Do we need a global tax to stop rising inequality?

by John Quiggin on December 18, 2015

One of the more depressing features of Capital in the 21st Century is the air of inevitability attached to the much-discussed r > g inequality. This is exacerbated, on the whole, by the fact that Piketty’s proposed policy response, a progressive global tax on wealth, seems obviously utopian.

What about a much simpler alternative: increasing the rate of income tax applied to the very rich, and removing preferential treatment of capital income? Piketty’s own work with Saez yields the conclusion that the socially optimal top marginal rate of taxation, after taking account of incentive effects, would be 70 per cent or more. Such rates prevailed, at least nominally, in the mid-20th century, without obvious ill effects. Again, Piketty provides the relevant evidence.

So, is there something about a globalised world economy that renders a return to high marginal rates of taxation impossible?

One crucial objection has been tested and refuted.  Over the course of the 20th century, numerous small countries and some larger ones (notably Switzerland) established themselves as tax havens, willing to accept bank deposits and other capital flows from citizens of other countries and shield them from the efforts of the governments of those countries to collect taxes, or penalise tax evasion. Given the benefits of being a tax haven, it seemed likely that some jurisdictions would simply reject any attempt at an international effort to combat tax evasion.

The OECD put this proposition to the test when, in 2000, it listed a number of jurisdictions, such as Andorra and Liechtenstein as un-cooperative tax havens, because they declined to implement proposed standards of transparency and exchange of information. All of these jurisdictions ultimately capitulated and were “whitelisted”.  The label “tax haven”, once sought-after, is now repudiated by all governments, however keen they may be to attract and retain hot money.

Even more symbolically important has been the end of Switzerland’s famous (or notorious) system of bank secrecy, as a result of agreements signed with the EU and other national governments over the past year. Under these agreements, the parties will automatically exchange information on the financial accounts of each other’s residents.

A bigger problem, central to Piketty’s larger concerns, is the deeply ingrained criminality of the financial sector, including participation in tax evasion. Despite repeated exposure, the big banks have got away with financial penalties that have barely dented their earnings and with occasional criminal charges against underlings. As long as major international banks retain their immunity from any kind of effective punishment, they will continue to facilitate both aggressive tax avoidance and criminal tax evasion. The ‘too big to jail’ list over the last year or so includes HSBC, Deutsche Bank and Credit Suisse, but others, like UBS, are even worse.

But with something like $200 billion in penalties levied over the past five years alone, the excuses are wearing thin, as is the theatre of ritual wrist-slapping. “Too big to jail” has become a public scandal so notorious that sooner or later, someone will be forced to act, and actually put one of these recidivists into receivership. That implies, breaking up their operations, sacking the entire management and wiping out the shareholders.  With a few examples, “pour encourager les autres”, we might see some actual changes in behavior.

Corporate taxation presents some more difficult problems. National governments, such as those of Singapore and Ireland, have proved much more protective of corporate tax dodgers than of individuals. Resistance to measures to combat tax avoidance has been correspondingly stronger. Still, the OECD is slowly grinding its way through measures to combat BEPS (Base Erosion and Profit Shifting), its unlovely acronym for an array of corporate devices including transfer pricing and abuse of tax treaties. At some point, perhaps, the secrecy achieved through webs of shell companies may become as obsolete as numbered Swiss bank accounts.

A more serious objection is that, rather than notionally shifting their money, wealthy individuals and corporations might physically shift themselves and their productive activities to low-tax jurisdictions. On the whole, this problem does not look to be too severe. For example, despite a very attractive tax regime, and easy proximity to European capitals, the Channel Islands have not attracted English tax-dodgers in the numbers that might be expected. As regards corporations, the capacity to move is limited by economic realities. Whatever their organizational structure, companies like Apple and Google must generate their revenue, and their economic profit, in markets with large numbers of consumers. If the conduits they have used to shift that profit to tax havens are shut down, they have little choice but to pay up.

Finally, there’s the question of political practicality. For those whose views were formed by the tax revolts of the 1970s and 1980s, and by the capitalist triumphalism of the 1990s, substantial increases in tax rates, even for the very wealthy, are simply unthinkable.  This is the intellectual background for the great majority of the political class, including the notional left, in most developed countries. But those days are fading into the past. The surprising success of Capital in the Twenty-First Century is one among many indications of an appetite for change.

{ 95 comments }

1

Rakesh Bhandari 12.18.15 at 7:52 am

I like the title to the post because it already suggests that Piketty’s global tax is not meant only or mostly to collect revenue but rather to reduce inequality by narrowing the gap between the after-tax r and g.

Though I have read the book carefully, I am not sure I follow Piketty’s answer to the question of why a wealth tax or, as the question is put in the OP: “What about a much simpler alternative: increasing the rate of income tax applied to the very rich, and removing preferential treatment of capital income?”

Will have to think about this.

On these questions there is the recent book by Gabriel Zucman and Stephen Platt Criminal Capital. Haven’t read either.

2

Rakesh Bhandari 12.18.15 at 7:53 am

those are two separate books by Zucman and Platt. Former was Piketty’s student.

3

Rakesh Bhandari 12.18.15 at 7:59 am

When I heard Zucman speak, he advocated that corporate tax burdens in a nation should be proportionate to the sales volume in that nation; this would prevent a company from booking profits in a tax haven where there is little sales volume as a tax avoidance measure. But I would have thought a better idea would be to have the tax proportionate in each country to the number of workers employed there.

4

reason 12.18.15 at 8:26 am

Yes, but isn’t it important at the same time to rationalise tax systems. I plead guilty in some cases to trying to avoid taxes (especially taxes on accumulating retirement funds) even though in principle I’m in favour of generally higher taxes. But the way the tax system is constructed seems so irrational, that it forces a somewhat irrational response. In particular, there are peculiarities in the artificial division between capital gains (taxed first on realisation) and income (taxed immediately) that make no sense. There are some even more burdensome irrationalities with international income and assets.

5

P O'Neill 12.18.15 at 10:41 am

Another element of the solution might be shifting to the US basis of taxation (which is usually described as an anomaly) namely that citizens have to pay tax regardless of where they reside. Of course the system does impose administrative challenges and generates capricious or ridiculous situations such as Boris Johnson’s unpaid American taxes. By the same token, a lot of the complexities around tax havens and domicile disappear at a stroke.

6

Matthias Gralle 12.18.15 at 11:22 am

I thought one main reason for the wealth tax was the transparency about wealth distribution, since declaration of wealth would have legal force. See the democracy/ heritage of 1789 thread.

7

dax 12.18.15 at 11:48 am

The only thing that’s inevitable is that with fewer people, and fewer workers, labour will regain its share of production vs capital, and Piketty’s inequality will be reversed. This is usually considered a bad thing, because fewer workers means more older people supported by fewer workers, but that is in fact what you want, for labour to regain the upper hand vs capital.

A lot here about tax evasion, but very little about people’s rights. I’m afraid tax evasion is to the left what terrorism is to the right; mention it and rights go out the window.

