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Capital in the Twenty-First Century

Capital in the Twenty-First Century
Hardcover edition
Author	Thomas Piketty
Original title	Le Capital au XXI^e siècle
Translator	Arthur Goldhammer
Language	French
Subjects	Political economy, economic history, economic inequality, macroeconomics
Publisher	Éditions du Seuil Harvard University Press
Publication date	August 2013
Published in English	April 15, 2014
Media type	Print (hardback)
Pages	696
ISBN	978-0674430006

Capital in the Twenty-First Century (French: Le Capital au XXI^e siècle) is a book written by French economist Thomas Piketty. It focuses on wealth and income inequality in Europe and the United States since the 18th century. It was first published in French (as Le Capital au XXI^e siècle) in August 2013; an English translation by Arthur Goldhammer followed in April 2014.

The book's central thesis is that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability. Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority.

At the end of 2014, Piketty released a paper where he stated that he does not consider the relationship between the rate of return on capital and the rate of economic growth as the only or primary tool for considering changes in income and wealth inequality. He also noted that r > g is not a useful tool for the discussion of rising inequality of labor income.

On May 18, 2014, the English edition reached number one on The New York Times Best Seller list for best selling hardcover nonfiction and became the greatest sales success ever of academic publisher Harvard University Press. As of January 2015, the book had sold 1.5 million copies in French, English, German, Chinese, and Spanish.

The book has been adapted into a feature documentary film, directed by New Zealand filmmaker Justin Pemberton.

Publication and initial reception

When first published in French in August 2013, Laurent Mauduit characterized it as "a political and theoretical bulldozer". As news spread of its thesis in the English-speaking world, Paul Krugman hailed it as a landmark, while former senior World Bank economist Branko Milanović considers it "one of the watershed books in economic thinking". In response to widespread curiosity abroad aroused by reviews of the original French edition published by Seuil in September 2013, it was translated rapidly into English and its publication date was pushed forward to March 2014 by Belknap. It proved an overnight sensation and ousted Michael Lewis's financial exposé, Flash Boys: Cracking the Money Code, from the top of the US best-seller list. Within a year of its publication, Stephanie Kelton spoke of a "Piketty phenomenon", and in Germany three books had been published specifically dealing with Piketty's critique.

The central thesis of the book is that inequality is not an accident, but rather a feature of capitalism and can only be reversed through state interventionism. The book thus argues that, unless capitalism is reformed, the very democratic order will be threatened.

Piketty bases his argument on a formula that relates the rate of return on capital (r) to economic growth (g), where r includes profits, dividends, interest, rents, and other income from capital and g is measured as growth of society's income or output. He argues that when the rate of growth is low, then wealth tends to accumulate more quickly from r than from labor and tends to accumulate more among the top 10% and 1%, increasing inequality. Thus, the fundamental force for divergence and greater wealth inequality can be summed up in the inequality r > g. He analyzes inheritance from the perspective of the same formula.

Income inequality as measured by the income of the top 1% in several countries. Inequality tended to drop in the middle of the century but has increased in the past several decades.

The book argues that there was a trend towards higher inequality that was reversed between 1930 and 1975 due to unique circumstances: the two world wars, the Great Depression, and a debt-fueled recession destroyed much wealth, particularly that owned by the elite. These events prompted governments to undertake steps towards redistributing income, especially in the post–World War II period. The fast, worldwide economic growth of that time began to reduce the importance of inherited wealth in the global economy.

The book argues that the world today is returning towards "patrimonial capitalism", in which much of the economy is dominated by inherited wealth: the power of this economic class is increasing, threatening to create an oligarchy. Piketty cites novels by Honoré de Balzac, Jane Austen, and Henry James to describe the rigid class structure based on accumulated capital that existed in England and France in the early 1800s.

Piketty proposes that a progressive annual global wealth tax of up to 2%, combined with a progressive income tax reaching as high as 80%, would reduce inequality, although he says that such a tax "would be politically impossible".

Without tax adjustment, Piketty predicts a world of low economic growth and extreme inequality. His data show that over long periods of time, the average return on investment outpaces productivity-based income by a wide margin. He dismisses the idea that bursts of productivity resulting from technological advances can be relied on to return sustained economic growth; we should not expect "a more just and rational order" to arise based on "caprices of technology", and return on investment can increase when technology can be substituted for people.

Reception

The book's exceptional success was widely attributed to "being about the right subject at the right time", as The Economist put it. Piketty himself recognized there is a common sense that "inequality and wealth in the United States have been widening." The Occupy movement's "We are the 99%" slogan made talk of inequality "the zeitgeist of our age – an age of seemingly permanent crisis and austerity," as Adam Booth put it.

British author Paul Mason dismissed charges of "soft Marxism" as "completely misplaced", noting that Marx described social relations trying to unveil capitalism's inner tendencies, where Piketty solely relies on social categories and historical data. Piketty rather "placed an unexploded bomb within mainstream, classical economics," he concludes.

