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Friday 25 July 2014

'Revolutionary' Piketty - make very rich pay 80pc tax

Professor Thomas Piketty, author of the bestseller 'Capital in the 21st Century', on his vision for a European finance ministry

Brendan Keenan

Published 21/06/2014|02:30

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'BECAUSE I'm worth it." That could well be the motto of Lilian Bettencourt, heiress to the L'Oreal cosmetics fortune, who is estimated to be worth €25bn.

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She figures in Thomas Piketty's unlikely 700-page bestseller, 'Capital in the 21st Century'. Despite its length it is a pretty easy read; something Prof Piketty, of the Paris School of Economics, says was part of his intention.

"I view myself more as a social scientist than an economist and I was trying to tell a wider story than economics," he said in Dublin yesterday, before giving the keynote address to a conference organised by Tasc, the pro-equality think tank.

He notes that economists have a pretty low status in his native France, as compared with the US or Britain – a view he seems to share.

"I loved my time in the US and I like the country, but economists there tend to have a disdain for the social sciences. But economists know very little at the end of the day. Many people are fed up with grand theories and proving mathematical theorems."

Yet the fame of the book, with sales of several hundred thousand, is based on 15 years of data collection, going back to the 18th Century, and including several ingenious ways of using the information.

The case of Ms Bettencourt was compared to that of Bill Gates, founder of the mighty Microsoft computer giant. Her fortune grew by a factor of 12 from 1990 to 2010, and so did his. But hers was based on the aftermath of the growth of a 100-year-old fortune, and his by the creation of a great company.

This is the book's central, controversial thesis – that wealth accumulates faster than economies grow and the gap between the rich and the rest will widen unless corrective measures are used to prevent it.

This would involve "confiscatory" taxes of up to 80pc. Not surprisingly there has been a lot of criticism. "I have no problem with that," Prof Piketty said. "I was trying to stimulate debate – I think I have been successful.

"I would never have expected the book to to be so successful but I try very hard to make it readable and can give it a very human story, from the French Revolution to the works of Jane Austen and Balzac.

"Perhaps it is a bit too long but you don't have to read it in a day," he says with a grin.

Ireland seems to fit pretty well into the rich country norm where the richest 10pc own more than half of the wealth, but two features of the country bother Prof Piketty. These are the high marginal tax rate on all above average incomes, and the low tax rates on offer to multinational companies.

"One has to be very careful about the level of income where the top rate applies. Back in the 1970s, the UK had the top rate of 80pc, but this applied to incomes which were more than 50 times average earnings."

Prof Piketty believes such tax rates – which were first applied in the USA – will have to come back if growing inequality is to be halted. He would go further than Tasc, which advocates a third rate of income tax – he would have as many as six.

"Low marginal tax rates may be one of the reasons for the rapid increase in the salaries of top executives and bankers. If the tax rate is 80pc on an increase from €1m to €2m, it is hardly worthwhile. If the rate is 40pc, it is a very different story."

Asked about the levy on pension funds, or the property tax, Prof Piketty said he does not think it is necessary to reduce the wealth of the middle classes but governments find it very difficult to tax the very rich, or very high earners, for fear that the money will go elsewhere.

That is his quarrel with "tax competition" for multinational investment.

This erodes the tax base of all countries, reducing the funds available for national investment, he added.

"Even the largest European countries are too small to seriously tax capital on their own," he said.

He is a full European federalist, arguing for at least a core group of countries to set up an assembly based on national parliaments and establish what would amount to a European finance ministry.

"National sovereignty is becoming an illusion in many areas of taxation," he said.

"We need more European integration and the automatic sharing of information by banks if we are to make taxation of wealth effective."

Irish Independent

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