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Conservatives Are Scared Straight by a Frenchman

Raise the Capital Gains tax to 39 percent, where the earned income tax is. It’s easy. Reagan actually did it – for one year.

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Conservatives are scared straight by a Frenchman.

French economist Thomas Piketty has released his newest book, Capital in the 21st Century, and it’s got conservatives all up in arms.

Piketty’s book delves deep into the roots of wealth inequality, and demonstrates extensive research on the subject.

He writes that, despite what conservatives may think, there is no “magical” force that creates shared prosperity and wealth in capitalist societies.

Piketty goes on to warn that if we don’t address America’s wealth inequality epidemic quickly, America could end up with the most top-heavy society it’s ever seen. Even worse than the Gilded Age.

Obviously, conservatives don’t like to talk about wealth inequality, and don’t like to hear that they’re wrong, so naturally, they’re labeling Piketty as a “radical” and a “Marxist.”

In a book review in The New York Times, conservative columnist Ross Douthat argued that “Marx Rises Again” in Piketty’s work.

And over at the conservative publication National Review, James Pethokoukis wrote a book review titled, “The New Marxism.”

So, what are the “radical” and “extreme” ideas that Piketty is presenting in his book?

Basically, he’s saying that we have it all wrong in America.

He’s right.

The central thesis of Picketty’s book is that capital ALWAYS gets a better return than labor – typically around 5-8% per year. It’s been this way for the past 1000 years or more.

But as capital is soaring off the charts, returns on labor are only increasing at a rate roughly equivalent to GDP growth, right now about 1% per year.

This is the reason why the wealthy elite are always getting wealthier, while the working class is always stuck in place as the working class.

If capital is always increasing by 5-8% per year, and labor is only increasing in line with GDP growth – and, in any case, only represents income, not wealth – the wealthy elite are always getting wealthier, doubling their wealth every 5 years or so, while the working class is always going to just be getting by.

It’s the way capitalism is structured. Capital makes money. Labor earns money – and a lot less money. Maybe that’s why it’s called “capitalism” and not “laborism.”

The way the capitalist system is now, the wealthy elite, the people who make money with money, the Mitt Romney’s of the world, are going to get richer and richer, regardless of whether the economy in strong or weak.

Meanwhile, the working class is only seeing an increase in their income – which rarely even turns into an increase in wealth – when the economy is doing well.

Working people are screwed when the economy is doing poorly, while capitalists – people who earn money with money – pretty much always do just fine.

With this in mind, consider how badly – insanely – our income tax system is organized.

It’s completely upside down!

Right now, the top tax rate on capital gains – money made with money – is 20%, while the top tax rate on labor income is 39%.

Even Reagan thought this was crazy, at least on one particularly lucid day.

In a speech to students at Northside High School in Atlanta, Georgia in June of 1985, Reagan point out the absurdity of working-class Americans having to pay more in taxes than millionaires.

He told the crowd of students that, “We’re going to close the unproductive tax loopholes that allow some of the truly wealthy to avoid paying their fair share. In theory, some of those loopholes were understandable, but in practice they sometimes made it possible for millionaires to pay nothing, while a bus driver was paying ten percent of his salary, and that’s crazy. […] Do you think the millionaire ought to pay more in taxes than the bus driver or less?” The students sounded, commonsensically and in unison, “More!”

Given that capital always appreciates faster than labor, the capital gains tax in America should be higher than income tax, not lower.

Capitalists ought to be paying more in taxes than laborers. It’s that simple.

Raise the Capital Gains tax to 39% where the earned income tax is. It’s easy. Reagan actually did it – for one year. Or just do away with the Capital Gains tax altogether and make all forms of income from whatever source “earned income.”

This is a very modest call for change, and it’s certainly nothing “radical,” despite what Republicans in Washington might say.

Even at identical tax rates, capitalists will still get wealthy massively faster than laborers.

But at least our income tax system won’t be upside down.

It’s time to take this small step towards solving America’s wealth inequality epidemic.