8

dax 12.18.15 at 11:52 am

@P O’Neill. That’s a terrible idea so long as tax codes from different countries do not mesh – i.e. that’s a terrible idea. Obviously a person should pay taxes where he or she lives, so your idea will catch everyone under two jurisdictions – the current fate of Americans living abroad, which is not pretty.

9

dax 12.18.15 at 11:53 am

That should be,

Your idea will catch every *expatriate* under two jurisdictions – the current fate of Americans living abroad, which is not pretty.

10

Map Maker 12.18.15 at 3:52 pm

What is the right tax rate for apple? They design their products in the US, they manufacture in China, and they sell it globally. If they sell a 400 Euro iPad in Germany, what tax is owed to Germany? To China? To the US? There isn’t one “right” answer, and one country’s tax avoidance is another’s proper accounting.

You can say (correctly) that overall the cash taxes ought to be higher, but it isn’t simple to coordinate that across all the countries’ supply chains.

11

Dissenter 12.18.15 at 3:59 pm

“Again, Piketty provides the relevant evidence.”

Except, again, Piketty’s data for the U.S. is junk. He manipulated his stats to make it appear that high taxes reduced inequality and low taxes brought it back. If you’re going to keep crediting him with bringing “evidence” to this debate you need to address how his evidence stands up to criticism. The answer is: not very well.

12

Rakesh Bhandari 12.18.15 at 4:43 pm

If you have time, John Quiggin, could you explain how the 70% rate was determined as optimal? Was that conclusion reached on the basis of historical analysis, regressions on time series data? As you suggest, this calculation by Piketty and Saez is worked out in a paper, not the book that I read. Do you agree with that conclusion?

13

cassander 12.18.15 at 5:16 pm

@JOHN QUIGGIN

>Piketty’s own work with Saez yields the conclusion that the socially optimal top marginal rate of taxation, after taking account of incentive effects, would be 70 per cent or more.

Picketty’s work determined that the 70% rate was the laffer maximum, not that the 70% rate was socially optimal. One can only jump to that conclusion if one feels that the social optimum is achieved solely by maximizing government revenue, and I have been repeatedly assured that the left does not desire to expand the state for its own sake…..

> Such rates prevailed, at least nominally, in the mid-20th century, without obvious ill effects.

What a bizarre sentence. You admit that such rates did not prevail in practice, then go on to say that that is somehow evidence that those rates weren’t harmful? Heck, if all you want is nominal tax increases, go nuts. Make the nominal rates a million percent if you like, as long as the actual rates don’t change.

>As long as major international banks retain their immunity from any kind of effective punishment, they will continue to facilitate both aggressive tax avoidance and criminal tax evasion.

If the banks were immune to punishment, why did they stop doing business with Andorra and Liechtenstein?

>Corporate taxation presents some more difficult problems.

Corporate taxation is a waste of time and effort. Corporations are accounting baskets. The money they get is eventually transferred to individuals, and it makes far more sense to tax it then than to tax a corporate body that is inherently more suited to tax avoidance than an individual. And no, the billions apple or google is sitting on are not evidence against this assertion, those piles of money increase the value of their traded stock.

14

James Wimberley 12.18.15 at 6:14 pm

JQ ‘..the Channel Islands have not attracted English tax-dodgers in the numbers that might be expected.” I was brought up in Jersey, so I know a little about this. The Channel Islands have draconian controls on housing, to keep the population virtually constant. Only a handful of rich individuals are allowed in in a given year – they will need to be paying a very large amount in income tax at the standard 20% (£125,000 in Jersey). The expat bankers support this policy, as a flood of rich settlers would make their own access to housing even more difficult than it is now. Look at the website of any Jersey estate agent to see the pressure.

15

Rakesh Bhandari 12.18.15 at 7:01 pm

As this symposium comes to an end, may I recommend a theme, not book–The Great Divergence.

Here’s how the line-up could look

The California School. Pomeranz, Parthasarathi, Bin Wong. Maybe Jack Goody

The Institutional Approach. Acemoglu and Robinson; Brenner

War and Violence. Sven Beckert and Philip Hoffman

Neo-Weberian School. John Hall on Gellner; Timur Kuran

The Colonial Drain School. Utsa Patnaik, Amiya Bagchi, Sandy Darity, John Hobson

Is it coming to an end–Kuznet’s U-curve on a global scale. Branko Milanovic

It would be great to create a forum in which they could engage each other.

16

Tabasco 12.19.15 at 1:40 am

Sensible discussion of this 70% rate, whether it’s revenue-maximising or socially optimal, neither or both, is not possible without knowing the income of the people who would pay it. Would it apply to anyone making over $100,000, $1,000,000 or $10,000,000?

17

rwschnetler 12.19.15 at 2:25 am

18

oldster 12.19.15 at 2:27 am

While I recognize that these are all important issues, I cannot help wondering:

Where is Belle? Why haven’t we heard from her in a while?

19

rageahol 12.19.15 at 4:00 am

@5:

maybe tying IP rights enforcement to tax-jurisdiction would be useful?

20

In the sky 12.19.15 at 5:05 am

“Piketty’s own work with Saez yields the conclusion that the socially optimal top marginal rate of taxation, after taking account of incentive effects, would be 70 per cent or more.”

As others have noted, that’s a very misleading claim JQ.

21

derrida derider 12.19.15 at 8:42 am

Saez and Diamond’s argument (not Piketty’s, though I’m sure he’d agree with it given the related work he did with Saez – see http://www.nber.org/papers/w17616) is that the Laffer maximum approximates the socially optimal rate if we weight the utility of a marginal dollar for those above it as negligible. Which, given empiric findings of both rank utility and sharply diminishing marginal utility among the top centile, seems sensible. See https://www.aeaweb.org/articles.php?doi=10.1257/jep.25.4.165

22

James Wimberley 12.19.15 at 12:05 pm

On BEPS: the simple solution to the coordination of taxation of corporate profits is to apportion profits across jurisdictions by some simple indicator of genuine economic activity, sales or value-added. The total profits are those declared to shareholders. Each tax jurisdiction sets its own rate. We know this is feasible because it is how the problem is solved between the states of the USA. Apportionment eliminates – not reduces – incentives to profit shifting between jurisdictions through offshore shell companies and the like.

23

Mitchell Freedman 12.19.15 at 3:18 pm

I wonder why the United States does not invade the Cayman Islands, Switzerland or another tax haven country the way it invades in fairly regular intervals other nations whose policies it opposes. Oh wait. It only invades ON BEHALF OF corporate priorities and oil access, not against. Silly me.

24

Marshall Peace 12.19.15 at 5:54 pm

cassander #13: Corporations are accounting baskets.

Didn’t we used to have companies that organized capital & labor so as to produce products? Meaning actual stuff that people used.

Straightening out the Accounting-Basket Problem would seem to require a monopolist global bank that can enforce socially desirable, somewhat uniform, tax treatment. A global tax authority to manage competition between tax/labor/environmental regimes. OP suggests the OECD is slowly grinding its way to being such a thing? The next step in the social integration process?

