French economist Thomas Piketty, who flew into Dublin recently to address a TASC conference and was feted by those who believe in social engineering through confiscatory taxes, has much to teach Sinn Fein about wealth taxes. Piketty makes it quite plain that soaking the rich cannot work unless it is first and foremost a global effort to avoid the obvious effects of tax avoidance and competition causing flight to friendly neighbouring economies.
Piketty's well-timed book Capital in the Twenty-First Century has, to critical acclaim, identified a fault line in capitalism, that the return on wealth and the unearned income it generates by running up to three times faster than general economic growth, may return us to the gilded cage of Victorian times,
His meticulous research and observations on the wealth divide are incontestable, especially for the US, where the top 100th of 1 per cent - that's 16,000 people - hold $6 trillion in wealth, equivalent to everything owned by the bottom 67 per cent in a society where a quarter of the population has no cash reserves at all.
Ireland, however, especially when social transfers are factored in, scores broadly the same as France on inequality, which is much lower than the US. Ireland also runs the most progressive income tax system in Europe, where the top 5 per cent pay nearly half the total take, with the top 20 per cent accounting for about four-fifths of all income tax.
Piketty suggests a socialist economic utopia, where taxes are applied by global agreement to natural resources, property, factories, machines, software, patents and all paper assets including stocks, bonds, cash deposits, An Post savings, the lot. But his model is progressive, beginning at 0.1pc yearly for net assets of over €200,000; rising to 0.5 per cent over €1m; 1 per cent up to €5m and 2 per cent above. Sinn Fein wants to apply a flat rate of 1pc above €1m but this excludes farmland and businesses.
Piketty's research suggests wealth gets a real return of about 4 per cent, well above his estimate of 1.5 per cent per annum expansion from a global economy which he sees as losing its ability to generate higher levels of productivity from technological leaps that pass through to workers in higher wages and prosperity.
Using Piketty's forensic research on long term data since 1700, Sinn Fein's wealth tax would mop up an amount equal to a quarter of unearned income, but in addition Sinn Fein wants a 60 per cent top rate for income taxes and levies. Taken together that's as close to 100 per cent on unearned income from net assets as makes no difference for those snared.
The 100 per cent tax party does not propose a ceiling where, for example, no one should have more than half their entire income snaffled by the State.
When Sinn Fein's full package of 15 per cent unlimited employer PRSI, a hike to 40 per cent tax on gains and inheritances and the destruction of pension savings incentive is added to the pile, the message to five core groups is clear: FDI Executives considering European headquarters - add Ireland to France as a place to avoid; embedded FDI - begin upping sticks, (you can safely forget about Ireland's low corporation tax if foreign nationals working here are pummelled on both their income, share options and worldwide wealth); indigenous entrepreneurs - drop incomes to avoid the 60 per cent rate and question the risk-reward equation in further expansion; graduates - best get driven to Dublin, Cork and Shannon airports and don't come back except for holidays, weddings and funerals. Finally, those who smugly applaud Sinn Fein - consider the savage competition for declining job opportunities for your kids.
Piketty is, of course, bang on - you cannot tax the powerful, neither individuals or corporates, without a global agreement that prevents avoidance measures and even then, tax experts will find new loopholes, especially as countries like Ireland use lower taxes as a competitive weapon to gain a higher proportion of the available cake.
The French economist is on meticulously researched ground looking backwards, but where Piketty, who is a columnist for Liberation, a newspaper co-founded by French Marxist and philosopher Jean-Paul Sartre, loses his argument is in looking forward by applying ideologically driven, repressive tax measures without properly considering the wider consequences.
Piketty visualises abuse from private wealth but pays little heed to the abuse by an unreformed establishment and rising Statist power - quite how citizens are to feel they are getting value for money in a self-preserving and deeply dysfunctional State like Ireland, whose leading quango is the HSE, is left unattended.
He incorrectly assumes that all wealth is dry investment like buy-to-lets, underestimating its contribution to risk-taking and not allowing for the impact of transferring job creation capital to grossly inefficient States. Who would add more jobs, Michael O'Leary or Iarnrod Eireann?
Unlike leading Austrian economist Freidrich Hayek, Piketty is pessimistic about the future capacity for human inventiveness, the X factor from technological breakthroughs that have fooled many previous major theorists - like Malthus, who reckoned population expansion would lead to mass poverty; Marx, who did not foresee the growth of the middle classes and expected worker competition, exploited by the wealthy elite to drive wages to the floor; and Ricardo, who thought that the world would be the inheritance of landowners because land values would surpass the value created by economic growth derailed by diminishing returns - all were wrong. But the real problem with Piketty, much like Sinn Fein's socialist economics, is its naive grounding in the theory room - great for lively dinner parties but disconnected from human and political realities. There will be no global agreement that neutralises tax competition between states without a governing global institution, and it is perfectly human to chase down a return on your pension fund or other assets in excess of the average economic growth rate without feeling you should be punished for doing so or that you are adding to inequality - by which measure investing in Bank of Ireland shares would be socially destructive.
Finding the optimum tax take from an economy isn't easy, but it's impossible when it begins from an ideological viewpoint. In a booming economy, the tax take ought to rise with surpluses transferred to a sovereign wealth fund and, contrary to recent policies, at a tough time the tax take ought to be lowered to free up the productive capacity of the economy. If any society, most especially Ireland, which is dominated, not by a private billionaire cabal but by its permanent and political class, wishes to reduce inequality, it ought to begin by reducing the intermediation costs and inefficiencies in getting maximum tax revenues to those who most need them.
There remains huge scope for a new centrist political movement that finally cracks it, delivering left wing objectives like raising minimum living wages but using lower tax policies from a lighter state machinery and where all public pay increases are dependent and benchmarked to a commonly shared and accepted goal of increasing Irish living wages first and anything else second.