Reading Capital... in the 21st Century (part 8 of x)

Though overall I think Piketty intends his book as a counter to the logic of austerity, there are several places where the permeation of that logic into all segments of the mainstream political spectrum, including European social democracy, are made quite evident. One such place is his discussion of pay-as-you-go (PAYGO) pension systems (such as the public pension systems in most of the world's wealthy nations). From his prediction that growth, both economic and demographic, will be slower in the 21st century than in the 20th, he deduces--as have most pundits--that PAYGO pension systems are unsustainable over the long run. The conclusion follows from the premise only if you presume that the financial structure of such systems will remain politically unalterable, with flat or even regressive social insurance payments taken as a portion of younger generations income, to finance older generations' retirement in a manner that is proportional to their pre-retirement work incomes, regardless of whether they hold any other wealth or have any other forms of income. For someone who frankly (and honestly) labels his own central policy proposal--the global tax on wealth--as "utopian," such a presumption should clearly be regarded as unfounded. Particularly given that the "fixes" to the creaky old social reforms of the interwar period do not even need to be particularly radical: For example, in the US social security system, eliminating the income cap above which FICA is not withheld, and applying FICA to capital income as well as earned income.

Even worse, from his own inequality r > g he comes to the conclusion that some sort of tricky transition from a strict PAYGO system to a partially capitalized pension system, in which public pensions are invested in capital assets and are paid from the return on the investment, is necessary. Without using the word, he shamefacedly comes out for privatization, even while admitting that there are tricky inequities inherent to the process that would need to be smoothed over.

The more that reformists like Piketty help to create the appearance that genuinely beneficial reforms are impossible, even unthinkable, the more evident becomes the necessity of revolution rather than reform.

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In contrast to pensions, where I think Piketty's analysis is useful to those socialists (as opposed to social democrats) who see the need for intervention into elections and participation in elected governmental bodies, is on the question of taxation. He shows how taxation does not only serve the purpose of redistribution, but also the purpose of information gathering. No economic planning is possible without reliable information on the stock, flows, inputs and outputs of capital, both financial and physical. Information gathered universally, under penalty of law, tends to be more reliable than information gathered voluntarily from statistical samples. There is a tendency in sections of the revolutionary left to be dismissive of tax policy, on the correct grounds that partial redistribution through a still capitalist state does not change the fundamentally exploitative structures of the economy. But, to use a Foucauldian term, taxation if strategically applied can become a kind of power/knowledge, undermining a key element of capitalist power--the ability to obscure their wealth under the mantle of trade secrets--through the extension of knowledge.

His analysis is helpful also in terms of teasing out the progressive and regressive elements of existing taxation structures. Consider, for example, the property taxes that, in the United States, are the main revenue stream for schools and local governments in most areas. In principle it is a tax on capital. However, to the extent that it is charged regardless of whether there is an outstanding mortgage, and charged to an owner/occupant rather than to the mortgage holder, a significant portion of the capital (that belonging to the bank) goes untaxed, and is replaced instead by a consumption tax on the owner-occupant, who is effectively being charged tax upon the rent paid to the bank. Even in cases where someone owns a house "outright", at least a portion of the property tax is in effect a consumption tax: We all have to live somewhere. While an owned house functions as a capital asset in that it tends to appreciate in line with the cost of living, and that the owner saves money that otherwise would be paid in rent to a landlord, for most houses that return on investment will not make much appreciable difference in quality of life. The median house price in the U.S. is approaching $200,000: For the most part, taxes paid on the value of a house below that price are effectively consumption taxes. Only the tax on the portion of a house's value above that level functions as a tax on capital, or at least, a sumptuary tax on luxury (e.g., the luxuries of an extra bedroom or bathroom, or a location in a better-than-average school district).

Considering all this, it is no wonder that property taxes are so unpopular in the United States. And thus little surprise that the right has been so successful in mobilizing opposition to social programs, investments in education, and the like, under the populist banner of opposition to property taxes. (The most important example of this being Prop 13 in California.) To the extent that the left, in defending such programs, allows itself to be backed into the corner of defending property taxes as such, it is bound to lose. By demanding specific reforms in how such taxes are collected--zero tax or a de minimis registration fee for property valued less than the median; taxes applied primarily to mortgages and only secondarily to equity; higher rates for non-residential property, non-year-round residences, or property valued greater than $500,000--it re-draw the class line within the populist bloc.