Capital in the Twenty-First Century (114 page)

47
. It is also possible to imagine a unified retirement scheme that would offer, in
addition to a PAYGO plan, an opportunity to earn a guaranteed return on modest savings.
As I showed in the previous chapter, it is often quite difficult for people of modest
means to achieve the average return on capital (or even just a positive return). In
some respects, this what the Swedish system offers in the (small) part that it devotes
to capitalized funding.

48
. Here I am summarizing the main results of Julia Cagé and Lucie Gadenne, “The Fiscal
Cost of Trade Liberalization,” Harvard University and Paris School of Economics Working
Paper no. 2012–27 (see esp. figure 1).

49
. Some of the problems of health and education the poor countries face today are specific
to their situation and cannot really be addressed by drawing on the past experience
of today’s developed countries (think of the problem of AIDS, for example). Hence
new experiments, perhaps in the form of randomized controlled trials, may be justified.
See, for example, Abhijit Banerjee and Esther Duflo,
Poor Economics
(New York: Public Affairs, 2012). As a general rule, however, I think that development
economics tends to neglect actual historical experience, which, in the context of
this discussion, means that too little attention is paid to the difficulty of developing
an effective social state with paltry tax revenues. One important difficulty is obviously
the colonial past (and therefore randomized controlled trials may offer a more neutral
terrain).

50
. See Thomas Piketty and Nancy Qian, “Income Inequality and Progressive Income Taxation
in China and India: 1986–2015,”
American Economic Journal: Applied Economics
1, no. 2 (April 2009): 53–63. The difference between the two countries is closely
related to the greater prevalence of wage labor in China. History shows that the construction
of a fiscal and social state and of a wage-earner status often go together.

1
. The British economist Nicholas Kaldor proposed such a tax, and I say more about
it later, but for Kaldor it was a complement to progressive income and estate taxes,
in order to ensure that they were not circumvented. It was not meant as a substitute
for these taxes, as some have argued.

2
. For example, in 1990, when some social contributions in France were extended to
revenue streams other than employment income (including capital income and retiree
income) to create what was called the “generalized social contribution,” (
contribution sociale généralisée
, or CSG), the corresponding receipts were reclassified as an income tax under international
norms.

3
. The poll tax, which was adopted in 1988 and abolished in 1991, was a local tax that
required the same payment of every adult no matter what his or her income or wealth
might be, so its rate was lower for the rich.

4
. See Camille Landais, Thomas Piketty, and Emmanuel Saez,
Pour une révolution fiscale: Un impôt sur le revenu pour le 21e siècle
(Paris: Le Seuil, 2010), pp. 48–53. Also available at
www.revolution-fiscale.fr
.

5
. In particular, the estimate fails to account for income hidden in tax havens (which,
as indicated in
Chapter 12
, is quite a lot) and assumes that “tax shelters” are equally common at all levels
of income and wealth (which probably leads to an overestimate of the real rate of
taxation at the top of the hierarchy). Note, too, that the French tax system is exceptionally
complex, with many special categories and overlapping taxes. (For example, France
is the only developed country that does not withhold income tax at the source, even
though social contributions have always been withheld at the source.) This complexity
makes the system even more regressive and difficult to understand (just as the pension
system is difficult to understand).

6
. Only income from inherited capital is taxed under the progressive income tax (along
with other capital income) and not inherited capital itself.

7
. In France, for example, the average tax on estates and gifts is barely 5 percent;
even for the top centile of inheritances, it is just 20 percent. See the online technical
appendix.

8
. See
Figures 11.9
–
11
and the online technical appendix.

9
. For example, instead of taxing the bottom 50 percent at a rate of 40–45 percent
and the next 40 percent at a rate of 45–50 percent, one could tax the bottom group
at 30–35 percent and the second group at 50–55 percent.

10
. Given the low rate of intergenerational mobility, this would also be more just (in
terms of the criteria of justice discussed in
Chapter 13
). See the online technical appendix.

11
. The “general tax on income” (impôt général sur le revenu, or IGR) this law created
is a progressive tax on total income. It was the forerunner of today’s income tax.
It was modified by the law of July 31, 1917, creating what was called the
cédulaire
tax (which taxed different categories of income, such as corporate profits and wages,
differently). This law was the forerunner of today’s corporate income tax. For details
of the turbulent history of the income tax in France since the fundamental reforms
of 1914–1917, see Thomas Piketty,
Les hauts revenus en France au 20e siècle: Inégalités et redistribution 1901–1998
(Paris: Grasset, 2001), 233–334.

12
. The progressive income tax was aimed primarily at top capital incomes (which everyone
at the time knew dominated the income hierarchy), and it never would have occurred
to anyone in any country to grant special exemptions to capital income.

13
. For example, the many works the US economist Edwin Seligman published between 1890
and 1910 in praise of the progressive income tax were translated into many languages
and stirred passionate debate. On this period and these debates, see Pierre Rosanvallon,
La société des égaux
(Paris: Le Seuil, 2011), 227–33. See also Nicolas Delalande,
Les batailles de l’impôt: Consentement et résistances de 1789 à nos jours
(Paris: Le Seuil, 2011).

14
. The top tax rate is generally a “marginal” rate, in the sense that it applies only
to the “margin,” or portion of income above a certain threshold. The top rate generally
applies to less than 1 percent of the population (in some cases less than 0.1 percent).
To have a comprehensive view of progressivity, it is better to look at the effective
rates paid by different centiles of the income distribution (which can be much lower).
The evolution of the top rate is nevertheless interesting, and by definition it gives
an upper bound on the effective rate paid by the wealthiest individuals.

