David R. Henderson  

Piketty on Top Marginal Tax Rates

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Co-blogger Scott Sumner got into a discussion about Thomas Piketty's views about what the top marginal tax rate on income in France should be. I've read his book Capital in the Twenty-First Century thoroughly and reviewed it at length. I don't recall Piketty's addressing that issue directly. But he does seem to advocate a top income tax rate for Americans, and for people in richer countries, of about 80 percent. Here's a short excerpt from my review:

He argues briefly that the optimal top income tax rate in richer countries is "probably above 80 percent." He claims that such a rate on incomes above $500,000 or $1 million "will not bring the government much in the way of revenue"--I agree--but will drastically reduce the compensation of high-paid people.

If you want to read more about his thoughts, go to pages 512-513 of his book.

So I would bet that Scott is right that Piketty did not oppose the 75% income tax rate in France.

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COMMENTS (6 to date)

In fact, back when Piketty showed on Russ Roberts' podcast, he said something pretty astounding at about 47 minutes in;

Russ: How do average people get wealthy or better off by rich people doing badly? What happened there? What's the mechanism?
[Piketty]: Oh, the simplest mechanism is that if you have a destruction of wealth, the rate of return to wealth is going to increase, and you know, this creates space for accumulation from people who start from less wealth or zero wealth and that work for labor incomes they can invest.

Shortly thereafter Piketty said;
This also depends on policy trajectories[?]--the labor[?] of tax progressivity, the period of time when you have most tax progressivity will also period of with reducing inequality and influencing[?] higher growth than what we have today. And so that's one policy dimension that can play a role.

He seems to be calling for the actual destruction, by high taxation, of the wealth of the current rich.

Khodge writes:

Does it really matter what the income tax is when Piketty's proposal is to tax net worth until it is 1/2 million dollars? In other words, what is the point of creating two taxes if, ultimately, it produces roughly the same end?

Roger McKinney writes:

The quote from Piketty's book peals back the obfuscation and shows that his real motivation is pure envy.

Charlie writes:


"Mr Piketty’s second criticism touches on Mr Hollande’s tax policy. For years the French economist has argued for a more progressive tax system, which would merge both income tax, currently paid by only half of French households, and the “contribution sociale généralisée”, a non-progressive social charge paid by all. This too was one of Mr Hollande’s campaign promises. Yet the president has shelved any plans to overhaul the tax structure, preferring instead simply to increase taxes on the middle-classes and the rich.

Paradoxically, the one measure brought in by Mr Hollande that Mr Piketty did approve of was a top income-tax rate of 75%. An advocate of a global wealth tax, Mr Piketty once said approvingly of this flagship campaign proposal that “lots of other countries will inevitably follow this route.” Instead, the French government quietly let the 75% tax die on December 31st 2014 after it failed to bring in as much revenue as expected."

David R. Henderson writes:

Paradoxically, the one measure brought in by Mr Hollande that Mr Piketty did approve of was a top income-tax rate of 75%.
Thanks, Charlie.

TheNumeraire writes:

Piketty's assertion that a high MTR will " drastically reduce the compensation of high-paid people" is also questionable, at least based on the historical U.S. example.

While it is true that high MTR's reduced taxable income when enacted during WWII and continued over four decades, compensation did not fall as drastically. Taxable income is fungible and the elasticity of taxable income with regard to changes in marginal tax rates is proven to be very high (demonstrated in the very own research of Piketty and his colleague Emmanuel Saez).

During the post WWII period that Piketty speaks of approvingly, high-earning individuals and management executives were able to offset large stated declines in income through non-taxable compensation and passive investment vehicles. Management executives replaced high salaries with large pension awards and "incentive" stock options (which were taxed at the capital gains rate of just 25 percent).

Small business owners, professionals and entertainers filed under the corporate tax and used generous expensing and profit avoidance methods in order to increase the value of their assets and be taxed down the road at the much lower capital gains tax rate. Bob Hope, for instance, structured his many revenue streams from entertainment and property ownership into a corporation that generated little profit but gained steadily in value.

Passive income investing and tax-free bond ownership was also widely used by high-earning individuals to reduce taxable income. In fact, it was regarded as enough of a problem that the alternative-minimum tax was introduced in the the late 1960's to capture more tax revenue from high-earners who were evading the high MTR's through perfectly legal investment strategies.

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