IV. Existence of Inequality and Its Remedy

In Capital, Piketty examines the long-term development of income and wealth and concludes that, without intervention, wealth and income inequality will only widen in the foreseeable future. As Piketty in Capital warns about the long-term tendency of widening inequality, he suggests that the driving force for this development is the tendency for the rate of returns on capital (r) to be greater than the rate of growth of income (g), i.e., r > g. With the rate of returns on capital greater than the rate of growth of income, the share of income from wealth will outpace that of income from wages. Consequently, according to Piketty, wealth from inheritance will play an increasingly important role in one's economic position. This leads to illegitimate inequality because, instead of the inequality being a consequence of different abilities, it is a consequence of inheritance which is unearned and unjustified. One of Piketty's primary proposed solutions is a progressive global tax on wealth. Instead of offering fixed numbers as tax rates on wealth, he provides a suggestion for discussion on how much wealth tax should be collected. For example, he suggests no taxes due for a fortune of less than 1 million euros, 1 percent for a fortune between 1 and 5 million euros, 2 percent for anything over that, and 5 to 10 percent tax rate for hundreds of millions or more.

There is no doubt that extreme wealth and income inequality exist now and throughout history. However, one may not readily accept r > g as the driving force for the persistence and deepening of inequality. To accept r > g as the driving force is to concede that societies do not have organizing principles and economic developments take place without any oversight. But civil societies have organizing principles. What if the principles of justice as fairness are complied with? Would it not make society less unequal? As discussed above, compliance with the principles of justice as fairness would reduce inequality. Even if inequality continues to exist when the principles of justice as fairness are substantially complied with, such inequality would be consistent with justice.

There are two main reasons why Piketty's proposal to reduce inequality of wealth and income through taxation does not adequately address the inequality problem. First, genuine reduction of inequality cannot be achieved through taxation. For example, even if a 10 percent wealth tax is imposed on a billionaire, the billionaire will remain vastly better off than the majority of the population with remaining wealth after taxation and returns on capital from it. Second, high rate of taxation can have harmful social consequences. In the extreme, outright confiscation of wealth to forcefully remove inequality, as the communists did during the process of installing their regime, has proven to be a disaster not only violating basic human rights by taking away one's property without due process but also destroying the social production dynamics by taking away the incentives and entrepreneurial spirits to create and innovate. As Piketty reports, as a way to curtail inequality, between 1940 and the end of the 1970s, the top tax rate in Britain was always above 90 percent, in the US between 70 and 95 percent. Yet inequality continued to exist during the same period, according to Piketty. In Britain, the upper decile's share fell from more than 90 percent on the eve of World War I to 60-65 percent in the 1970s; things look similar in the US. Not only did not high tax rates not meaningfully reduce inequality but they were also cited as reasons for the economic crisis in 1973. As a result, radically different tax policies were put in place. The tax reform in 1986 under Ronald Reagan put the top tax rate at a low point at 28 percent. There was a similar development in the UK under Margaret Thatcher.

Reduction of inequality of opportunity by focusing on taking away advantages alone similarly will not be productive. Rather, the solution should equally, if not more so, emphasize on aiding the disadvantaged. Unless one could go through genetic engineering to ensure an equal level of intelligence and equivalent level of attractiveness and put children in a commune to be educated and raised in the same way, the strict sense of equality of opportunity cannot be achieved. The end is to achieve a well-ordered and just society that is sustainable. While Piketty correctly points to the injustice of the society through inequality, it is not enough to create a just society through progressive global taxation. Taxation alone cannot alleviate inequality. Improving the conditions of the worst off is preferable as a direct method to alleviate inequality. Taxation should be an indirect method to alleviate inequality in that distribution to the least advantaged is part of the social resource that needs to be offset through taxation. The wealthy should be taxed more based on their ability to contribute to the resources necessary to maintain a well-ordered society, including adhering to the three principles of justice as fairness.