Thoughts While Reading: Global Tax on Capital in “Capital in the Twenty-First Century” by Thomas Piketty
Humanity faces many challenges nowadays — wealth and income inequality being one of the worrisome types with the potential to cause dangerous consequences for democracy. The french economist and academic Thomas Piketty proposes a global tax on capital in his best-selling book “Capital in the Twenty-First Century”. These are my spontaneous and intuitive thoughts while reading.
Creating a peaceful world by overcoming all global challenges starts by ending inequality, says Thomas Piketty. But this proves to be more than one country alone can handle. We need concerted, bold and quick actions taken by the global community. However, these actions will be very costly and not every country can come up with all the funds necessary and, on a more granular level, not every individual can come up with all the funds necessary as well. According to Piketty, the world needs a global tax on capital to distribute the fruits of growth more evenly across the world population. But how can we agree on such a tax and which hurdles, especially psychological ones, must be overcome in order to introduce such a provoking idea? Let’s start by quickly going through Piketty’s concept:
- The global tax on capital would have a notable effect only on the wealthy, that is, individuals with a net worth exceeding 200,000 €.
- The capital tax would be designed to be progressive, that is, individuals with more net worth would have to bear a higher percentage share to be paid.
- The capital tax rate would be modest compared to income tax rates, the latter currently being around 45–50 percent (in Europe) while the former progressively increasing from 0.5 percent (for net worth exceeding 200,000 €) to 10 percent (for net worth exceeding 1 billion €).
Piketty presents compelling arguments why such a global tax on capital makes sense. I will not recapitulate them here (the interested reader will find his ideas and the supporting arguments in Chapter 15 of his book Capital in the Twenty-First Century); merely, I will try to illustrate my rational and emotional reaction if such a global tax will be introduced. Stripped of my personal imprint, my reaction may be distilled into concerns of the public, constituting hurdles which the idea of a global tax on capital must overcome in order to be realistically feasible.
While reading Piketty’s arguments, my first reaction was positive. Increased redistribution of capital sounds like a good idea and surely helps to foster social mobility and create opportunities for the disadvantaged. However, this was my rational reaction. After pausing for a moment and imagining how I would feel if the government (in my case: Germany) asked me to pay an additional annual global tax on my (imaginative) hard-earned wealth, my reaction turned from positive to cloudy. Why do I have to pay for reaping the fruits of my efforts?
Clearly, this is an egocentric view of the subject. I put myself at the center of my attention, which causes to direct my view to all things personal and no things societal. The egocentric view only registers losses: I have to pay more, less will be left over to consume, the government is greedy, I feel betrayed for investing effort and hard work, so the global tax on capital is a bad thing. As we all know, the fear of loss is a powerful force we do not want to sustain, so we are naturally inclined to dismiss an idea such as a global tax on capital. However, there is an even more powerful force which might tilt the tide towards a positive attitude: the societal view of things.
Humans are social animals. We are heavily influenced by other people, care about opinion of others and very often succumb our behavior to peer pressure. But carrying ourselves in accordance to our community makes us feel good as well — we are genetically hard-wired to experience high feelings through social interaction. This force may be the key to Piketty’s call for a global tax on capital.
Viewing the global tax on capital through the lense of the community quickly proves to be a highly accurate instrument to combat humanity’s challenges. If we put the community first, the tax starts to make sense. Thus, fostering the societal view in the population is what policymakers should focus on.
Here I will share my own suggestions about how to foster the societal view before introducing a global tax on capital:
- Build a strong sense for community and humanity by working towards more respect, tolerance and harmony.
- Communicate simple and clearly.
- Connect abstract concepts to specific statements by providing context.
If we manage to make sure everybody understands why such a tax is necessary and how we as humankind can benefit, we stand a realistic chance to overcome the difficult challenges laying ahead.