essential

Piketty has no illusions about how fast his proposition will be put into practice: “A global tax on capital is a utopian idea. It is hard to imagine the nations of the world agreeing on any such thing anytime soon. To achieve this goal, they would have establish a tax schedule applicable to all wealth around the world, then decide how apportion the revenues. If the idea is utopian, it is nevertheless useful (…).” [2]

Piketty specifies that “To my mind, the objective ought to be a progressive annual tax on individual wealth [3] - that is, on the net value of the assets each person controls.” [4] He proposes three variants for this progressive tax on private capital.

  • Variant 1: a rate of 0 percent below €1 million; 1 percent from €1 to €5 million; 2 percent more than €5 million
  • Variant 2: upward adjustment, 5 percent or 10 percent beyond €1 billion
  • Variant 3: downward adjustment, 0.1 percent below €200,000, and 0.5 percent from €200,000 to €1 million.

A progressive annual tax must be levied on capital

This tax is complementary to what already exists, but it could be used to decrease the current tax payments (or to reduce the national debt, note 1, p.840). It would result in a relatively small increase in current national incomes. Even if it were very low, this tax would give authorities knowledge on the wealth of the inhabitants in the areas concerned.

Piketty adds: “The international organizations currently responsible for overseeing and regulating the global financial system, starting with the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
, have only a very rough idea of the global distribution of financial assets, and in particular of the amount of assets hidden in tax havens.”
 [5] If it were established, such tax on wealth would require a global finance cadaster, which is not yet extent.

We fully support Piketty’s proposal for a progressive tax on private wealth or capital to employ the term he uses; however, we do not agree with him when he argues that the highest priority must be placed on this objective. Instead, a programme with complementary measures must be created. A progressive tax on capital, along with the cancellation of illegitimate debt and a drastic reduction in the portion of public debt not found to be illegitimate, must be included in a comprehensive programme that would enable society to make a transition toward a post-capitalist and post-productivist system. First implemented in one or two countries, such a programme should also have European and worldwide ambitions. It should put an end to austerity measures, reduce the amount of time worked by hiring new employees while maintaining wages, and socialise the banking sector. There must also be a general fiscal reform, measures to ensure gender equality, and the implementation of a well-defined policy that will ensure the ecological transition. [6]

Piketty sees this tax on capital as contributing a small increase in current national revenues

Piketty is under the illusion that he will be able to convince others of the need to give highest priority to his proposition, whereas what would be truly effective and unite people would be to define a common platform, bringing together the maximum number of people in favour of radical democratic change that will foster social justice.

In addition, as we argue in “Cancelling debt or taxing capital: why should we choose?”: “The essential critique that can be made of Thomas Piketty is that he thinks the solution may be found within the current system. He proposes a progressive tax to redistribute wealth and save democracy, but he does not question the very conditions in which this wealth is produced or the consequences of the current system. His idea is only a solution for one of the negative effects produced by the system, but he does not tackle the true causes of the problem. First of all, if a tax on capital were applied as a result of social struggle, the great danger is that its product would go up in smoke to repay illegitimate debt, if that debt is not first cancelled. Furthermore, can we content ourselves just because the wealth produced by the system is shared more fairly, if this same system remains predatory, has no respect for people or common property, and destroys our ecosystems at an increasingly faster rate? Capital is not only a useful means of production that deserves a regular 5 percent return on investment as Piketty suggests, it is also an important vector of social relationships of domination by the possessing classes over society as a whole. Capitalism as a mode of production is not only the cause of more and more unbearable social inequalities. It is also a menace to our ecosystem, the justification for the plundering of common property, domination, exploitation, and alienation of the people through materialistic values, and a logic of accumulation that transforms men and women into spiritually enslaved individuals obsessed by material possessions to the detriment of the immaterial basis underlying our humanity.” [7]

The tax on capital would be a kind of world finance registry, which does not exist today

One of the characteristics and weaknesses of Piketty’s approach is that he does not call for a mobilization of the social movements to try to have an influence on current policies.

He is well aware that the people played a decisive role in the orientations taken since World War I, and denounces the repression of the miners in Marikana, South Africa in August, 2012, but in the more than one hundred pages devoted to his own proposals, which reflect on the solutions to the basic problems, no mention is made of organized citizen action, and no allusion is made to the Indignada/os movement, even if in the pages just before his proposals, he does mention the Occupy Wall Street movement. At best, he expresses the hope that the dissemination of research like his will raise people’s awareness and thereby ultimately lead to change. This is a major weakness in Piketty’s approach. It comes as no surprise then that he proposes to establish a “budgetary parliament” [8] alongside the European Parliament. He suggests that “The budgetary parliament might consist of fifty or so members from each of the large eurozone countries, prorated by population. Members might be chosen from the financial and social affairs committees of the national parliaments or [appointed] in some other fashion.” [9] In addition, he is favourable to “the election by universal suffrage of a president of the European Union - a proposal that logically ought to be accompanied by a broadening of the president’s powers.” [10] Piketty embarks on a pathway to making reforms that does not question the European treaties and institutions in which the defence of the interests of major capital owners is set in stone. Yet, we all know that fundamental change is necessary, and that it must include the abrogation of those treaties and the initiation of a constituent process with the production of registers of grievances by citizens united in action.

Piketty does not call for a mobilization of the social movements to try to have an influence on current policies

To conclude, Piketty’s work is extremely valuable in terms of the clear data it provides on trends in wealth inequalities over the past two centuries. His book gives us a very useful tool for understanding them, and will enlighten the debate on possible alternatives.

End of part 5




Footnotes

[1Chapter 15, p. 360.

[2Chapter 15, p. 360.

[3We must remember that Piketty gives a definition of private capital that includes the tangible and intangible assets of the bottom 50 percent of the population.

[4Chapter 15, p. 361.

[5Chapter 15, p. 363.

[6See the aforementioned text by Thomas Coutrot, Patrick Saurin, and Éric Toussaint, “Cancelling debt or taxing capital: why should we choose?” https://cadtm.org/Cancelling-debt-or-taxing-capital See also Damien Millet and Eric Toussaint, “Europe: What emergency programme for the crisis?” 1 July, 2012, https://cadtm.org/Europe-What-emergency-programme

[8Chapter 16, p. 394.

[9Chapter 16, note 28, p. 438.

[10Chapter 16, p. 390.

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