SOTT FOCUS: Thomas Piketty and the Legion d'Absurdité

Thomas Piketty's like "whateva!"

We want to like French economist and best-selling author, Thomas Piketty. Anyone who backhands Hollande et al by refusing the legion d'honneur on the grounds that governments wouldn't know honor if it bit them on the ass, has to be awesome.

Alas, Piketty is not so awesome. While the statement that a state has no right to decide what is, or is not, honorable is philosophically interesting and implies a mind capable of extra-ordinary thought, the idea of progressive taxation, which is what Piketty espouses, implies utter stupidity.

The idea that we should 'tax the rich' is as old as the hills. All forms of taxation are sold to shortsighted publics this way, and it has always backfired. For a very simple reason: it costs more to pay taxes than to dodge them when you are rich. Even in the worst case scenario, the cost of lawyers to tie the whole thing up in court is less than the cost of the taxes themselves. If you have $20 Billion, you can pay lobbyists, pay lawyers, fund a TV based anti-tax campaign for less than the cost of actually paying your taxes. Hell, if you only have $100 Million it's still worth your while.

Thomas Piketty's idea of taxing taxing people in the U.K. 50% of their earnings over 1 million pounds is idiotic. All this does is create a barrier between the middle and upper classes and ensures that the wealthiest people will stay wealthy, indefinitely.

First off, it's just not fair. You might think it's not fair that they are so rich and you so poor, but this isn't going to work. The rich got that way for a reason, and come hell or high water they will stay that way. It is a matter of survival for them. Poverty is, they say, the mother of all crime. Well, so is threatening poverty. Someone who has been accustomed to have billions will see the loss of even half his wealth as being cast into utter poverty, and he will fight to prevent it. He will fight dirty. He will win. The material advantage of the wealthy means that direct confrontation with them is both pointless and counter productive. Most people who represent this idea of over taxing the rich wouldn't like it so much if they suddenly won the lottery.

Secondly, the problem is not that the rich aren't taxed enough, it's that they aren't taxed at all. Coming up with new and complicated tax regimes is like trying to design an elaborate key to a door without a lock. It's a keypad dummy! The most important thing to do with taxation is make it worth their while to pay up.

The correct solution is a flat tax that everyone has to pay, no exceptions, no loopholes. It shouldn't matter if you make $10 or $10 Billion. At the end of the year, you pay x%. The more complicated a tax regime is, the easier it will be to dodge it, because it is next to impossible to find a person who completely understands the system, and even less likely that a judge or jury would. So all a very wealthy person needs to do is pay a good lawyer to take it to court and defer payment forever.

The truth is, progressive taxation actually benefits the rich. Complex tax regimes benefit the rich. Because they are able to spread out their income all over the world, they are able to invest it in art, and stamps, and properties and pay lawyers and lobbyists to exploit or create complex loopholes in tax laws. What progressive taxation does, what all complex tax regimes do, is act as a barrier to prevent crossing from one class to another. Progressive taxation at the $1 million, or even $10 million mark ensures that the upper crust will never have to worry about newcomers and competition.

So to sum up: it's not about making the rich pay more taxes, it's about making them pay taxes. Period. Full stop. This has been a problem for thousands of years. The rich get richer, the poor get poorer, and people like Piketty come along with their slick sounding solutions that just make the situation worse. We don't need more complex taxes, we need simpler ones. Reasonable ones that everyone can pay, and no one will feel like they are being extorted. Rich people are people too, and there is no reason to punish wealth.