25

Layman 12.19.15 at 6:09 pm

rwschnetler @ 17, I suppose it depends on what you mean by ‘work’. The tax collected more money from high earners and thus made more available for government anti-inequality programs. What it didn’t do was 1) solve France’s structural deficit, or 2) survive a concerted elite effort to overturn it.

26

Rakesh Bhandari 12.19.15 at 6:32 pm

As this symposium comes to an end, I just want to mark topics that I wish we had covered:
1. Piketty replaces, in his own words, the class struggle with the centile struggle. What are the implications of this?
2. How should we assess Piketty’s criticism of the Cambridge Capital Theory and Marx?
3. How does a greater r-g tend to produce a greater concentration of wealth due to the way in which it may amplify shocks?
4. How does Piketty’s critique of rentier society differ from the Stiglitz/Robt Reich/Dean Baker critique of economic rents?
5. How does Piketty’s theorization of the rentier differ from those provided by Bukharin and Keynes?
6. If we consider citizenship in a wealthy country to be the most important asset that one inherits, how does that change our proposals to deal with inequality?
7. What are we to make of Piketty’s (very interesting) analyses of sovereign wealth funds, the distribution of petroleum rents, and the distribution of land in South Africa?
8. If meritocratic ideology may possibly collapse under the strains of rentier society, which ideologies are likely to replace it and become hegemonic? Galtonian social darwinism (or social Galtonianism) which after all would provide a rationalization for the inheritance of property following the inheritance of putatively superior abilities?
9. Is widening wealth and income inequality necessarily linked to what Therborn would call widening vital inequality, i.e inequality in infant mortality, morbidity, longevity and general well-being? Why or why not?

I would find it helpful if others would also add questions that they wish we had taken up. I feel reasonably certain that Piketty’s work will be discussed for many years to come.

27

Ebenezer Scrooge 12.19.15 at 6:59 pm

It’s awful hard to punish a megabank, pour l’encourager les autres. The fundamental ideological premise of Anglo-American insolvency law is that an insolvency has no externalities. This is certainly false to fact–employees and their communities can suffer badly when a company restructures. But it is close enough for government work.

The problem with big banks is that they’re not ordinary firms. The externalities of their failure are potentially far greater than those of ordinary corporate insolvency. Pointing a gun at somebody is a very credible threat–unless the pointer’s head is interposed between the muzzle and the target.

I guess that this leaves incarceration of individuals as a credible option. But this will require considerable rejiggering of the criminal law system–American standards of criminal responsibility make it very hard to convict an individual of a corporate crime. It is hard to infer the criminal intent of a person wearing a suit.

28

None 12.19.15 at 7:38 pm

One thing that always stands out in these types of discussions is the way “dissenters” invariably hide behind the anonymity of internet noms de plume. Are they worried that people will google their affiliations if they reveal themselves ?

29

Ebenezer Scrooge 12.19.15 at 8:35 pm

None@28: Yes.

30

derrida derider 12.19.15 at 9:25 pm

None, some of us have employers who severely constrain our freedom of speech – we’re not all the licenced dissenters of academia. Talk of “freedom”, “1st Amendment”, etc is a hollow joke to large slabs of the population – it is private rather than state actors that principally constrain liberty.

31

Layman 12.19.15 at 9:31 pm

@30: well said.

32

Rakesh Bhandari 12.19.15 at 11:44 pm

33

SamChevre 12.20.15 at 1:32 am

I would argue that at the very top, a wealth tax and an income tax will have very different dynamics–and a wealth tax is preferable.

In very short form, a tax on income will tend to be “Rockefeller protecting”–it will stabilize existing orderings of wealth; a tax on wealth will tend to be “Walton promoting”–it will destabilize existing orderings of wealth.

34

John Quiggin 12.20.15 at 4:19 am

In responese to @20 and others, Derrida Derider @21 has it right.

35

John Quiggin 12.20.15 at 5:14 am

dax @7 The information supplied by banks to foreign goverments under this agreement is no different to what is supplied to the national government regarding domestic depositors, at least in Australia*. So all that is happening is that the globally wealthy elite lose some privileges previously available only to them. I don’t see this as an unreasonable restriction on rights.

* You can refuse to supply your tax file number to the bank, in which case they do not send information to the government about your account, but withhold tax at the top marginal rate. Some similar option for foreigners ought to address civil liberties concers

36

liberal 12.21.15 at 3:30 am

Yawn…you can tax economic rents as high as you want, with no ill effects.

37

mpowell 12.21.15 at 4:55 am

derrida@21, Reading through your second link, it seems that the authors assume utility is a log of consumption. But how does that translate to marginal utility of income? If you assume that extremely high earners only spend a few years at their earning peak, the impact to lifetime consumption will apply to a much lower mean. It seems that it could give you a much lesser reduction in utility. Does anyone try to account for that?

38

Rakesh Bhandari 12.21.15 at 5:01 am

To add to my questions @26

we never did take up the question of whether wealth would naturally be broken up as it spread over multiple heirs over a few generations. We could have examined Piketty’s wealth transmission equation which did not make an appearance in this symposium.

In terms of the question in the title of the OP, the answer could be “no”–the wealth tax is NOT needed to prevent the top one percent in wealth holdings being composed of those whose assets are themselves inherited or traceable to the growth of the wealth that they have inherited. Fortunes will be broken up through intergenerational transmission–so you’ll get the dynamic from rags to riches back to rags in three generations as the fortune is split over an increasing number of people. With past wealth being broken up through intergenerational transmission, wealth will tend to come out of the savings of living actors. The past will not devour the living, as Piketty poetically puts it. This was perhaps Mankiw’s best argument against Piketty, and we never did debate it.

I can’t find Piketty’s response to this kind of criticism in the book.

But perhaps if the top 1% in wealth holdings enjoy high returns and live long lives, their fortunes will be so large at time of their death that even if divided by two or three the heirs will be in the top 1% in wealth holdings for their age group; and the inherited wealth will grow in such a way to keep them there relative to their age group as they get older. We could get oligarchy and Rastignac’s dilemma.

39

LFC 12.21.15 at 5:31 am

@Rakesh Bhandari

Your list @15 is so cryptic as, frankly, to approach being insulting, as if to say if one hasn’t heard of the California School or Parasarathi, one has no business being here.

Why is Sven Beckert listed under “war and violence”? Is his recent history of the global cotton industry so tied up w the U.S. Civil War as all that (that’s a genuine question; I haven’t read it)?

Come to think of it, why is “war and violence” listed at all under a general heading of The Great Divergence, i.e., the growth of within-country economic inequality in the past several decades. (The Great Divergence cannot refer to between-country, as opposed to within-country, inequality, since there’s been no divergence in between-country inequality in terms of aggregate measures like nat’l income — on the contrary.)

Why list John Hall on Gellner, as opposed to Gellner himself? Is J.A. Hobson relevant except to historians of economic and political thought, which I take this list not to be oriented to? etc.

