As Congress debates tax cuts and safety-net reforms in the One Big Beautiful Bill, a major line of attack against the proposal is that it would worsen inequality, which, to hear some critics tell it, continues to widen.
Few have influenced the American Left’s thinking on inequality more than the French economist Thomas Piketty. His 700-page book Capital in the Twenty-First Century topped the New York Times nonfiction bestseller list in 2014 and generated fervor some likened to Beatlemania. While few readers seem to have made it all the way through, the gist of Capital, along with other writing from Piketty and his frequent collaborators, has fueled everything from popular worries about the top 1 percent to Elizabeth Warren’s proposal for a wealth tax.
Finally, a reason to check your email.
Sign up for our free newsletter today.
It’s a good time for an update on Piketty’s thought and the controversies it has generated. In the years since Capital’s publication, other researchers have compellingly challenged the economist’s narrative of an ever-more-powerful class of the super-rich, and many developments have heightened the relevance of his theories—from dismal birth rates in the U.S. to Donald Trump’s populist rise, from the Covid-19 pandemic to the emergence of AI.
The controversies over Piketty’s ideas fall into two major categories: his claims about soaring income inequality in the United States and his forecast of an oligarchic future worldwide, unless a cooperative global effort is made to tax wealth.
Over the past decade, U.S. income inequality has become one of the most mind-numbingly complicated debates in economics. It turns out that measuring income inequality with currently available data is extremely difficult.
Gerald Auten and David Splinter have taken the lead in disputing the claims of Piketty and his academic coauthors, with the most recent contribution to this persistent back-and-forth coming just last month. In their analysis, trends in income inequality are essentially unremarkable once one accounts for taxes and transfers, key aspects of economic life today. The top 1 percent received about 9 percent of post-tax-and-transfer income in the 1960s and 10 percent in the early 2020s, with a low ebb of about 7 percent in the 1970s.
Auten and Splinter do find that pre-tax income inequality has risen, though less drastically than Piketty and his coauthors have claimed. For the income share of the top 1 percent, the Piketty trend line runs from around 11 percent in the 1970s to about 19 percent in the 2010s, while Auten and Splinter’s estimates rise from roughly 9 percent to 14 percent over that period.
Naturally, the dispute boils down to some subjective decisions in the data analysis. One of the big points of contention, for example, is “missing income” that’s not reported on tax returns. Auten and Splinter, citing audit studies, allocate more of this income to lower earners than do Piketty and company. Relatedly, another new paper Splinter coauthored estimates that “Tax noncompliance rates are four times higher for the bottom quintile than for the top 1% of the income distribution.”
Numerous other scholars, including Vincent Geloso, Scott Winship, and Richard Burkhauser, have also compellingly argued that the rise in inequality is far less dramatic than Piketty’s camp claims. As Geloso summarized in City Journal last year, “More than three dozen articles in highly ranked journals show multiple errors and inconsistencies with Piketty’s estimates.”
It’s notable, though, that many of these arguments lean on America’s redistribution apparatus—progressive taxes and a growing safety net—to mitigate increased inequality in pretax incomes. There’s little dispute that pretax income inequality has gone up significantly.
Regarding wealth, Capital’s most famous argument hinged on the concept that “r > g”—that is, the rate of return on capital tends to run higher than the growth rate of the overall economy, which includes both demographic growth and per-capita productivity growth. If a big enough gap persists for long enough periods, and if enough capital is left to accumulate (with returns reinvested rather than spent), then the economy will become increasingly dominated by capital and the people who own and inherit it.
Thanks to two world wars, strong economic growth, and high fertility, capital took a hit in the middle of the twentieth century and inheritances declined in importance, Piketty conceded. But now we’re on the upward-sloping right side of a U-shaped curve, and the situation is quite different. Both demographic and productivity growth are cooling, and there will, with luck, be no world wars to repeal the general rule of r > g this time around. Quite to the contrary, in an increasingly mobile and globalized world, many countries have reduced capital taxes to attract the rich.
Capital’s power could grow immensely in the years ahead, Piketty fretted, especially if tax competition intensifies. This could create a politically untenable situation in which inherited wealth dominates and inequalities are shockingly stark. To paint the picture, Piketty spends numerous pages in Capital discussing the idle-rich nineteenth-century “rentiers” from the literature of Austen and Balzac; they were the product of another long period in which r had too greatly exceeded g.