15
. The top tax rates shown in
Figure 14.1
do not include the increases of 25 percent introduced in 1920 for unmarried taxpayers
without children and married taxpayers “who after two years of marriage still have
no child.” (If we included them, the top rate would be 62 percent in 1920 and 90 percent
in 1925.) This interesting provision of the law, which attests to the French obsession
with the birthrate as well as to the limitless imagination of legislators when it
comes to expressing a country’s hopes and fears through the tax rate, would later
be rebaptized, from 1939 to 1944, the “family compensation tax,” which was extended
from 1945 to 1951 through the family quotient system (under which married couples
without a child, normally endowed with 2 shares, were decreased to 1.5 shares if they
still had no child “after three years of marriage”). Note that the Constituent Assembly
of 1945 increased by one year the grace period set in 1920 by the National Bloc. See
Les hauts revenus en France,
233–334.

16
. A progressive tax on total income had earlier been tried in Britain between the
Napoleonic wars, as well as in the United States during the Civil War, but in both
cases the taxes were repealed shortly after hostilities ended.

17
. See Mirelle Touzery,
L’invention de l’impôt sur le revenu: La taille tarifée 1715–1789
(Paris: Comité pour l’histoire économique et financière, 1994).

18
. Business inventory and capital were subject to a separate tax, the
patente.
On the system of the
quatre vieilles
(the four direct taxes, which, along with the estate tax, formed the heart of the
tax system created in 1791–1792), see
Les hauts revenus en France,
234–239.

19
. One of the many parliamentary committees to consider a progressive estate tax in
the nineteenth century had this to say: “When a son succeeds his father, there is
strictly speaking no transmission of property but merely continued enjoyment, according
to the authors of the Civil Code. If this doctrine is taken to be absolute, then any
tax on direct bequests is ruled out. In any case, extreme moderation in setting the
rate of taxation is imperative.” See ibid., 245.

20
. A professor at the Ecole Libre des Sciences Politiques and the Collège de France
from 1880 to 1916 and outspoken champion of colonization among the conservative economists
of the day, Leroy-Beaulieu was also the editor of
L’économiste français,
an influential weekly magazine roughly equivalent to the
Economist
today, especially in its limitless and often undiscerning zeal to defend the powerful
interests of its time.

21
. For instance, he noted with satisfaction that the number of indigents receiving
assistance in France increased by only 40 percent from 1837 to 1860, whereas the number
of assistance offices had nearly doubled. Apart from the fact that one would have
to be very optimistic to deduce from these figures that the actual number of indigents
had decreased (which Leroy-Beaulieu did not hesitate to do), a decrease in the absolute
number of the poor in a context of economic growth would obviously tell us nothing
about the evolution of income inequality. See ibid., 522–31.

22
. At times one has the thought that he might have been responsible for the advertisements
that HSBC plastered all over airport walls a few years ago: “We see a world of opportunities.
Do you?”

23
. Another classic argument of the time was that the “inquisitorial” procedure of requiring
taxpayers to declare their income might suit an “authoritarian” country like Germany
but would immediately be rejected by a “free people” like the French. See
Les hauts revenus en France,
481.

24
. For instance, Joseph Caillaux, minister of finance at the time: “We have been led
to believe and to say that France was a country of small fortunes, of infinitely fragmented
and dispersed capital. The statistics with which the new estate tax regime provides
us force us to retreat from this position.… Gentlemen, I cannot hide from you the
fact that these figures have altered some of my preconceived ideas. The fact is that
a small number of people possess the bulk of this country’s wealth.” See Joseph Caillaux,
L’impôt sur le revenu
(Paris: Berger, 1910), 530–32.

25
. On the German debates, see Jens Beckert, tr. Thomas Dunlap,
Inherited Wealth,
(Princeton: Princeton University Press, 2008), 220–35. The rates shown in
Figure 14.2
concern transmissions in the direct line (from parents to children). The rates on
other bequests were always higher in France and Germany. In the United States and
Britain, rates generally do not depend on the identity of the heir.

26
. On the role of war in changing attitudes toward the estate tax, see Kenneth Scheve
and David Stasavage, “Democracy, War, and Wealth: Evidence of Two Centuries of Inheritance
Taxation,”
American Political Science Review
106, no. 1 (February 2012): 81–102.

27
. To take an extreme example, the Soviet Union never needed a confiscatory tax on
excessive incomes or fortunes because its economic systems imposed direct controls
on the distribution of primary incomes and almost totally outlawed private property
(admittedly in ways that were much less respectful of the law). The Soviet Union did
have an income tax at times, but it was relatively insignificant, with very low top
rates. The same is true in China. I come back to this in the next chapter.

28
. Pace Leroy-Beaulieu, King put France in the same league as Britain and Prussia,
which was substantially correct.

29
. See Irving Fisher, “Economists in Public Service: Annual Address of the President,”
American Economic Review
9, no. 1 (March 1919): 5–21. Fisher took his inspiration mainly from the Italian
economist Eugenio Rignano. See G. Erreygers and G. Di Bartolomeo, “The Debates on
Eugenio Rignano’s Inheritance Tax Proposals,”
History of Political Economy
39, no. 4 (Winter 2007): 605–38. The idea of taxing wealth that had been accumulated
in the previous generation less heavily than older wealth that had been passed down
through several generations is very interesting, in the sense that there is a stronger
sense of double taxation in the former case than in the latter, even if different
generations and therefore different individuals are involved in both cases. It is
nevertheless difficult to formalize and implement this idea in practice (because estates
often follow complex trajectories), which is probably why it has never been tried.

30
. To this federal tax one should also add state income tax (which is generally 5–10
percent).

31
. The top Japanese income tax rate rose to 85 percent in 1947–1949, when it was set
by the US occupier, and then fell immediately to 55 percent in 1950 after Japan regained
its fiscal sovereignty. See the online technical appendix.