Also your question #9 @26 makes little sense b.c you don’t specify whether you mean, e.g., within-country infant mortality or infant mortality in general. Globally, infant mortality (while still at immorally high levels) was cut roughly in half between 1990 and 2012, the very period when ‘the great divergence’ was in full swing.

40

Rakesh Bhandari 12.21.15 at 5:48 am

I’m sorry if you felt insulted. I meant to indicate that there is a truly interesting, perhaps transformative on-going debate about when and why the West gained relative economic and political power by the beginning of the 20th century when that could not have been guessed at a millennium earlier. I was just trying to think of a debate as big as the one over Piketty, and this came to mind. They are separate debates.

There are all kinds of explanations for this Great Divergence on a global scale. Some see warfare techniques as more advanced arising out of its fragmented, competitive political structure in Europe. Some tie the gunpowder advantage to successful mercantilist strategy (this is how was I thinking of Beckert’s war capitalism). Others look at new political institutions (Glorious Revolution) and agrarian institutions in the West or England in particular. Some argue that the institutions such as property laws or credit systems were not that different between East and West to have been the source of such sharp divergence and look elsewhere–well-placed coal deposits and the immense advantages created by new colonies in the Americas (some of the foci of the California School though Prasannan Parthsarathi does not put his focus here) or factor prices in terms of energy and labor (I should have added Robert Allen).

Gellner is dead, and I meant Hobson’s (I think great grandson) John M. Hobson.

Please feel free to add to or rewrite the questions that I raised about Piketty’s book.

41

LFC 12.21.15 at 6:05 am

It occurred to me a few minutes after I wrote the comment that by ‘the great divergence’ you meant the divergence btw ‘the West’ and the non-West (I’ve seen the phrase used in that way); but I was confused since you raised it in the context of this Piketty symposium.

I also now gather you want living authors so they cd engage w each other on the blog, but I guess I didn’t take the last phrase about “a forum where they cd engage w/ each other” literally enough.

42

LFC 12.21.15 at 6:14 am

Another reason I was confused is that I was counterposing ‘the great divergence’ to ‘the great compression’ — prob. (?) no one has used ‘the great divergence’ in that way, but that’s the first thing that came to mind.

As for “the immense advantages created by new colonies in the Americas,” I wd think some of the world-systems people might be on about that, but you don’t list them, afaict.

43

Rakesh Bhandari 12.21.15 at 6:35 am

Yes, it’s probably been a decade since I read Pomeranz’s Great Divergence, but I would be interested in comparing the way he analyzes the new kind of (American, often slave-based) colony in relieving ecological pressures on the growth process in Europe to the way the colonies in America are analyzed in world systems theory. I am guessing that Pomeranz puts less emphasis on the extraction of monetary profits from colonies as perhaps in world systems theory than on the resource advantage that they provided.
Now just to get back to Piketty–he has several pages on inequality not measured within nations but between nations (pp.59ff), which is the result of the historical process that is now being debated.
Piketty anticipates convergence between nations. But this too is a part of Piketty’s book that we did not take up. Too bad.

44

dax 12.21.15 at 7:43 am

JQ @35. Don’t know about Australia, but in Sweden and in other countries banks did not ask about national origin, because it was considered a fundamental right that one is not discriminated on account of one’s origin. With FATCA this information is now being gathered.

https://bancdelasteroideb612.wordpress.com/2015/01/09/sweden-begins-discriminatory-profiling-its-citizens-by-country-of-birth-and-by-national-origin/

The left’s idea of “wealthy global elite” is about the same as the right’s “Muslim terrorist.” FATCA affects anyone living outside the US with an American birthplace, even those who are no longer American or who have never considered themselves American.

45

John Quiggin 12.21.15 at 8:57 am

@dax There’s no discrimination here. Your taxable income is reported to your national government whether or not it’s the same as the domicile of your bank. The discriminatory situation was the one where those with overseas bank accounts got to dodge tax while those with domestic accounts had to pay.

I’m not an expert on FATCA, but AFAICT it’s not a major problem for people “who are no longer American or who have never considered themselves American”. They need only renounce their citizenship, which appears to be only marginally more difficult than obtaining a passport. The main cost is that, having done so to avoid tax, you can’t return to the US.

46

John Quiggin 12.21.15 at 9:00 am

“Does anyone try to account for that?”

Yes, all these issues are debated at length in the taxation literature. There’s no simple answer. One problem is that the consumption of the wealthy, often in the form of fringe benefits, is usually undertaxed.

47

dax 12.21.15 at 12:07 pm

@JQ. Before many banks in many places in the world were not keeping information about their customer’s national origin. Now they are. If you have an origin in the U.S. then a bank can turn you away, and banks in Europe have done so (or denied mortgages), in order to avoid dealing with the American authorities. Apparently that’s no biggie to you.

It costs 2350 Usd to renounce US citizenship. Ouch to many, but I guess you’re one of the global wealthy elite who thinks 2350 Usd isn’t much money. And in order to renounce, you have first to enter the US tax system, which means filing 5 years of US forms, which can be very expensive for someone not living in the US. Have a small tax-free retirement account in your country? Whoops, not tax free in American eyes. Bought a house or an apartment? Whoops, the U.S. will calculate capital gains using market value converted into dollars compared to purchase price converted into dollars, so the depreciation in the dollar will hit you even if the house has not appreciated in the local currency. And this even if you have lived all your life in another country but had the bad luck to be physically born in the U.S.

I think probably your environment betrays you. Even if you have stayed in Australia, Western academics are generally pro-American, because many of them want to get to America and earn more money at American universities. That they are then stiffing their own countries, where universities were free or cheap to them, seems to be besides the matter. Now *that’s* tax avoidance I could do away with.

48

Bruce Wilder 12.21.15 at 3:17 pm

dax @ 47

I have no interest in addressing dax directly: feeding the trolls and all that.

I am curious about the choice of focus for resentments. The depredations of the wealthy across the globe or obscure details of the US system of income tax, which affect vanishingly few people in the way described?

I think Piketty is bloodlessly abstract in his approach to increasing inequality. Even referencing inequality is oddly abstract. I do not blame Piketty — he is matching an established discourse, which clearly does not want to get bogged down in detail. The proposal for a global wealth tax seems to address some need (in his audience) for a blanket, automatic solution, which cannot be over come in the way the New Deal or ordoliberalism in European social democracy was overcome. I cannot but feel that a global wealth tax is a substitute for attacking the rich more directly and in detail — anti-monopoly policy, usury laws, public ownership of some means of production, social insurance, etc. The righteous anger at, say, the GFC of 2008 had no potency.

And, yet, resentments are present. The odd spectacle of the U.S. Republican “debate” series has normalized to an amazing (to me) extent, aggressive hostility and violent rhetoric and bizarre lies and rank stupidity. Meanwhile, the Democrats hide their candidate for succession lest her popularity erode too fast.

My point is that there seems an odd avoidance of the political necessity for altruistic punishment of the rich and detailed institutional renewal. The left appears to want the mildest sort of disassociation; the right, bizzaro world. Why can’t we just be angry? At the greedy and irresponsible, the criminal and sociopathic.

