Wealth concentration and tax evasion

Image: Daniel Frese
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By THOMAS PIKETTY*

The growing concentration of wealth is on the way to becoming the world's main economic problem.

Rejoice: the American Economic Association (AEA), the leading professional organization for economists in the United States, has just awarded the Clark Medal to Gabriel Zucman for his work on wealth concentration and tax evasion. Awarded annually to a laureate under the age of 40, the distinction notably rewards groundbreaking work that demonstrates the considerable importance of tax evasion by the wealthy, including in Scandinavian countries, which are quickly held up as paragons of virtue.

Endowed with an immense capacity for work, a rare attention to detail and an unparalleled talent for digging up new data and making them talk, Gabriel Zucman also revealed the unsuspected extent of corporate income tax evasion by multinationals from all countries.

Today director of the Fiscal Observatory of the European Union, he devotes the same energy to finding solutions to the ills he documents. In one of his first reports,[1] the Observatory demonstrated that the Member States of the European Union could choose to go further than the minimum rate of 15% set by the Organization for Economic Co-operation and Development (OECD) (too low and largely circumvented), without waiting for unanimity. By imposing on each multinational that intends to export goods and services a tax of 25% on its profits – the same as those paid by producers established in the national territory – France would obtain an additional income of 26 billion euros and encourage other countries to do the same. same.

The fact of American Economic Association choosing to award this work is important, because it shows that the heart of the profession is starting to realize the unsustainability of the current social and fiscal model. Let's not exaggerate: economists have always been less monolithic than is sometimes imagined, including in the United States. In 1919, the president of American Economic Association, Irving Fisher, chose to dedicate his “presidential address” to the question of inequalities.

He bluntly explains to colleagues that the growing concentration of wealth is on the way to becoming America's main economic problem, which runs the risk, if we are not careful, of becoming as unequal as old Europe (then perceived as oligarchic and contrary to the American spirit). Irving Fisher is perplexed by the estimates published in 1915 by Willford King that “2% of the population own more than 50% of the wealth” and that “two thirds of the population own almost nothing”, which suggests to him “a distribution not democracy of wealth” threatening the very foundations of American society.

victory tax

It is in this context that the United States applied from 1918-1920 (under Democratic President Wilson) rates above 70% at the top of the income hierarchy, before all other countries. When Franklin D. Roosevelt was elected in 1932, the intellectual ground had long been prepared for the implementation of tax progressivity on a large scale, with the famous victory tax (Victory tax) of 88% in 1942 and 94% in 1944. The United States will apply similar rates in Germany and Japan: in the spirit of the times, these tax institutions were seen as an indispensable complement to democratic institutions, otherwise they ran the risk of falling into a plutocratic drift.

These lessons were unfortunately forgotten, and the United States and much of the world entered, since the 1980s and 1990s, a new oligarchic spiral. It would certainly be an exaggeration to throw all the blame on economists. If the counter-offensive launched in the 1960s and 1970s by Milton Friedman or Friedrich Hayek managed to bear fruit, it is also due to the lack of collective appropriation by the institutions of the New Deal by citizens and the social and labor movement.

The intellectual battle was also fought in philosophy departments: when John Rawls published his Theory of Justice in 1971, it laid the conceptual foundations of an ambitious egalitarian program, but remained relatively abstract in its practical outputs. At the same time, Milton Friedman and Friedrich Hayek are perfectly specific about their goal of demolishing tax progressivity.

Deregulation and liberalization

The fact is that economists bear a particular responsibility in the deregulation and liberalization movement of recent decades. There are, of course, the effects linked to the search for private financing, which turns the comments to the right. In 2016, when Democrats Bernie Sanders and Elizabeth Warren endorsed bold wealth tax proposals (with rates rising from 6% to 8% a year above $1 billion), Bill Clinton's former Treasury Secretary and President from Harvard, Larry Summers – a great defender of the absolute liberalization of capital flows – almost strangles himself and does not hesitate to violently attack researchers like Gabriel Zucman who defend these proposals (which, however, are simple common sense, given the almost zero tax rates income tax paid by billionaires).

There are also strictly intellectual reasons linked to the evolution of the discipline of economics. To give itself an autonomous scientific fascination, economics has tended to isolate itself from history and sociology and to naturalize the institutions studied (market, property, competition), forgetting in the process its social and political framework in particular societies.

Mathematical models can be useful if they are used wisely and not as an end in themselves. The statistical technique can be used as long as you do not lose sight of the critical look at the sources and categories. There is still a long way to go for political and historical economy to regain its rightful place within the social sciences.

*Thomas Piketty is director of research at the École des Hautes Études en Sciences Sociales and professor at the Paris School of Economics. Author, among other books, of Capital in the XNUMXst century (intrinsic).

Translation: Aluisio Schumacher for the portal forum 21.

Published by newspaper Le Monde.

Note


[1] Collecting the tax deficit of multinational companies: simulations for the European Union, Mona Barake, Theresa Neef, Paul-Emmanuel Chouc, Gabriel Zucman, June 2021.


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