Thomas Piketty’s Capital in the 21th Century: an ABC

Neoliberalism: An increasing gap among incomes and tax gifts to Capital

Part 3

15 April by CADTM



 Evolution of low and high salaries since the 1960s

The May 1968 general strike in France led to a considerable increase in the minimum wage over 15 years

We do not have room to sum up the evolution of income inequalities over the last two centuries. We shall limit ourselves to highlighting the evolution in France since 1968. The May 1968 general strike in France, and the Grenelle accords that followed it, led to a considerable increase in the minimum wage over 15 years: “The purchasing power of the minimum wage accordingly increased by more than 130 percent between 1968 and 1983, while the mean wage increased only by about 50 percent, resulting on a very significant compression of wage inequalities. The break with the previous period was sharp and substantial: the purchasing power of the minimum wage had increased barely 25 percent between 1950 and 1968.” [1]

The turning point occurred in 1982-1983 when François Mitterrand’s government veered to the right. In a context of stagnating wages, the highest salaries, those of the top 1 percent, rose by 30 percent between the end of the 1990s and 2010, and those of the top 0.1 percent increased by 50 percent. [2]

The turning point occurred in 1982-1983 when Mitterrand’s government veered to the right

On the other side of the Atlantic, a legal minimum wage was introduced in 1933 at the start of the Franklin D. Roosevelt’s presidency, 20 years before France. It reached its peak in 1969 (under Lyndon Johnson) when it was the equivalent of $10 per hour at 2013 prices. Since then, it has fallen, and in 2013 under Barack Obama, it was barely $7.25 an hour. [3]

Also in the United States, with regard to all sources of income (wages, rent, profits, dividends, etc.), we observe that from 1977 to 2007, the top 10 percent appropriated three quarters of the increase in national income; the top 1 percent absorbing 60 percent. For the remaining 90 percent, growth has been less than 0.5 percent per annum. [4]

Minimum wages have gone down over the past 40 years

If we take into account the distribution of national income in several key countries, we observe everywhere over the course of the last decades that the richest 1 percent and 0.1 percent have increased their share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. .

Proportion of national income going to the top 1 percent in 2010: United States approximately 20 percent, Canada and UK 14-15 percent, Germany 11 percent, Australia 9-10 percent, Japan + France + Spain + Italy 9 percent, Sweden + Denmark 7 percent. [5]

Proportion of national income going to the richest 0.1 percent: during the 1970s, US 2 percent, France and Japan 1.5 percent; in 2010, US 10 percent (12 percent if we include capital gain on stocks), France and Japan 2.5 percent. [6]

Let us examine several so-called emerging countries for which Piketty was able to gather reliable data. [7] Proportion of national income going to the richest 1 percent: China 4-5 percent in 1980, and 10-11 percent in 2010; India 4 percent in 1980, and 12 percent in 2010; Argentina 10 percent in 1970, and 18 percent in 2010; Colombia 18 percent in 2000, and 20 percent in 2010.

The interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. of these data, apart from concerning a central aspect of the description of inequalities, is that we can demonstrate that the evolution of income is really linked to social struggles and the politics of the governments in power.

The evolution of income is related to social struggles

This is one more reason for stating that collective action is the key for improving wages, in particular the lowest, and for reducing inequalities. Action is decisive for shaping government decisions and gaining concessions from employers.

 The evolution of tax rates is also linked to social struggles

In France, whereas in 1914 the top tax rate on the highest income brackets was just 2 percent, it rose to 50 percent in 1920, 60 percent in 1924, and even 72 percent in 1925. In 1920, the decision to apply a sudden and very sharp increase was taken by a National Assembly with a right-wing majority that was afraid of the general strike and radicalization that could have ensued due to a refusal to make concessions.