Other scholars have built upon Piketty's work, such as historian Walter Scheidel, who concurs with Piketty in his own study of inequality (The Great Leveler, 2017) that the gap will continue to widen as the decades pass but contends that Piketty's solutions are untenable.

Praise

Paul Krugman called the book a "magnificent, sweeping meditation on inequality" and "the most important economics book of the year – and maybe of the decade." He distinguishes the book from other bestsellers on economics as it constitutes "serious, discourse-changing scholarship". Krugman also wrote:

At a time when the concentration of wealth and income in the hands of a few has resurfaced as a central political issue, Piketty doesn't just offer invaluable documentation of what is happening, with unmatched historical depth. He also offers what amounts to a unified field theory of inequality, one that integrates economic growth, the distribution of income between capital and labor, and the distribution of wealth and income among individuals into a single frame. ... Capital in the Twenty-First Century is an extremely important book on all fronts. Piketty has transformed our economic discourse; we'll never talk about wealth and inequality the same way we used to.

Steven Pearlstein called it a "triumph of economic history over the theoretical, mathematical modeling that has come to dominate the economics profession in recent years", but also added: "Piketty's analysis of the past is more impressive than his predictions for the future are convincing."

Branko Milanović, a former senior economist at the World Bank, called the book "one of the watershed books in economic thinking."

British historian Andrew Hussey called the book "epic" and "groundbreaking" and argues that it proves "scientifically" that the Occupy movement was correct in its assertion that "capitalism isn't working".

According to Robert Solow, Piketty has made a "new and powerful contribution to an old topic: as long as the rate of return exceeds the rate of growth, the income and wealth of the rich will grow faster than the typical income from work".

French historian and political scientist Emmanuel Todd called Capital in the Twenty-First Century a "masterpiece" and "a seminal book on the economic and social evolution of the planet".

The book has been described as "a political and theoretical bulldozer" in the French press.

The Economist wrote: "A modern surge in inequality has new economists wondering, as Marx and Ricardo did, which forces may be stopping the fruits of capitalism from being more widely distributed. Capital in the Twenty-First Century ... is an authoritative guide to the question."

Will Hutton wrote: "Like Friedman, Piketty is a man for the times. For 1970s anxieties about inflation substitute today's concerns about the emergence of the plutocratic rich and their impact on economy and society. ... the current level of rising wealth inequality, set to grow still further, now imperils the very future of capitalism. He has proved it."

Clive Crook, while being strongly critical of the book, described it as earning more praise than any other economics book in decades. He suggests it was "greeted with... erotic intensity" because of a demand for "scholarly respectability" that would affirm the belief that inequality is, quoting John Cassidy, "the defining issue of our era".

In the introduction to the essay collection After Piketty (2017), Piketty is praised for arguing, before Donald Trump's election, that those with property will dominate the twenty-first century political economy and set in motion forces to keep the rate of profit high enough to create plutocracy.

Criticism

Critique of the normative content

One strand of critique faults Piketty for placing inequality at the center of analysis without any reflection on why it matters.

According to Financial Times columnist Martin Wolf, he merely assumes that inequality matters, but never explains why. He only demonstrates that it exists and how it worsens. Or as his colleague Clive Crook put it: "Aside from its other flaws, Capital in the 21st Century invites readers to believe not just that inequality is important, but that nothing else matters. This book wants you to worry about low growth in the coming decades not because that would mean a slower rise in living standards, but because it might ... worsen inequality."

Professor Hannes H. Gissurarson asserts that Piketty is replacing American philosopher John Rawls as the essential thinker of the left. In addition to questioning common measures of wealth distribution, he also criticizes Piketty for being, unlike Rawls, "much more concerned with the rich than with the poor". Hannes admits that the "rapid rise in the income of the super-rich of the world" is happening but doesn't view this trend as being a problem so long as the poor do not get poorer.

Methodological critique

Lawrence Summers criticizes Piketty for underestimating the diminishing returns on capital, which he believes will offset the return on capital and hence set an upper limit to inequality. Summers challenges another of Piketty's assumptions: that returns to wealth are largely reinvested. A declining ratio of saving to wealth would also set upper limits on inequality in society. Of 400 wealthiest Americans in 1982, only one in ten remained on the list in 2012, and an increasing share of wealthiest people have not increased their fortunes. Moreover, top 1% incomes are now mostly salaries, not capital incomes. Most other economists explain the rise of top 1% incomes by globalization and technological change.

James K. Galbraith criticizes Piketty for using "an empirical measure that is unrelated to productive physical capital and whose dollar value depends, in part, on the return on capital. Where does the rate of return come from? Piketty never says". Galbraith also says: "Despite its great ambitions, his book is not the accomplished work of high theory that its title, length and reception (so far) suggest."

