French economist Thomas Piketty, author of a celebrated book “Capital in the 21st Century”, has refused an honour from the French State. He argues that the State should not be honouring individual citizens (Why not? you ask. Dunno. Better ask Mr. Piketty). But the move is widely seen as a snub to President Hollande, who seems to have lost the support not only of the French Right, but of the French Left as well.
Piketty has argued that the French Tax System is far too complex and requires radical simplification. It has too many allowances and loopholes. So far so good. He’s probably right, and the same comments certainly apply to the UK as well. But where we (and most rational economists) are calling for simpler and flatter taxes, Mr. Piketty favours a “more progressive” tax system.
That is, a system which imposes punitive and confiscatory taxes on the rich. And because such attempts at revenue-raising always fail, the definition of “the rich” is stretched and stretched until it includes middle income earners — as has happened in the UK with the 40% tax rate. We have had the perfect example, in France, of the failure of punitive taxes. The BBC said this morning (Dec 2nd) that Piketty was “probably in favour” of Hollande’s flagship 75% tax rate on the rich. But that tax proved such a disaster, it had to be abandoned. Its main effect was to drive high-earning French people to London, where mayor Boris Johnson was only too happy to roll out the red carpet for them.
The effect of “progressive” taxes — higher taxes on the rich — is that the better-off move elsewhere, and there is a negative impact on prosperity, growth, investment and jobs. The effect you don’t get is higher tax revenues. Piketty’s prescription is totally self-defeating, and if he doesn’t know that, he shouldn’t call himself an economist.
To be fair, he calls for a global tax on wealth, and that at least would prevent the migration of wealth (though it would still be a disincentive to enterprise). But of course a global tax on wealth is about as likely as a global deal on CO2 emissions. Don’t hold your breath.
More generally, I think we worry too much about wealth inequality. Of course it is right that we worry about poverty, and that we do whatever we can to alleviate it. But concern about wealth inequality implies that we’re as worried about people being rich as we are about people being poor. That is a basic failure to understand the motivation behind investment and entrepreneurship. And redistribution, which is the solution of socialists — including Mr. Piketty — has been tried and has failed over and over again. It aims for equality. All it ever achieves is equality of misery.