Pandemic to ‘spell end of tax privileges for billionaires’

Pandemic to ‘spell end of tax privileges for billionaires’

Thomas Piketty is one of the most famous economists in the world. His weighty tomes on inequality and its dangerous consequences for global capitalism have been widely praised by other stars of the dismal science, like Paul Krugman and Robert Solow. His “Capital in the 21st Century” has sold millions of copies and it can be found on the bookshelves of anyone who wants to be considered well-versed in the modern political economy conversation.

In the even more ambitious “Capital and Ideology,” which was recently published in Greece by Patakis, the 50-year-old professor of economics at the School for Advanced Studies in the Social Sciences (EHESS) in Paris attempts to disentangle the complex web of ideal, political processes and institutions that have justified and perpetuated levels of extreme inequality in the West, especially over the last 40 years. His solution, to prevent the triumph of “xenophobic populism,” is a “participatory socialism” founded on the progressive taxation of income and the heavy taxation of inherited wealth.

In this exclusive interview with Kathimerini, conducted via email, Piketty says it’s “strange” that many people theoretically in favor of equality of opportunity are unwilling to discuss specific ways in which it can be achieved. He is unconvinced by the distinction between the supposedly meritocratically accumulated wealth of the super-rich in the West and the manner of enrichment of oligarchs in unfree regimes, claiming that neither the former nor the latter pay taxes. He believes, however, that the need to repay the debt created during the pandemic will spell the end of the tax privileges of billionaires.

He also expresses his faith that the Left will stage a comeback in France, “as it did in Germany and Spain.” And he rejects the notion that the strong recovery of the French economy can be put down to the “right-wing approach” of President Emmanuel Macron on economic policy.

In the introduction of “Capital and Ideology,” you emphasize that progress is not linear and that it is wrong to think that competition between nations and economic players is sufficient to lead to social harmony. Is it not necessary, though? Would the explosive growth and social progress of the last two centuries have been possible without global capitalism based on the inviolability of private property and the profit motive?

What I show in “Capital and Ideology,” and in a shorter format in “A Brief History of Equality,” is that we have observed a long march toward more equality since the late 18th century, and that this march toward equality has played a key role in the rise of modern prosperity and the process of wealth creation. Without equal access to education and to extensive social, economic and political rights, there can be no sustainable economic growth.

The march toward equality began with the abolition of aristocratic privileges in 1789 and the slave revolt in Saint-Domingue in 1791. Both events marked the beginning of the end of societies of privileges on the one hand and of slave and colonial societies on the other hand. The march toward equality continued in the 19th century with the abolition of slavery and the rise of the labor movement, and in the 20th century with the development of social security, mass education and progressive taxation.

In practice, the Industrial Revolution also involved a lot of violence: slavery and colonial expropriations, world wars between European imperial powers etc. But this violence was certainly not a necessary ingredient for development: It is easy to imagine another trajectory, with less violence, more equality and more prosperity. At the end of the day, it was the logic of equality and equal rights which mattered in the long run, and this is the track we need to follow in the future.

Should parents not have a right, however qualified, to pass on their wealth to their children? Shouldn’t that right carry significant weight against the positive egalitarian consequences of confiscatory inheritance taxes?

There is always a tension between the desire of parents to transfer their wealth to their own children and give them a better education and the logic of equal rights and equal opportunities between children. I am in favor of going as far as possible in the direction of equal rights and opportunities, but I certainly recognize that this does not imply full equality.

For instance, I propose a redistribution of inheritance, with a minimal inheritance for all at age 25 equal to 60% of average wealth (which would be about 120,000 euros in France right now), paid for by progressive taxation of high inheritance and high wealth holders. Young people who now receive zero or close to zero inheritance (about half of the population) would now receive 120,000 euros, while young people who currently receive 1 million euros would “only” receive 600,000 euros (after taxes paid to fund the minimal inheritance for all). As you can see, we are still quite far from equal opportunities.

