John Cochrane’s remarks about greatly falling inequality across nations dwarfing the detail of slight increases in inequality within some Western capitalist economies are a pretty powerful objection Piketty’s call for redistributive taxes to hit the richest percentiles. Much how cross-nation inequality has fallen, as Cochrane points out, the poor in the US should be paying Piketty taxes to those further down the global distribution of good fortune.
These remarks set me thinking about whether one could justify redistributing within a nation anyway, ignoring global redistributive priorities. There are some lines of defence, I think, though none of them feel that comfortable.
1. Tax avoidance might soar if we levied Piketty taxes on our rich tax-base to hand out to the poor, perhaps even unhinging acceptance of the purpose of taxing for providing local public goods. Example of the reverse: the experiments in Brazil with localising and hypothecating taxes at the state level, to improve tax collection.
2. If we thought the money would be wasted abroad, that’s a reason not to tax and hand it over. Enter the debates between Easterly, Sachs and the mediators, Banerjee and Dufflo, who debate the efficacy of foreign aid. There are many reasons why it could be wasted. It might get stolen. Even if there was no tax avoidance at home it could be costly to extract the money. Or there might be insufficient capacity to absorb it productively at the receiving end.
3. Related to 1, and recalling the Rawlesian social contract argument for redistribution to make up for luck at birth, we could perhaps argue that those not born in our society are not signatories to this contract. I say related, because this is really a proposal for trying to explain and justify why people might refuse to pay Piketty taxes to the global poor. This isn’t an argument about race or nationhood. It could be founded on the forecast that the more widely and distantly the boundary gets drawn around possible signatories to the contract, the less sure one can be that people will keep to it, therefore the less to be gained by going along with it.
4. The arguments I made in my last post about the nature of the cooperative effort involved in producing the super-success of the super-successful might simply not apply: for example, a country that did not trade freely, or sponsored theft of intellectual property, or waged war of one kind or another, might be said not to have helped the super-succesful, but hindered them, so they had no entitlement to what they had made.
This blog expands on my twitter feed on the topic, and that prompted some interesting tweets in response from Stuart Ingham at Oxford. [Check the feed scroll to the right of this page, or my feed on twitter, if you’re interested.]. Here endeth the amateur political economy for the day.