PIKETTY REVISITED: THE MEANING OF CAPITAL IN THE TWENTY-FIRST CENTURY

Thomas Piketty had himself a moment. It did not come easily or quickly. When the academic economist first published his massive text, Capital in the Twenty-First Century, in French in 2013, summarizing over a decade of his and others’ work on capital and its unequal ownership across time and cultures, he encountered a friendly but muted reception on the continent.1 No bother: Prophets are typically without honor in their own native land. Piketty’s time came in the following year, the spring of 2014, when the English translation of his magnum opus appeared.2 Spurred on by favorable reviews from the likes of Nobel Laureate Paul Krugman (“Capital in the Twenty- First Century . . . is a bona fide phenomenon,” Krugman declared in the New York Times), the nearly seven hundred page economics book made surprising and sustained appearances on all forms of best-seller lists.3 Overnight, Piketty became the unlikeliest of oxymorons: a “Rock-Star Economist,” and a wealthy one at that.4 It might have seemed that, in the millennia-long battle to get the rich to pay their fair share of a just society’s burdens, a glimmer of hope had sprung forth. Years later, what has become of that hope? Academics have debated Piketty’s work, as academics do.5 Critics have criticized and defenders have defended Piketty’s sense of the facts of capital (it is held unequally, and inequality is getting worse); the normative ramifications of those facts (Piketty thinks they are bad); and what, if anything, to do about them (Piketty says tax the rich).6 Piketty himself has followed up with a sequel, Capital and Ideology, weighing in at over 1000 pages, roughly half again longer than Capital in the Twenty- First Century.

The Tyranny of Money

The more things change, the more they stay the same. A human activity almost as venerable as the accumulation and opulent display of vast riches is the condemnation of the accumulation and opulent display of vast riches. People have been busily engaged at each for several millennia now. Both continue in full flower as America races into the twenty-first century with its liberal capitalist democracy ascendant around the world, its rich richer than ever, its less-rich curiously lagging behind. Yet figuring out what, exactly, is wrong with the excessive accumulation and opulent display of wealth, on the one hand, and then deciding what if anything to do about it, on the other, have been among the most troubling issues of social theory and political economy - far harder to pin down than the intuitive sense that something is, indeed, wrong. In his interesting, important, thoughtful, if sometimes wandering, repetitive, and maddening recent book, Luxury Fever, the psychologically-minded economist Robert Frank of Cornell University - coauthor, with Philip J. Cook, of the related Winner Take All Society, another widely accessible and important book - ventures into this familiar domain. Part economics, part social psychology, part autobiography, part cognitive psychology or behavioral economics, part game theory, part evolutionary biology, part tax policy, and part a journalistic foray into the lifestyles of the rich and famous in fin-de siecle America, Luxury Fever offers up both a view of the social problems presented by luxurious living and a specific type of solution to them. In short, Frank argues that much of our spending results from a desire for relative status, leading us to want positional goods ; since everyone else does likewise, we end up treading water with no improvement in our subjective well-being or utility. We would all be better off if we hopped off the treadmill and directed our limited resources to nonpositional goods, including more savings, leisure, and education, whose benefits endure. Frank argues that a progressive consumption tax can help us all to escape in a win-win way from the collective action problem of luxury fever. His description and prescription each deserve to be thought through and taken seriously. Luxury Fever is a good, important book

The Death of the Income Tax (or, The Rise of America’s Universal Wage Tax)

The killing of the income tax has not been open and notorious: such is not the style of contemporary politics. As with other markers of progressive social policy—the promises of universal health care, Obamacare, come to mind6—the income tax is dying a death by stealth, albeit stealth played out in plain view. The plot lines of the tragedy are apparent. The individual “income” tax has been split in two. One tax, for the masses, is a simple, increasingly formless wage tax. This wage/income tax adds higher brackets onto the payroll tax, the model toward which the wage/income tax aims, to form a single “universal wage tax” providing the vast bulk of the government’s revenue. A second tax, which I shall call the “ur-income tax,” persists only for the wealthiest top 1%–5% of the population. This tax, the relics of a true income tax, still nominally taxes wealth—that is, income from capital—in addition to wages, as an “income” tax must in order to be an income tax. But this taxation of wealth as opposed to wages is so porous that it is largely symbolic. Structural features of the tax—loopholes—allow the wealthy to avoid its sting. Congress and the executive branch continue to add rules and regulations to help the wealthy avoid tax. Indeed, a cynic might suggest that the ur-income tax, the original and future tax that applies to America’s wealthiest, persists only to feed the Wall Street financiers who help their clients avoid paying it and the politicians and lobbyists who benefit whenever tax reform specifically for the wealthy is on the legislative table. For the rest of us, the income tax has died, and we are paying a painful price for its killing. The fate of the income tax correlates closely with an economic-class structure in America that many have begun to notice. For the very top, the 0.1% or so, tax is essentially voluntary due to basic tax planning available for those living off capital alone. For the next tier, what Matthew Stewart has taken to calling the new American aristocracy, the ur-income tax continues to apply, as these citizens have a mix of capital and labor with which to play tax-planning games. For the bottom 90%–95% of the economic scale, however, the income tax is dead, replaced by the formidable and inescapable universal wage tax. This is the tale told in the pages ahead

