One positive impact of the Occupy movement was that it taught us to look at those whose economic power dominates the rest of us. Thanks to Occupy, the “one-per-cent” entered our vocabulary and our social analysis.
Now Thomas Piketty has given us almost 600 pages of reasons to look at who has economic power, why that power is harmful to the rest of us, and what ought to be done about it. Politicians should pay attention to his policy proposals.
The Uruguayan chronicler of now-vigorous social movements in Latin America, Raúl Zibechi, writes in a similar vein. Wealth today is not so much derived from productive capital—running a business or producing something tangible—as it is derived from a wide variety of less tangible investments.
“Those who are rich because of financial accumulation are different from the rich in other phases of capitalism, when hegemony corresponded to productive capital,” writes Zibechi.
With unregulated, globalized capitalism, where money moves freely according to the whims of the wealthy, we have a different problem. Zibechi continues:
“Financial capital and armed forces are the great parasites and predators that behave like plagues, gouging humanity. This is the logic of the one-per-cent, and it’s not going to change by its own will. A brake is put on them, or they will destroy us. We have to be clear about the ways of the one-per-cent. But we must recognize that we do not yet have a strategy to put the brakes on them.”
Piketty’s major proposal—a global tax on wealth—may be such a strategy. Naturally, apologists for the one-per-cent and the narrower still one-thousandth of the wealth distribution scales say such a tax is unreasonable or unworkable or even outright theft. But M. Piketty has done the rest of us an enormous service by, first of all, identifying the problem—that “wealth accumulated in the past grows more rapidly than output and wages”—and then suggesting this tax, and several other measures, to put the brakes on the expansion of wealth.
If, as Piketty argues, the major 20th century innovation in taxation was the creation and development of the progressive income tax (p. 523), then the major 21st century innovation should be a wealth tax. But getting there will require much greater transparency among governments to end capital flight, whether from Latin America to banks in Miami and Delaware, from France to Switzerland, or from Canada to the Cayman Islands and Barbados. At the moment, international financial institutions have only a rough idea of the global distribution of financial assets, and in particular those hidden in tax havens (p. 519).
“Without taxes, society has no common destiny”
For Piketty, taxation is “pre-eminently a political and philosophical issue, perhaps the most important of all issues. Without taxes, society has no common destiny, and collective action is impossible.” His position is rooted in the concept of “common utility” as defined in Article 1 of France’s 1789 Déclaration des droits de l’homme et du citoyen: “Social distinctions can be based only on common utility.” There is no common utility in unrestrained growth of wealth among a tiny proportion of the population.
Knowing that his ideas will be debated for some years before governments muster the courage to implement them, Piketty presents variations on his idea of a tax on capital. One option would be a one-time 15-per-cent tax on capital.
Another would be a much-lower, permanent tax: 0.1 to 0.5 per cent on fortunes less than one million euros [1 euro=CAD$1.40], one per cent on fortunes from one to five million euros, two per cent between five and ten million euros, and as high as five or ten per cent for fortunes of several hundred million or several billion euros.
“This would contain the unlimited growth of global inequality of wealth, which is currently increasing a rate that cannot be sustained in the long run and that ought to worry event the most fervent champions of the self-regulated market.”
Such inequalities, he adds, have nothing to do with the entrepreneurial spirit and are of no use in promoting growth. They are not “common utility.” (p. 572)
The difficulty with the proposal, as Piketty admits a page later, is that it requires a high level of international cooperation and even political integration. Can countries, provinces and states end their race to the bottom, their ever-lower taxation rates, their unceasing cuts to public services? Can rich people and corporations be forced to stop stashing their money in tax havens?
Some steps are being taken. Wealth taxes or similar measures exist in France, Italy and Spain, but they are still rather too easy to avoid. The United States forces its citizens to report on their global incomes, and foreign banks are supposed to report on them.
Colombia has a financial transactions tax (which unfortunately helps to fund the government’s side of the civil war). The tax was imposed in 1998-99, and covers all financial transactions, including wire transfers, internet banking, bank drafts, cheques, term deposits, overdrafts, loans, letters of credit, bonds, securities, items in safe deposit boxes, currency exchanges, etc. The tax rate was 0.2 per cent, and increased to 0.3 percent and made permanent in 2001. It revenues equal to about 0.8 per cent of GDP. The tax is similar in concept to the currency transactions tax proposed by Nobel Laureate James Tobin—though Tobin is more interested in curbing speculative short-term trading than in generating a significant revenue stream.
I think debate over Piketty’s proposals may help to revive a sense of ourselves as citizens, not only taxpayers. He asks: “What public policies and institutions bring us closer to an ideal society?” What economic policies will bring us closer to the social justice that we seek?
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