49

TM 12.21.15 at 3:27 pm

JQ, respectfully, you need to inform yourself. FATCA is an entirely US-centric law and it is clearly disciminatory. It does not concern the reporting of income but the reporting of financial assets, more precisely those outside of the US. I have to agree with dax, it’s really not just plutocratic tax dodgers who have reason to be concerned about their financial privacy. For a summary see https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance_Act#Criticism.

US banks do not report on their customers to foreign governments but non-US banks are required to report to the US government. Furthermore, US banks report only their customers’ interest income to IRS, not their asset values. US residents are not required to tell the IRS how much money they have as long as it’s in the US. It is only foreign bank accounts that (under FBAR and now FATCA) have to be reported to the US government. And lest people think this is just a problem of transnational plutocrats, absolutely not. The FBAR reporting threshold is all of $10,000, meaning that millions of immigrants or temporary workers who have modest savings in their homeland fall under FBAR and potentially also FATCA. Not just US citizens but potentially anybody who has temporariy lived in the US (*) may find their financial data reported to the US.

“The discriminatory situation was the one where those with overseas bank accounts got to dodge tax while those with domestic accounts had to pay.” The irony is that tall this brouhaha happens at a time when the interest on savings accounts is precisely zero. In any case it is important to understand that FBAR and FATCA are not at all related to reporting of income.

50

TM 12.21.15 at 3:31 pm

“obscure details of the US system of income tax, which affect vanishingly few people in the way described”

Wrong, as explained. Also, if you really believe this is all about cracking down on tax evasion, ask yourself why the US shows so little interest in attacking real dark money havens such as the Caymans, the City of London, or indeed Delaware.

51

Map Maker 12.21.15 at 3:46 pm

Wealth taxes for non-real assets are notoriously difficult to set-up and administer even if the legislators act in good faith efforts to achieve a particular policy results.

Also, the numbers thrown around are quite high. Let’s say you own 100,000,000 million dollars of Walmart. A wealth tax of 2%, plus a dividend tax of 20% means the owner would receive $600,000 a year in after tax income. Not much, given the amount of capital at risk. It pays to find an accountant who can turn an asset worth $100m into an asset worth only $50m, especially if it provides an after tax return > $600,000.

52

cassander 12.21.15 at 3:46 pm

@Marshall Peace

>Didn’t we used to have companies that organized capital & labor so as to produce products? Meaning actual stuff that people used.

still do, more than ever. That doesn’t change the fact that corporations are accounting baskets. They do more than just accounting, of course, but ultimately every dollar in them goes to a person.

>Straightening out the Accounting-Basket Problem

what problem would that be?

>would seem to require a monopolist global bank that can enforce socially desirable,

socially desirable by whose standard? America’s? Zimbabwe’s?

>A global tax authority to manage competition between tax/labor/environmental regimes.

Like the WTO does for trade? Because as I recall, that organization is not very popular around here.

53

Bruce Wilder 12.21.15 at 3:49 pm

TM @ 49

Screw ’em.

54

Bruce Wilder 12.21.15 at 3:52 pm

Map Maker @ 51

One might almost begin to question the wisdom of Piketty orienting his analysis to the relationship of income to wealth.

55

Layman 12.21.15 at 3:54 pm

As a U.S. person who actually has assets overseas (through marriage to an immigrant), I’d say FATCA is no more than a minor annoyance in the big scheme of things. I don’t feel discriminated against – were I an American of a different race, or religion, or sexual orientation, etc, I would be in the same situation as I am now, facing the same requirements. I can’t think of a single thing I ever wanted to do that I could not do because of FATCA. Maybe there are bigger fish to fry here?

56

TM 12.21.15 at 4:14 pm

Layman, the NSA has never prevented any of us from doing anything we wanted to do so I guess we shouldn’t be concerned with NSA surveillance.

57

Layman 12.21.15 at 4:28 pm

I’d say the difference here is that the NSA is operating outside the law; and where they are empowered by law, the law itself violates the constitution. Which part of FBAR or FATCA is in your view analogous?

58

TM 12.21.15 at 4:28 pm

It seems the mostly US crowd around here fails to grasp that FATCA imposes a burden on the rest of the world with no US reciprocity whatsoever.

Why anybody would have a problem with that is really a mystery…

59

TM 12.21.15 at 4:35 pm

I presume you consider NSA surveillance to be unreasonable search? But you can’t imagine why a requirement for banks all over the world to search their databases and to report certain accounts to a certain government might constitute, ahem, unreasonable search?

And it is interesting that for you, the only consideration seems to be US law and constitution. Does it occur to you that not everybody in the world considers US law to be supreme yet they are subject to US surveillance?

60

Trader Joe 12.21.15 at 4:35 pm

@55
I’d have to agree with TM here on the impacts of FATCA. Your experience is like different living in the U.S. with a few foreign assets as compared to living elsewhere.

A good friend of mine of modest means – earns around 75,000 Euro annually, bought a small flat in Amsterdam, a quite good investment, but taking virtually all of her savings for a downpayment. It wasn’t an investment, it was her home. As the dollar depreciated and the flat appreciated in 2010-2013 she was asked to pay tax – with cash money – on the gain on her asset. With the dollar falling and the housing market cooling, one can be quite certain they won’t be providing a rebate in 2015.

Its a law designed to catch big fish, that only catches little fish, since the big fish can pay the necessary amounts for avoidance.

61

Bruce Wilder 12.21.15 at 4:49 pm

TJ: Its a law designed to catch big fish, that only catches little fish, since the big fish can pay the necessary amounts for avoidance.

And, of course, to attract imaginative resentments. (Call me when U.S. income tax covers unrealized capital gains.)

62

Layman 12.21.15 at 5:05 pm

@ TM, I’m really struggling to understand your point. Foreign banks need not report anything at all to the U.S., since they aren’t subject to U.S. law. If they do report, they need not report assets of anyone other than American persons, which assets they can simply decline to hold. American persons are perhaps inconvenienced, but they need not hold foreign assets or, if they do, they need not hold them in banks that choose to report. If they choose to do those things, then the harm they suffer is that they pay taxes (on income, not assets!) which, under U.S. law, they owe. If they’re banking in countries which have reciprocal tax arrangements with the U.S., which is to say most developed countries which are not tax havens, then they are not subject to double taxation on that income.

63

Layman 12.21.15 at 5:07 pm

@ Trader Joe, which asset tax was applied to your friend’s flat, exactly?

64

Rakesh Bhandari 12.21.15 at 5:31 pm

What do people remember as the most important insight or criticism about Piketty’s work that came up in this symposium? I don’t think this recent tiff will qualify.

There has been a lot about politics: inequality depends more on political choices than Piketty lets on; politics and bargaining even affects the K/Y ratio more than Piketty admits; Piketty has no theory of how counter-power could develop; Piketty does not theorize the conditions required to change tax regimes; Piketty may not be wrong that the international coordination required for a global tax wealth could develop; Piketty makes no clear normative case against widening inequality.

There was some economics mostly in the comments: alpha can’t increase because declining marginal returns; r>g has no implications for inequality; consumption taxes are better than what Piketty proposes.

