Economist called genius by left backs Prop. 13-style wealth protection

Economist called genius by left backs Prop. 13-style wealth protection

capitalIt may seem wonky and obscure now, but I bet it’s going to emerge as a strong, enduring counterpunch to Proposition 13 critics. I refer to the fact that French economist Thomas Piketty — the hottest, in the media sense, social scientist of modern times — thinks that property taxes that rise in tandem with a home’s value amount to “a secret tax on America’s middle class.” Howard Jarvis is beaming somewhere, and Jon Coupal should be smiling, too.

Who is Piketty and why does he matter? His 700-page book, “Capital in the Twenty-First Century,” newly translated into English, is the best-selling book on Amazon. No largely academic book has ever achieved this distinction before.

Piketty’s central thesis is that the world has returned to its pre-World War I norms of extended periods of slow growth that will result in a further stratification of wealth in which the 0.1 percent fare better than everyone else. This is not because of the Occupy theory that the economy is rigged in an evil way to help them. It’s because of Piketty’s theory that during extended periods of slow growth, the mega rich will see their sophisticated investments in capital (stocks and other financial instruments) gain more share of a society’s wealth than everyone else accumulates through their earnings (salaries).

Many economists on the left love this thesis as providing a grand theoretical way to understand how the world has come to be the way it is — a way they don’t like. Paul Krugman leads the way, proclaiming, “This is a book that will change both the way we think about society and the way we do economics.”

It’s gotten respectful reviews from some free-market economists, and some pretty good takedowns, starting with Tyler Cowen’s essay. (Here’s a round-up of links.)

But whether you think it’s hooey or too high-falutin’ or just arcane, if you’re a believer in Proposition 13, Piketty’s emergence gives you fabulous ammo with which to shoot back at the George Skeltons, Peter Schrags and Harold Meyersons — all the lefty pundits who say it is the prime evil force driving California’s downfall. Piketty says states that have property taxes that penalize homowners if their homes increase in value are imposing what amounts to “America’s secret middle-class tax.”

Property taxes (outside of CA) a ‘secret middle-class tax’

pikettyThis is from a Matt Yglesias piece in Vox:

“Piketty’s big point about the United States is that we actually do engage in substantial wealth taxation in this country. We call it property taxes, and they’re primarily paid to state and local governments. Total receipts amount to about 3 percent of national income. The burden of the tax falls largely on middle-class families, for whom a home is likely to be far and away the most valuable asset that they own. Rich people, of course, own expensive houses (sometimes two or three of them) but also accumulate considerable wealth in the stock market and elsewhere where, unlike homeowners’ equity, it can evade taxation.

“Piketty also observes that the current property tax system is curiously innocent of the significance of debt. A homeowner is taxed on the face-value of his house, whether he owns it outright or owes more to the bank than the house is worth.”

So the next time you face Prop 13 critics, call them “middle-class haters,” and say that’s the view of Paul Krugman’s favorite economist, too. If Piketty’s PR boomlet continues, you can just use his name and skip the Krugman framing.

With or without Piketty, noting that homes are the single biggest repository of reliable wealth for most middle-class families is a strong defense. But if Piketty proves to be the enduring “rock star” of the progressive community that many lefties think, that gives this pro-13 argument way more juice.

Doubt Piketty is the big deal that I say he is? Today’s NYT opinion page has both Krugman and David Brooks weighing in on his book.

7 comments

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  1. John Seiler
    John Seiler 25 April, 2014, 08:36

    But, Chris, we need to get rid of Prop. 13 to tax middle-class families out of their homes, thus giving their homes to the wealthy, and use the tax proceeds to fund the $300,000 pensions of retired government workers living on luxurious ranches in Idaho.

    Reply this comment
  2. Rex the Wonder Dog!
    Rex the Wonder Dog! 25 April, 2014, 17:20

    But those retired government workers are “heros” and deserve 🙂

    Reply this comment
  3. Queeg
    Queeg 25 April, 2014, 21:57

    Getting to believe CWD doomers are just plain ole skinflints.

    Reply this comment
  4. Danilushka
    Danilushka 26 April, 2014, 12:07

    Piketty is right that property taxes are a wealth tax whose burden is largely paid by the middle class American, the least wealthy of the people who own property or capital. His prescription for a global tax on wealth however is 100% French Socialist and would be a disaster. The guy has one solid idea in a book of socialist dribble. If I were asked to describe him in one phrase it would be: “Flash in the pan”.

    Reply this comment
  5. ajb
    ajb 26 April, 2014, 12:09

    I’ve come to the conclusion that any tax based on assessed value is going to be unfair, period, at least where residences are concerned. It may have been fairer when property values stayed relatively constant over time, or increased at a slow, steady rate. (If they ever did.) But that isn’t what has happened more recently; prices have gone up and down a whole lot faster than that. This leads to either homeowners’ taxes going up tremendously even though they’re not actually wealthier (except on paper), or the current situation where two neighbors can live in homes that are approximately the same value and one pays a ton more in taxes than the other. We need to get rid of this sort of property tax. A tax based on lot size or square footage be fairer–it would still be proportional, so that a wealthier person who could afford a more expensive home would still pay proportionally more, but the tax wouldn’t be swinging around wildly over time just because prices are volatile. (I’d be happy with no tax at all, but I’m trying to suggest something that may sound sensible even to people who don’t lean as anti-government as I do.)

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  6. Walter Sobchak
    Walter Sobchak 26 April, 2014, 19:11

    The sentiment behind prop 13 was unexceptional. The execution leaves a lot to be desired, in particular the use of sales as a trigger for re-assessment helps to limit the number of properties that turn over and increases house prices to the point where many young families cannot afford to buy a house.

    Ohio solved the problem of inflation by fixing the size of voted levies and deflating the rate to match inflation. That way they can re-assess regularly and not have a clog on the market.

    Californians would do well to reexamine the mechanics of prop 13.

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