Last month, Democratic presidential hopeful Elizabeth Warren proposed an annual tax on the largest fortunes in America, with some of the cash generated by the tax being funneled into the IRS to catch dodgers who move or hide their money to escape the tax.
The Warren proposal was modelled on the work of French economist Thomas Piketty, who set out the case for a global wealth tax as an engine for economic growth and political stability in his blockbuster Capital in the 21st Century.
Now, Piketty has published an editorial endorsing Warren's proposal and connecting it to the history of US tax policy, arguing (with data to support his position) that historic tax rates — which were much higher than they are now — were the key to US growth and avoiding the malaise, instability and horrific wars that rocked Europe for a century.
He says that the Reagan/Bush tax-cuts (which kicked off the current race to a state of massively unstable and unfair inequality) "turned their backs on the egalitarian origins of the country, by counting on historical amnesia and by fuelling identity-based divisions."
To understand this, let's look back. Between 1880 and 1910, while the concentration of industrial and financial wealth was gaining momentum in the United States, and the country was threatening to become almost as unequal as old Europe, a powerful political movement in favour of an improved distribution in wealth was developing. This led to the creation of a federal tax on income in 1913 and on inheritances in 1916.
Between 1930 and 1980, the rate applied on the highest incomes was on average 81% in the United States, and the rate applied to the highest inherited estates was 74%. Clearly this did not destroy American capitalism, far from it. It made it more egalitarian and more productive, at a time when the United States had not forgotten that it was their level of educational advancement and their investment in training and skills that was the backbone of their prosperity, and not the religion of property and inequality.
Reagan, then Bush and Trump subsequently endeavoured to destroy this heritage. They turned their backs on the egalitarian origins of the country, by counting on historical amnesia and by fuelling identity-based divisions. With the hindsight we have today, it is obvious that the outcome of this policy is disastrous. Between 1980 and 2020, the rise in per capita national income was halved in comparison with the period 1930-1980. What little growth there was, was swept up by the richest, the consequence being a complete stagnation in income for the poorest 50%. There is something obvious about the movement of return to progressive taxation and greater justice which is emerging today and which is long over-due.
Wealth tax in America [Thomas Piketty/Piketty Blog]