And there was some sociology of knowledge in regards to to conditions required to make Piketty’s findings salient.

What did people here find most interesting in the discussion about Piketty?

65

Rakesh Bhandari 12.21.15 at 5:40 pm

And of course there was more on the role of education in inequality, the motives for superior status or rank, and on alternative systems of property and governance.
We did not have much discussion on the empirics outside of the beta equation–for example, the way in which the data was collected (tax and estate data, surveys), Piketty’s return to serial history, his reasons for not using the Gini (or Palma or Theil or various other) indices to measure inequality but rather personal and functional distribution measures.

66

TM 12.21.15 at 5:54 pm

Layman, everything you say is true to the same degree that it is true that if you aren’t a terrorist, you have nothing to fear from NSA surveillance. dax may be on to something when he says that tax avoidance is the left’s terrorism scare. Once again, the chance that FATCA will catch actual big time tax cheaters is negligible. At best, FATCA is a show, like the NSA wizardry is a show. However, if you think that this kind of financial surveillance is a-ok, you need to explain why your standards for NSA surveillance are different. Lots of “reasonable” people think there’s nothing wrong with NSA getting those data and what’s the harm really? Why you always have the option of not using a cell phone…

The blatant disregard for millions of people’s privacy rights on display here is a sad spectacle. As is the lack of consideration for the national sovereignty of those countries not named USA. No FATCA-like law requiring the reporting of all domestic US assets would ever have chance to be enacted, as you very well know, and likewise will US Congress never tolerate foreign countries imposing their rules on US banks. So why do you guys think it is ok in this case for the US to act the bully?

67

Layman 12.21.15 at 6:23 pm

“However, if you think that this kind of financial surveillance is a-ok, you need to explain why your standards for NSA surveillance are different.”

I have said so, but will repeat and expand: Because the NSA acts in violation of the law; because the NSA’s collection is broad and sweeping, encompassing everything; because the NSA acts unilaterally, and is not constrained by the absence of cooperation. If the NSA said, instead, that they would like companies to voluntarily provide them with everyone’s data, with said companies free to decline; or if the US govt secretly hacked into every foreign bank to collect information about deposits; then you might have a basis for comparison.

Do I think the US should bully other countries into cooperating with FATCA? No, in fact I don’t like the US bullying other countries. But those countries, and their banks, are free to tell the US to get stuffed. Why don’t they?

68

Trader Joe 12.21.15 at 7:21 pm

@61 and @63
Appologies, my telling of the story was poor. She sold the flat for slightly more than she paid for it (after selling costs) in Euro terms and bought another elsewhere. The tax was to be imposed on the apreciation in dollar terms which, because of the weakness of the dollar was far more substantial.

In the U.S. you have two years with which to roll-over the proceeds of such sales into a similar property in order to avoid the tax. For expats, the rule is a bit more complicated and resulted in the tax being owed immediately even though, within 18 months a new property was purchased with the proceeds.

Tax issues are always messy, but her accountant advised her that the FATCA reporting was decidely a factor in the assessment of a substantial tax lien which created an assortment on consequent issues. This is the only reason I’d have come to know anything at all about FATCA. From what I understand, its a quite well resented law in the expat community and is far from as benign as some want to suggest.

69

TM 12.21.15 at 8:06 pm

Layman,
(1) US Telcos were also “free to decline” cooperation with NSA. How this is relevant for personal privacy eludes me since the people whose privacy rights are at stake are NOT “free to decline”.
(2) The banks are not “free to decline” cooperation with the US. The whole point of FATCA is that it’s a requirement and institutions that decline face consequences.

“those countries, and their banks, are free to tell the US to get stuffed. Why don’t they?” This is a rather naive view of reality. It is a minor point but still worth mentioning that the cost of FATCA compliance, which is considerable, is 100% paid by the customers of foreign banks (that is, it is paid by non-Americans). It does bother me a bit that my bank has to incur these costs in order to satisfy the US bully. Would my bank incur these costs if they had the choice to “just say no”? FAT chance.

70

TM 12.21.15 at 8:13 pm

For an example that some posters around here might understand:

Suppose you are an academic, say in Australia. You teach a few semesters at a US institution as a guest lecturer. Congratulations, you are now a US person for tax purposes! Under FBAR you are now required to disclose ALL your assets outside of the US to the IRS. Account numbers, balances, real estate, stock, everything, as long as the total exceeds $10,000 US. Think that’s fair and reasonable? Probably not. I suspect that most people in that situation simply don’t comply. They know they will be out of here soon and who cares, really.

Now with FATCA, your home bank in Australia, whom you have given your US phone number in case they need to reach you, is required to flag you as a US person and report your accounts to IRS. Maybe certain CT commenters wouldn’t care. I think a lot of people would and I think they are right.

71

Bill Hamlin 12.21.15 at 11:04 pm

If you consider the act of ‘creating wealth’ the question becomes who gets that created wealth? If an investor purchases a McDonald’s franchise and creates 30 jobs, some of that wealth goes to the 30 people, some (in the form of lower prices for entertainment food) goes to the patrons, and some goes to the investor.

Another form of creating wealth is banks providing loans and only having to have 10% in assets to cover those loans. That is risky (what if all the loans fail?). But it created wealth.

72

Tabasco 12.21.15 at 11:31 pm

your home bank in Australia, whom you have given your US phone number in case they need to reach you

Or you could give them your cell phone number, in which case you could be on the North Pole, for all they know.

73

John Quiggin 12.22.15 at 12:06 am

@TM I can’t say I’m feeling the outrage. I’ve worked in the US, but not long enough to become a US person. So, I’ve reported all my US assets and income to the Australian authorities. If I moved to the US on a long-term basis, I would expect things to be the other way around.

There is a problem specific to the US, but not to the issue of taxation. In all matters, including tax, the US is much too ready to assert that its jurisdiction trumps all others. The US government claims, and to some extent exercises, the right to tap my phone, assassinate me on the basis of secret evidence, charge me with criminal offences distantly related to any US activity and so on. By comparison, the fact that it claims first dibs in tax matters seems like a relatively minor infringement of my status as an Australian citizen.

74

John Quiggin 12.22.15 at 12:15 am

To restate the main point. I don’t think it’s a violation of my civil liberties for my (Australian) bank and my (Australian) employer to report my income to the (Australian) government. If I have income and assets in multiple countries, there’s a question as to which government should have primary claim to my tax payments, but there is still no question of civil liberties.

By contrast, I object to my phone being tapped whether it is by Australia, the US or (as is generally the case in Five Eyes countries) both acting in concert.

75

Alex 12.22.15 at 12:28 am

That doesn’t change the fact that corporations are accounting baskets. They do more than just accounting, of course, but ultimately every dollar in them goes to a person

So what? Corporations are a specific legal form that come with rights and benefits, most obviously limited liability. If the government is going to protect shareholders on the downside, why should we get some of the benefit on the upside, by taxing profits?

