Capital in the Twenty-First Century

by Thomas Piketty

There are two distinct justifications of a capital tax: a contributive justification and an incentive justification. The contributive logic is quite simple: income is often not a well-defined concept for very wealthy individuals, and only a direct tax on capital can correctly gauge the contributive capacity of the wealthy. Concretely, imagine a person with a fortune of 10 billion euros. As we saw in our examination of the Forbes rankings, fortunes of this magnitude have increased very rapidly over the past three decades, with real growth rates of 6–7 percent a year or even higher for the wealthiest individuals (such as Liliane Bettencourt and Bill Gates).11 By definition, this means that income in the economic sense, including dividends, capital gains, and all other new resources capable of financing consumption and increasing the capital stock, amounted to at least 6–7 percent of the individual’s capital (assuming that virtually none of this is consumed).