Over at the Economist.com, French economist Thomas Piketty and Cato Institute’s Chris Edwards just filed their concluding remarks about whether or not it is a good idea to soak the rich (for my previous comments on the debate go here and here).
Here is a summary of Piketty’s position, so far: It is time to impose an 80-percent marginal tax rate on all income above €1 million. But it’s not because we need the revenue. In fact, Piketty acknowledges that it will probably not bring any new revenue. Rather, the only purpose of this high rate is to stop the “grabbing hand” of the rich (and also because otherwise “the people” will ask for even more anti-free-market measures).
Why? Because Piketty completely despises rich people. As Chris Edwards reminds us today:
Yet Piketty says that “one should think of taxing the rich pretty much in the same way as taxing pollution activities.” Unbelievable! Bill Gates and Steve Jobs are economically equivalent to sludge — now there’s an economic theory for the 21st century! Piketty is trying to be provocative, but that sort of thinking is scary to anyone who believes in free markets and economic growth.
But everyday brings new delights. After arguing over and over again that it’s okay to tax the rich at an 80-percent rate (I think it is worth repeating that number) because they won’t change their behavior, today Piketty argues that France and Germany have a right to their high tax rates and shouldn’t have to suffer from the competition of lower-tax jurisdictions. He has a solution: Use the European Union to squash competition.
Because of the fiscal externality, this collective equilibrium is inefficient, just like an arms race equilibrium, and calls for tax coordination between jurisdictions. In the case of Europe, it is clear that there is substantial tax competition coming from the small countries (both regarding the corporate income tax and the top end individual income tax), not to mention the tax havens. This puts limits on what a single country can do, and this calls for action at the European Union level. This does not mean however that large European countries like Britain, France or Germany cannot do anything: they are large enough to raise tax on very top incomes, with precaution, assuming they put proper pressure on small countries and tax havens.
Nice.
Chris Edwards’s piece is a must read. He starts by reminding Piketty that in the last 20 years tax rates around the world have gone down — not up. Then, he has a very good section on what makes America an amazing country: its entrepreneurs. He concludes by explaining what Piketty’s tax rate would do to them.
Read the whole thing here and please weight in with your votes.
Finally, since it is tax day, watch this Cato Institute video on the American tax system.