Even better, as it avoids the possibility of tax avoidance, is this idea from Dean Baker:

http://cepr.net/blogs/beat-the-press/a-way-to-tax-corporations-that-they-cannot-escape

Have each corporation issue the government with a certain percentage of non-voting shares. By trying to maximise shareholder value, the corporations would necessarily also be maximising tax revenue since the dividends would function as tax revenue.

76

Alex 12.22.15 at 12:28 am

Sorry, last comment should of course be *why shouldn’t we get some of the benefit on the upside

77

Alex 12.22.15 at 12:30 am

(Of course, my argument above assumes the existence of a capitalist system, with corporate ownership that can be taxed as now. One might instead want some sort of market socialism, with worker and/or community-owned companies instead)

78

Norwegian Guy 12.22.15 at 1:21 am

It’s untrue that there is no American reciprocity in FATCA, or more precisely the bilateral tax agreements that regulate how it’s implemented. Under these agreements, the Internal Revenue Service provides the same information about foreign assets in the USA that foreign tax agencies send them.

If I’ve understood things correctly, banks and other financial institutions don’t have to report anything to the IRS themselves. They report to their national tax agency, which takes care of the reporting to the US. This is information that e.g. the Norwegian tax agency collects anyway. How else would they be able to calculate the Norwegian wealth tax?

Moreover, FATCA has served as an inspiration for the Common Reporting Standard (CRS), developed by OECD and signed by close to 100 countries. Implementation will start from 1st January 2016, so automatic exchange of financial information between countries is soon coming.

By the way, I don’t doubt that many expats dislike having to fill out American tax returns. One reason might be that they’re accustomed to easier systems, with prefilled tax returns. The IRS could do more to streamline the process.

79

SamChevre 12.22.15 at 1:31 am

If the government is going to protect shareholders on the downside, why should we get some of the benefit on the upside, by taxing profits?

Because I want to weaken corporations, not strengthen them–and the way to do that is to force them to attribute profits to people, and tax the people. I’m with James Wimberly–tax shareholder profits, on the shareholder basis, based on the proportion of sales that are in-country. If the profits were distributed to the shareholders (as dividends) then tax the shareholders, not the corporation.

The goal is to get the profits out of the corporation.

80

Alex 12.22.15 at 2:28 am

Because I want to weaken corporations, not strengthen them–and the way to do that is to force them to attribute profits to people, and tax the people

Two questions:

1. Is it really your desire that a business should pay out all its profits as dividends and not use any to reinvest in the company?

2. If defining corporations to be taxed “strengthens corporations”, then surely by your own logic defining individuals instead to be subject to that taxation strengthens those individuals?

Also, your argument does not address the alternative to reform of corporate taxation from Dean Baker I posted above, as the government piggybacking as a shareholder to receive dividends acts as a direct tax on shareholders since it dilutes what proportion they receive.

81

SamChevre 12.22.15 at 2:33 am

Alex,

To your #1, yes, that is exactly my key goal.

To your #2–it strengthens individuals, yes–but they don’t have the principal-agent issues of corporations, they die eventually, and their tax treatment can be appropriate to their income.

82

js. 12.22.15 at 2:59 am

If I have income and assets in multiple countries, there’s a question as to which government should have primary claim to my tax payments, but there is still no question of civil liberties. [emph. added—js.]

This, exactly. I really don’t get TM’s analogy. There are certain areas where individuals and citizens have privacy interests against governments, and NSA surveillance, to my mind at least, pretty clearly violates those privacy interests, and so it violates civil liberties. But those privacy interests, again to my mind, clearly don’t extend to income earned or assets held. I’m completely failing to see how any privacy interests are being violated by the compulsory reporting of income and assets to tax authorities.

83

js. 12.22.15 at 3:12 am

By the way, I don’t doubt that many expats dislike having to fill out American tax returns. One reason might be that they’re accustomed to easier systems, with prefilled tax returns. The IRS could do more to streamline the process.

Right!? I asked Mike Konczal about this on Twitter not too long back. His answer (in Twitter length—so caveat emptor, etc.) was that it’s the tax prep firms’ lobbying. Fucking insane!

84

Rakesh Bhandari 12.22.15 at 5:21 am

How serious Piketty is about the global wealth tax comes across in this slide.

I find it astonishing that big audiences all over the world have seen it.

As Robert Paul Wolff has suggested, Piketty may not be defending a theory or making a prediction here or writing in stone his own unconditional law of motion; Piketty is issuing a warning of what the outcomes will be if people do not implement a global wealth tax. See the juxtaposition of the last two bullet points.

This reminds me of an attempt from the opposite side–Schumpeter’s “prediction” of a march to socialism which was in fact not a prediction but a call to arms to defend the system against “premature socialization”. Piketty too wants to preserve capitalism…

Here is the slide:

“The history of income and wealth inequality is always political, chaotic and
unpredictable; it involves national identities and sharp reversals; nobody can
predict the reversals of the future
• Marx: with g=0, β↑∞, r→0 : revolution, war
• My conclusions are less apocalyptic: with g>0, at least we have a steady-state
β=s/g
• But with g>0 & small, this steady-state can be rather gloomy: it can involve a
very large capital-income ratio β and capital share α, as well as extreme
wealth concentration due to high r-g
• This has nothing to do with a market imperfection: the more perfect the
capital market, the higher r-g
• The ideal solution: progressive wealth tax at the global scale, based upon
automatic exchange of bank information
• Other solutions involve authoritarian political & capital controls (China,
Russia..), or perpetual population growth (US), or inflation, or some mixture of
all”

85

cassander 12.22.15 at 5:37 am

@alex

>So what? Corporations are a specific legal form that come with rights and benefits, most obviously limited liability. If the government is going to protect shareholders on the downside, why should we get some of the benefit on the upside, by taxing profits?

Because taxing the people that eventually receive those profits (and thus benefit from those rights and benefits) is easier, cheaper, and most straightforward. There is zero morality in the question. However much you think we should tax which people, it’s just cleaner to tax them as people, not to try to get at them by taxing temporary holding pens.

86

TM 12.22.15 at 8:57 am

72: Sure, the obvious strategy is to not let your bank know if you have a US address.

73: Compared to being assassinated, it may be a minor issue, but then, many issues are minor issues. You (74) still misunderstand the nature of FATCA. It is NOT concerned with the reporting of income, what is being reported is your account numbers and balances. The same data are NOT reported for US assets, only for non-US assets.

78: “Under these agreements, the Internal Revenue Service provides the same information about foreign assets in the USA that foreign tax agencies send them.” US banks do not report assets to the IRS, they only report interest payments (*). The IRS may report these to say German authorities under a bilateral agreement but that is much less than German banks have to report to the IRS (whether directly or indirectly). Furthermore, there is no requirement for US banks to identify potential “tax foreigners” among their customers for example by searching their databases for anybody with a birth place or current address outside the US.

FATCA may be implemented through bilateral agreements but if a country doesn’t copperate, that doesn’t let their banks off the hook – to the contrary.