These arguments, however, also generated compelling pushback. Matthew Rognlie pointed out that the increase in the capital share of income, at least so far, was concentrated in housing—which, though it may suggest that we should build more housing in places with sky-high real-estate prices and prohibitive zoning rules, doesn’t justify a panic about oligarchy. And if capital did markedly grow, its returns would diminish much faster than Piketty had assumed. Rognlie and others argued that Piketty didn’t properly handle depreciation (that is, the fact that capital breaks down over time).
In addition, responding to work by frequent Piketty collaborators Emmanuel Saez and Gabriel Zucman, Sylvain Catherine and his coauthors recently argued that “top wealth shares have not changed much over the last three decades when Social Security is properly accounted for.” When viewed as a form of wealth, Social Security represents about half of wealth for the bottom 90 percent.
There is considerable uncertainty in all these calculations, and no one really knows what will unfold in the decades ahead. But it seems fair to say that the existing safety net does a better job of keeping inequality in check than it’s given credit for, and that Piketty’s dystopian forecast remains highly speculative.
In that light, one possible response is to say that nothing is wrong, and therefore no policy response is needed. One might also ask, in the wake of Covid, how confident we really are that no major, lasting disruption of the status quo like a world war will occur before Piketty’s dystopia comes about, even assuming everything else about his argument is correct.
Another angle to consider is that even if inequality is rising substantially, perhaps we shouldn’t care how much the rich have as long as we make sure that living standards continue to improve for the poor and middle class and that the government is adequately funded. These are hard tasks in themselves, of course—especially given the current budget situation (which Congress’s tax bill seems unlikely to improve). The American Right will need to make hard decisions about how to balance tax levels, progressivity, and social spending. Capital taxation will be part of that discussion, of course, but it doesn’t need to be the main focus.
But let’s say we decide to tackle the alleged r > g problem head-on. Is Piketty’s main solution—a wealth tax requiring the rich to pay a percentage of their net worth every year—really the way to go? (He’s also a fan of “confiscatory” taxes on high salaries deemed “indecent” and “economically useless.”)
Piketty admits a wealth tax would be hard to administer. He suggests international, ideally global, cooperation to ensure that the wealthy can’t evade it by moving their assets or themselves elsewhere. But several countries with wealth taxes have moved in the opposite direction recently, ditching them as not worth the effort.
Beyond their impracticality, these levies could discourage entrepreneurship and create double taxation. In the U.S., they might also be unconstitutional. Global agreements to participate in this regime, including from countries that stand to benefit from luring the rich away from other places, are unlikely.
We should start with a more fundamental point: capital growth and overall economic growth are both positive things. When the economy can make constructive use of capital and reward investment, that’s good. When workers are increasingly productive and families are having kids, that’s good, too. If we must see it as a problem that r exceeds g by too great a margin, we should prioritize boosting economic growth much more than we should seek to constrain capital growth.
Piketty pooh-poohs this possibility, noting that the rate of return on capital historically tends to run around 4 percent to 5 percent, and longer-run economic growth is projected to be far lower, perhaps around 1.5 percent globally and lower in advanced economies. But the current moment in American political discourse is full of ideas to increase g.
Much of the Right is waking up to the fact that declining fertility is a crisis, and that a cultural and policy shift toward demographic growth would reduce the importance of inherited wealth to the overall economy. (The rich having more kids would further divide those inherited fortunes with each generation.) Parts of the Left—the “abundance” crowd—are realizing that needless regulations are hamstringing the economy and the government’s own projects. Artificial intelligence, if it’s really on the cusp of a breakthrough, could drastically juice productivity and thus economic growth, demanding a policy response that preserves the technology’s immense potential while addressing any resulting job losses.
Reading Capital in 2025, one can easily come away thinking that pronatalism, abundance, and techno-futurism deserve to stand high on the list of national priorities. If our country is losing its dynamism, why not make some grand, moonshot efforts to change that, rather than skipping to the part where we fight over the scraps passed down from previous generations?
Top Photo by Craig T Fruchtman/Getty Images