Progressive tax: Tax the rich to reduce inequalities

Progressive tax: Tax the rich to reduce inequalities
Thomas Pikety: Tax the rich to reduce inequalities.

The argument of liberal economists is clear: economic growth is nested to technical progress that depends on the capital. According to their finding, in a regressive taxation regime, the accumulation of capital is more quickly and promotes technical progress even to bring economic growth. However, this approach to the economy seems to confront an economic reality: digging inequalities between the rich and the poor.

As for the expansion of the gap between the rich and the poor, a contemporary economist, Thomas Pikety, proposes to elevate the sampling of the richest to finance the redistribution to reduce inequalities. Piketty share of the observation that for thirty years, the growth of European or American economies has difficulty overriding 1.5% while the return on capital is around 4 to 5%. Since capital yield largely exceeds growth, inequalities increase.

The observation of Pikety has all its truth because it can be seen that the wealth of the most fortunate has grown faster than growth in the quarter of economic recovery in several Western countries in 2020. This is why in the world many movements. Progressive tax are born. The rich have become richer and the situation of the poor has not improved. Pikety in his theory tells us that the current capitalist model is provorating inequality.

Against these trends, only the providential state can encourage a better redistribution of wealth. Like the Nordic countries, elevate income tax to finance social programs: housing, health and education. Without this reversal of trend, the more inequalities and social criminals would be. The crisis of the yellow jets in France is the perfect example of a social crisis orchestrated by bad redistribution policies.
The ideal would be?

The two above-mentioned approaches have their strengths and weaknesses. The liberal approach has the merit of promoting growth but at the redistribution level, it poses some problems because at the runoff is not really done. It has the merit of encouraging investment in the economy and prevent capital leaks from other countries with a regressive taxation regime.

On the other hand, the approach of the cost savings economists for the rich poses the problem of inequalities. For the state to have the resources to bring the redistribution policies to good, we must tax the rich because a good part of their wealth is against productive. Some times, someone whose capital increases with the help of the financial markets has nothing to do with the real economy. However, a progressive tax system is not long-term viable because of its perverse effects on innovation and technical progress.