It seems that every day a new review of Thomas Pikkety's book, Capital in the Twenty First Century, appears on the scene. I've certainly gained new insights about political economics from reading these essays, both pro and con. Thankfully, as a result, I feel safe in using the time I would have needed to read the 700-page tome for more productive activities.
But I do want to share an insight gathered from reading those commentaries. For those readers who have not been following the Pikkety phenomenon, his book is about wealth inequality, whether it is inevitably going to get worse, which presumably is bad for society if it does, and therefore Pikkety has a global wealth tax idea to save civilization from the grip of too few wealthy people, leaving even fewer of them surviving. Predictably, those on the left are enamored of the book, while those on the right are at best skeptical.
The main insight I gathered was a strong suspicion that the real reason for lusting after a wealth tax was simply a case of covetousness and envy. I was not the only person to be struck by the envy of the left; several other commentators also remarked on the unseemliness of the apparently envious motives (not necessarily on the part of Pikkety, but from some of the commentators enthralled with the idea of trashing the currently wealthy).
Let's be generous, and assume that those people clamoring for the government to expropriate the assets of the currently wealthy really do have pure motives. Let's assume they really believe society would be improved if highly successful individuals were slapped with even higher taxes than they face already. The apparent covetousness of the proposal to take other people's money just because it is there is undermining the credibility of their proposed expropriation. Envy and covetousness are frowned upon, and are certainly no basis for public policy.
So I tried to think about whether it is possible to remove the gains of expropriation from the hands of politicians (who would likely misuse the assets anyway). Not because I think there is merit to Pikkety's thesis, but out of a curiosity to see whether this weakness in the argument can be corrected. My academic research area has been Social Security reform, so I naturally put these two lines of thinking together. But before I reveal my envy antidote, let me bring in one more related line of thought, the death tax (aka, the estate tax).
The death tax is a complex subject, touching on ethics, philosophy, economics, and so on. Without diving into this deep pool, the main purpose of the death tax is to hasten the demise of dynastic fortunes (think Astors, Rockefellers, Gates and Zuckerbergs). Generally, the death tax has been successful (so far) in preventing robber barons from taking over the world.
Even with a 40 percent tax rate on estates over $5.4 million, the death tax does not amount to a big deal in the financing of the government. This is good, since the death tax, as it operates today, involves the destruction of capital, in an economy with too little capital. The death tax and its inseparable cousin, the gift tax, represent only about one percent of the revenue collected by the federal government in a given year. The death tax is more important as a symbol, and as a motivator of good works of charity on the part of the wealthy, than it is as a source of revenue to the Treasury.
Now we all know, or we all should know, that Social Security is insolvent. The annual Trustee Reports have made this perfectly clear for at least the last twenty years. In the near future, Congress will have to cut benefits or raise Social Security taxes or both. My idea for an envy antidote is to put death and gift taxes collected from those wealthy enough to have to pay them, into a national endowment. I call it the American Legacy Endowment. The endowment will be invested in the national economy, like the Harvard endowment, for example. A non-partisan Board of Trustees will govern it, respected experts in the field of asset management, appointed by the President, subject to the advice and consent of the Senate. Index funds and similar devices can protect the endowment from political mischief. With all special taxes on the currently wealthy class going to the endowment, those monies are shielded from the hands of politicians. Then, when a politician calls for potentially destructive taxes on the currently wealthy, it will look less like an act of covetousness, and more like deliberate (even if misguided) public policy in the interests of the public, not the political class.
Since the extra taxes on the currently wealthy class go into the American Legacy Endowment, capital also remains in place, at work in the economy. Income from the American Legacy Endowment would be wholly dedicated to supporting the old age pension benefits promised by Social Security. If the American Legacy Endowment ever got to be big enough that Social Security became solvent again (not likely, but just suppose), then the income from the American Legacy Endowment could be used to reduce Social Security taxes.
Now let's debate whether Pikkety's ideas or other tax-the-rich schemes are beneficial for society, or not. With the American Legacy Endowment in place, the debate won't have the smell of covetousness hanging over it. Well, maybe just a little.