87

TM 12.22.15 at 10:01 am

js: If financial data are not privacy-sensitive, I don’t know what is. You are simply assuming that all reporting under FATCA is legitimate and serves only legitimate purposes. That is exactly the same argument as with NSA – trust us, we won’t misuse your data.

The biggest problem for civil liberties is really the exterritoriality and the fact that distinctions are made between people based on (presumed) nationality. American expats as well as foreign residents of the US are treated as a different class of people. These are vulnerable people (mostly they can’t even vote where they live) whose rights are easy to dispense with. And that is why I find the applause from the left side particularly troubling. Liberals should know better.

88

dax 12.22.15 at 10:30 am

JQ: “I don’t think it’s a violation of my civil liberties for my (Australian) bank and my (Australian) employer to report my income to the (Australian) government. If I have income and assets in multiple countries, there’s a question as to which government should have primary claim to my tax payments, but there is still no question of civil liberties.”

It is a violation of my civil liberties when I live in country x, work in country x, am a citizen of country x, am not a citizen of the United States, but am subject to American law such that I have to sign American IRS documents. Yes, it’s country x which eventually agreed to allow this, but country x did not have a choice, because the U.S. put a loaded pistol to its head. Fine, you (JQ) don’t feel concerned, because it doesn’t affect you. You feel concerned about the NSA, because it does. However, normally civil liberties are important even if they aren’t your civil liberties.

The discussion is centered on fine points of FATCA and American law, but there’s a larger point here, which is, To what extent does a country own an individual. This is usually framed as the “responsibilities” of an individual to a country, but it is really about ownership. If an individual doesn’t want to be a part of a country, then an individual should have the right to vote with his or her feet, to move to another country, and all liens of the first country on the individual should thereafter be null and void. In particular the first country’s laws should no longer have jurisdiction – if the person keeps out of the country, has no assets in the country, and so forth. This seems to be a question of fundamental liberty. My sense is that JQ would say, “Ah, but not if you’re a member of the Global Wealthy Elite.” Which is, to be unfair but maybe nonetheless accurate, is the kind of remark one would expect from Donald Trump, with only Wealthy stripped away.

89

MisterMr 12.22.15 at 10:45 am

“Nevertheless, in most advanced countries, the following will be pretty generally applicable.

1. Abolition of property in land and application of all rents of land to public purposes.
2. A heavy progressive or graduated income tax.
3. Abolition of all rights of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.
6. Centralisation of the means of communication and transport in the hands of the State.
7. Extension of factories and instruments of production owned by the State; the bringing into cultivation of waste-lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal liability of all to work. Establishment of industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.
10. Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production, &c, &c.”
(the citation is so obvious I won’t put here the source).

Please note point 4, that is relevant for present discussion, and always sounded more than a bit excessive to me (I’m ok with the other points).
The other choice is to have an homogeneus tax system in all countries, however this would require a worldwide government, that is unattainable now.

90

Map Maker 12.22.15 at 1:13 pm

“If I have income and assets in multiple countries, there’s a question as to which government should have primary claim to my tax payments, but there is still no question of civil liberties.”

In terms of this specific example, there are a number of governments that take a dim view of political opponents, some of whom receive funds from expatriates. Sometimes these funds are held offshore to prevent the government from controlling/restricting them. As data is shared, potential donors are threatened, and political repression continues more efficiently. But, hey, not my civil liberties.

re 89, always a good reminder to read that from time to time. While there were some challenges in Pol Pot’s implementation of this as policy, he took a good shot at each of the items on the list and certainly eliminated issues of corporate tax avoidance in his short reign.

91

MisterMr 12.22.15 at 1:43 pm

@Map Maker

Yeah, I was trolling a bit.
Marx posed his points in such an extremistic way that they sound crazy, point 4 being probably the most extreme and tyrannical.

However, even if Marx’s solutions are too extreme, all the points focus on problems that are still real in the world of today.

While “Confiscation of the property of all emigrants” is not a serious option, we still have the problem that wealthy individuals can basically dodge taxes by “tax rate shopping” between various nations, and this can’t be stopped without measures that are illiberal.

I personally think that the correct solution is not to tax wealth but to force the wage share up – I think that this would automatically reduce “wealth”, as I think that said wealth is not really a thing but just a notional entity that depends on cashflows.
Forcing the wage share up though has the same problems of taxing wealth, as investors will just build new factories were wages are lower, thus giving an edge to the countries were the wage share is lower.

92

js. 12.22.15 at 11:50 pm

You are simply assuming that all reporting under FATCA is legitimate and serves only legitimate purposes.

This isn’t what I’m saying. If your argument is that FACTA could under certain circumstances be open to abuse, that’s maybe right. I’m saying that requirements for reporting income and assets are not per se illegitimate—if you argued they were, you’d prove too much. On the other hand, NSA surveillance of the sort that’s been revealed strikes me as per se illegitimate. So I don’t buy the analogy.

93

Alex 12.23.15 at 4:35 am

SamChevre:

To your #1, yes, that is exactly my key goal.

Okay, so under your proposal, how would companies come up with new products and invest in them, hire and train new staff, build new factories to expand production, and so forth?

<blockquote?To your #2–it strengthens individuals, yes–but they don’t have the principal-agent issues of corporations, they die eventually, and their tax treatment can be appropriate to their income.

But this fails to acknowledge that (if you are correct that the situation I am defending is a bad idea) then the people who benefit from the aspects of corporations you’re critical of are, well, people! That is, “corporations” don’t benefit, the people who run corporations do. And these are people who, by your own acknowledgement, “die eventually, and their tax treatment can be appropriate to their income”.

Moreover, none of the issues you suggest are insurmountable when it comes to corporations. That is, if the corporate form has specific benefits/rents that it collects, then that can be taxed away appropriately, just as income tax can be used against individuals to ameliorate their problematic wealth. And if a full-throated corporation tax isn’t as workable as John suggests, Dean Baker’s proposal for a reform should be. I’m getting an indication from you that you believe corporations have bad aspects, but it’s not clear to me that what bad aspects you see as somehow beyond reproach under corporate taxation, but wouldn’t be under your taxation idea?

94

Alex 12.23.15 at 4:35 am

Second paragraph there should be a blockquote, sorry.

95

Alex 12.23.15 at 4:44 am

cassander:

Because taxing the people that eventually receive those profits (and thus benefit from those rights and benefits) is easier, cheaper, and most straightforward. There is zero morality in the question. However much you think we should tax which people, it’s just cleaner to tax them as people, not to try to get at them by taxing temporary holding pens.

“Easier, cheaper, and most straightforward” remains unproven. However, aside from that, your argument relies on a hidden assumption – that we can identify those who benefit from the corporate form and the rights that go with that. But in actual fact, it’s not at all clear who benefits. We ought to expect the benefits to be split several ways, depending on various institutional factors. It’s not just shareholders who benefit. Workers may benefit from shareholders being willing to accede to higher pay. Consumers may benefit from cheaper products. Since there’s so many possible beneficiaries, it makes sense to tax the corporate form as a whole, as whoever is benefiting they get hit, and then let any residual benefits be split afterwards.

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