In my opinion we could and should go further than this. Some would argue that we need to put constraints on how the money should be used. Why not – but only on the condition that these constraints also apply to the wealthy. What I find a bit strange is that many people pretend they are in favor of equality of opportunities at a theoretical level, but then strongly oppose any discussion about concrete proposals going in this direction. This is not very consistent.

In terms of the theory of distributive justice, how do you justify inequality? Is the Rawlsian Difference Principle (inequalities are justified if they benefit “the least economically advantaged”) sufficient? Or is it not radical enough?

I am fine with the Rawlsian Difference Principle, as long as we really take it seriously, for example for the redistribution of inheritance.

Beyond the fact that you see the world of ideas as more autonomous, how close is your concept of ideology to Marx’s? Is your own political philosophy not also an ideology?

In my book, I try to use “ideology” in a positive sense – i.e. as a consistent set of ideas about how to organize social, political and economic relations in an ideal society. Of course I try to bring a lot of historical data and quantitative evidence to the discussion, so that we can all learn from historical experience and refine our own set of beliefs and ideologies. But historical evidence will never make us all agree entirely about the institutions defining the ideal society. Ideological conflicts and disagreements are bound to continue.

You criticize the Western tendency to justify the wealth of billionaires as merited and the product of innovation, as opposed to the “extractive” wealth of oligarchs in unfree societies. But however excessive or unjust the riches accumulated by a Jeff Bezos or an Elon Musk, isn’t the distinction fundamentally a correct one?

No, I think the distinction is much more blurred than what is usually thought. Like Russian oligarchs, Bezos and Musk do not pay taxes. As ProPublica showed in 2021, US billionaires pay almost no federal income tax. The only solution to make them pay a decent level of taxes is a progressive wealth tax. We will get there at some point.

Will the pandemic succeed where the global financial crisis failed, in shifting the dominant ideology in the West toward more meaningful equality of opportunity and greater redistribution?

I think the repayment of Covid debt is going to lead to the end of the tax privileges of the billionaires, just like the fiscal crisis [of the 1780s] led to the end of aristocratic privileges during the French Revolution.

How important is the OECD agreement on the global minimum taxation of business? And how optimistic are you that recent EU initiatives in this area will be successful in limiting the scope for tax avoidance by wealthy individuals and large corporations?

The 15% minimal tax rate is far too small. It is less than what small and medium-size businesses are paying in France or Greece – and these small and medium-size companies cannot easily create a subsidiary in a tax haven, unlike big corporations. The other major limitation of the OECD agreement is that countries in the global South will not get any meaningful share of the new tax revenue that will be collected.

France: You have criticized President Macron for a right-wing approach to economic policy. Have his policies not contributed to a new dynamism in the French economy and a stronger recovery in France than in the economies of its European peers?

No, this is not the case. Unemployment in France peaked in 2012-13 following the senseless European budgetary decisions taken at that time, and started to decline in 2014-15. We are now back to about 7% unemployment – exactly the level we were at on the eve of the financial crisis of 2008. In the meantime, unemployment peaked above 10% because of the very bad handling of the crisis. It took more than 10 years to recover from these mistakes, so there’s absolutely nothing to be particularly proud of about returning to that pre-crisis level. In any case, if you look at the data, you will see that there’s been a steady decline of unemployment since 2015, with no acceleration of the trend of any sort since 2017.

Why has the Left been relegated to the political margins in France?

Macron took some of the electorate and elected officials from the center-left and carried them to the center-right – and actually further and further away to the right. In many ways, Macron applied the economic platform of the right: abolition of the wealth tax, liberalization of the labor market etc. As a consequence, the main right-wing party [Les Republicains] has turned more and more to migration issues and anti-Islam rhetoric in order to compete with the extreme-right. Thus, the entire political landscape has moved to the right. But this is not going to solve the social, economic and environmental problems that we need to solve. I am confident that the Left will come back, just as it did in Spain or Germany.

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