In 1914 in France the top tax rate on the highest income brackets was just 2 percent, it rose to 50 percent in 1920, 60 percent in 1924, and even 72 percent in 1925

In Germany, it went from 3 percent (1891-1914) to 40 percent in 1919-1920 at the height of the revolutionary crisis. In the US, it progressed from 8 percent before the 1914-18 war to 77 percent after the war. [8]

In the US the top tax rate went from 8 percent before the 1914-18 war to 77 percent afterwards

We see the same evolution with regard to inheritance tax rates. Legislators have imposed very high rates in response to popular pressure. This began just after 1914-18 and continued after the financial crisis in the 1930s. While the highest rate in France was just 6.5 percent before the war (in practice, it was reduced to 1 percent), it shot up to 30 percent. In Germany, it went from 0 percent before the war to 35 percent afterwards. In the United States, inheritance tax reached 70 percent in 1937-1939. [9] The rate of tax on inheritance is important and considered vital by the richest 10 percent, because 60-70 percent of major fortunes are inherited. [10]

Let us go back to the top income tax rate. Just before the crisis of October 1929, President Hoover cut the top rate to 25 percent. In 1933, Roosevelt notched it up to 63 percent in the first year of his presidency, then to 79 percent in 1937 (thus exceeding the 70 percent applied after 1919), then to 88 percent in 1942, and finally to 94 percent in 1944. The top rate remained at 90 percent until the mid-1960s. In his 1972 presidential campaign, the Democratic candidate George McGovern proposed to raise the top income tax rate to 100 percent, [11] but Nixon won the election. The rate fell progressively to 70 percent in the early 1980s. Ronald Reagan then lowered it to 60 percent. In the late 1980s, it dropped to 40 percent, then under George W. Bush to 35 percent. Over the period 1932-1980, the average top rate was 81 percent (to which should be added the 5 percent to 10 percent in state tax).

France and Germany applied top rates between 50 percent and 70 percent from the 1940s to 1980s. In the UK, the top rate reached 98 percent in the 1940s, and then again during the 1970s. [12]

France and Germany applied top rates between 50 percent and 70 percent from the end of WWII to the 1980s

Finally, we should note that the top rate applies in practice to the incomes of the richest 1 percent of the population.

The radical reduction in top rates, particularly in the US and UK since the 1980s, has led to a major increase in the salaries of senior business executives and in the proportion of national income and wealth owned by the richest 1 percent. [13]

After having reviewed the evolution of taxes on the highest incomes, Piketty concludes that a very high top rate is needed, more than 80 percent (82 percent to be exact) to be applied above $500,000 or $1 million; [14] 50 percent or 60 percent for incomes above $200,000. [15]

Piketty concludes that a very high top rate is needed, more than 80 percent to be applied above $500,000 or $1 million

Piketty recognizes that this will not be easy to obtain in the current context. In the United States, Congress acts largely in favour of the 1 percent. And with good reason: according to a serious estimate, the average wealth of the members of the US Congress stood at $15 million in 2012. [16]

Once again, the results of Piketty’s research show that a combination of two decisive actions is required. [17] 1. a broad-based information and training campaign to spread as much as possible the lessons of twentieth century history about how taxation policies have been directly influenced by the pressure of popular movements; 2. mobilization within the framework of a platform to pursue a group of priority objectives.

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Footnotes

[1Chapter 8, p. 206.

[2Chapter 8, p. 207

[3Chapter 9, p. 221.

[4Chapter 8, pp. 211-212.

[5Chapter 9, p. 226.

[6Chapter 9, p. 227.

[7Chapter 9, pp. 232-3.

[8Chapter 14, p. 350

[9Chapter 14, p. 353.

[10Chapter 12, p. 312.

[11Chapter 14, note 33, p. 432.

[12Chapter 14, p. 355.

[13Chapter 14, p. 356.

[14Chapter 14, p. 358 + note 50.

[15Chapter 14, p. 359.

[16Chapter 14, note 42, p. 436.

[17This does not imply Piketty’s commitment to these actions.

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