According to Thomas Piketty, a professor at the Paris School of Economics, the main economic problem in developed countries is inequality. He believes it takes precedence over other economic concerns like poverty, unemployment, or slow economic growth. In his influential book, Capital in the Twenty-First Century, Piketty argues that inequality is rapidly intensifying with no end in sight. He says a solution is vital, and he claims to have found it: extremely high income tax rates on upper-income taxpayers along with a global wealth tax.So Schuyler uses a taxes and growth model to estimate what exactly would happen if the U.S. took up Piketty's recommendations, and finds that;
- A wealth tax in the United States would reduce investment, wages, employment, incomes, and output.
- Piketty’s basic tax would depress the capital stock by 13.3 percent, decrease wages by 4.2 percent, eliminate 886,400 jobs, and reduce GDP by 4.9 percent, or about $800 billion, all for a revenue gain of less than $20 billion.
- All income groups would be worse off under a wealth tax due to decreased economic activity; in the second scenario, the after-tax income loss for the top quintile would exceed 10 percent, but the losses for all lower quintiles would be in the 7 to 9 percent range.
Piketty’s only major concern about the viability of a comprehensive wealth tax is whether it would be enforceable. He suspects taxpayers would react vigorously and try to hide or recharacterize as much of their wealth as they could. To minimize evasion and avoidance, Piketty recommends that financial institutions be required to report much more information to governments, that governments step up tax enforcement, and that the wealth tax be imposed globally.
Regarding financial reporting, Piketty points to the U.S. government’s Foreign Account Tax Compliance Act (FATCA) as a good first step, although “insufficient.” (Notwithstanding Piketty’s praise, FATCA has stirred international complaints of American heavy-handedness and bullying. It has also caused enormous difficulties for Americans living abroad in finding banks willing to open accounts for them.)Our bold in the above, and we've posted about Fatca before.