A New Understanding of Tax

Perhaps we should blame it all on Mill. A great deal and possibly all of the mind-numbing complexity of America\u27s largest and least popular tax follows from the decision to have a progressive personal income tax. Proponents wanted an individual income tax notwithstanding - indeed, in large part because of - such a tax\u27s double taxation of savings. This double-tax argument is an analytic point generally attributed to Mill\u27s classic 1848 treatise, Principles of Political Economy. Historically, much of the support for the Sixteenth Amendment, ratified in 1913, came from Southern and Midwestern, progressive, agricultural interests, who wanted, in general, to implement a redistributive tax and, in particular, to collect some tax from East Coast financiers. After all, the Supreme Court had ruled that the income tax of the late nineteenth century was unconstitutional only insofar as it fell on the fruits of capital; no constitutional amendment would have been necessary to retain or implement a national wage or sales tax. The legal raison d \u27etre of the income tax was to get at such returns to savings as dividends and interest. To this day, liberals and moderates insist on retaining the structure of an income tax precisely because it gets at the returns to saving in addition to labor earnings. Consumption taxes of all sorts are set in contrast to the income tax, on another side of a great divide, as taxes that fail to get at the yield to capital - that deliberately avoid Mill\u27s second tax. Prominent commentators on the case for consumption taxation - both those in favor and those opposed - continue to cite, as the best or most sophisticated argument for adopting a consumption-based tax, the analytic facts that consumption taxes do not overly burden capital or its yield, and as such do not distort the savings-consumption decision, or, equivalently, do not favor present over deferred consumption. The literature for and against consumption taxation is strewn with stock horizontal equity models, comparing savers and spenders, Ants and Grasshoppers: the idea is that income taxes punish savers, like the mythical Ant, vis-a-vis spenders like her friend Grasshopper. On the other side of the great divide, supporters of redistributive taxation argue that retaining an income tax base is a central task of maintaining or obtaining fairness in tax in large part because it, alone, gets at the return to capital, the nearly exclusive province of the economically fortunate

A New Understanding of Tax

Perhaps we should blame it all on Mill. A great deal and possibly all of the mind-numbing complexity of America\u27s largest and least popular tax follows from the decision to have a progressive personal income tax. Proponents wanted an individual income tax notwithstanding - indeed, in large part because of - such a tax\u27s double taxation of savings. This double-tax argument is an analytic point generally attributed to Mill\u27s classic 1848 treatise, Principles of Political Economy. Historically, much of the support for the Sixteenth Amendment, ratified in 1913, came from Southern and Midwestern, progressive, agricultural interests, who wanted, in general, to implement a redistributive tax and, in particular, to collect some tax from East Coast financiers. After all, the Supreme Court had ruled that the income tax of the late nineteenth century was unconstitutional only insofar as it fell on the fruits of capital; no constitutional amendment would have been necessary to retain or implement a national wage or sales tax. The legal raison d \u27etre of the income tax was to get at such returns to savings as dividends and interest. To this day, liberals and moderates insist on retaining the structure of an income tax precisely because it gets at the returns to saving in addition to labor earnings. Consumption taxes of all sorts are set in contrast to the income tax, on another side of a great divide, as taxes that fail to get at the yield to capital - that deliberately avoid Mill\u27s second tax. Prominent commentators on the case for consumption taxation - both those in favor and those opposed - continue to cite, as the best or most sophisticated argument for adopting a consumption-based tax, the analytic facts that consumption taxes do not overly burden capital or its yield, and as such do not distort the savings-consumption decision, or, equivalently, do not favor present over deferred consumption. The literature for and against consumption taxation is strewn with stock horizontal equity models, comparing savers and spenders, Ants and Grasshoppers: the idea is that income taxes punish savers, like the mythical Ant, vis-a-vis spenders like her friend Grasshopper. On the other side of the great divide, supporters of redistributive taxation argue that retaining an income tax base is a central task of maintaining or obtaining fairness in tax in large part because it, alone, gets at the return to capital, the nearly exclusive province of the economically fortunate