Daron Acemoglu and James A. Robinson used the economic histories of Sweden and South Africa to show that social inequality depends much more on institutional factors than Piketty's factors like the difference between rate of return and growth. Cross-country analysis also shows that the top 1%'s share of income does not depend on that difference. The professors write that general laws, which is how they characterize Piketty's postulations, "are unhelpful as a guide to understand the past or predict the future because they ignore the central role of political and economic institutions in shaping the evolution of technology and the distribution of resources in a society". Per Krusell and Anthony Smith criticise Piketty's second law as implausible based on empirically supported theories of savings and that the data supports theories opposed to Piketty's.

Paul Romer criticises that while the data and empirical analysis is presented with admirable clarity and precision, the theory is presented in less detail. In his opinion the work was written with the attitude "Empirical work is science; theory is entertainment" and therefore an example for mathiness.

Lawrence Blume and Steven Durlauf criticized the book in the Journal of Political Economy for being "unpersuasive when it turns from description to analysis... Both of us are very liberal (in the contemporary as opposed to classical sense), and we regard ourselves as egalitarians. We are therefore disturbed that Piketty has undermined the egalitarian case with weak empirical, analytical, and ethical arguments."

Critique of Piketty's basic concepts

German economist Stefan Homburg criticizes Piketty for equating wealth with capital. Homburg argues that wealth does not only embrace capital goods in the sense of produced means of production, but also land and other natural resources. Homburg argues that observed increases in wealth income ratios reflect rising land prices and not an accumulation of machinery. Joseph E. Stiglitz endorses this view, pointing out that "a large fraction of the increase in wealth is an increase in the value of land, not in the amount of capital goods".

This idea is furthered by Matthew Rognlie, then a graduate student at M.I.T., who published a paper in March 2015 with the Brookings Institution that argues that Piketty did not take the effects of depreciation into account enough in his analysis of the growing importance of capital. Rognlie also found that "surging house prices are almost entirely responsible for growing returns on capital." A similar critique was made by Odran Bonnet, et al. in "Does housing capital contribute to inequality? A comment on Thomas Piketty's Capital in the 21st Century published in 2014."

Marxist academic David Harvey, while praising the book for demolishing "the widely-held view that free market capitalism spreads the wealth around and that it is the great bulwark for the defense of individual liberties and freedoms," is largely critical of Piketty for, among other things, his "mistaken definition of capital", which Harvey describes as:. a process, not a thing ... a process of circulation in which money is used to make more money often, but not exclusively through the exploitation of labor power. Piketty defines capital as the stock of all assets held by private individuals, corporations and governments that can be traded in the market no matter whether these assets are being used or not.

Harvey further argues that Piketty's "proposals as to the remedies for the inequalities are naïve if not utopian. And he has certainly not produced a working model for capital of the twenty-first century. For that, we still need Marx or his modern-day equivalent". Harvey also takes Piketty to task for dismissing Marx's Das Kapital without ever having read it.

IMF economist Carlos Góes researched the basic thesis put forth by the book – that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, the result is concentration of wealth – and found no empirical support for it; in fact, an opposite trend was identified in 75% of the countries studied in depth. Piketty's response noted, however, that Góes used measures of income inequality rather than wealth inequality, and inappropriately took the interest rate on sovereign debt as his index of the rate of return on capital, which makes his results not commensurate with those of Piketty's study.

Critique of the proposed measures

In a similar vein, philosopher Nicholas Vrousalis faults Piketty's remedies for misconstruing the kind of political "counter-agency" required to remove the inequalities Piketty criticizes and for thinking that they are compatible with capitalism.

Critique of the conventional paradigm

Norwegian economist and journalist Maria Reinertsen compares the book to the 2014 book Counting on Marilyn Waring: New Advances in Feminist Economics, by Ailsa McKay and Margunn Bjørnholt, arguing that, "while Capital in the Twenty-First Century barely touches the boundaries of the discipline in its focus on the rich, Counting on Marilyn Waring challenges most limits of what economists should care about".

Allegation of data errors

On May 23, 2014, Chris Giles, economics editor of the Financial Times (FT), identified what he claims are "unexplained errors" in Piketty's data, in particular regarding wealth inequality increases since the 1970s. The FT wrote in part:

The data ... contain a series of errors that skew his findings. The FT found mistakes and unexplained entries in his spreadsheets, similar to those which last year undermined the work on public debt and growth of Carmen Reinhart and Kenneth Rogoff.
The central theme of Prof Piketty's work is that wealth inequalities are heading back up to levels last seen before World War I. The investigation undercuts this claim, indicating there is little evidence in Prof Piketty's original sources to bear out the thesis that an increasing share of total wealth is held by the richest few.

Piketty wrote a response defending his findings and arguing that subsequent studies (he links to Emmanuel Saez and Gabriel Zucman's March 2014 presentation, The Distribution of US Wealth, Capital Income and Returns since 1913) confirm his conclusions about increasing wealth inequality and actually show a greater increase in inequality for the United States than he does in his book. In an interview with Agence France-Presse, he accused the Financial Times of "dishonest criticism" and said that the paper "is being ridiculous because all of its contemporaries recognise that the biggest fortunes have grown faster".

The accusation received wide press coverage. Some sources said the Financial Times has overstated its case. For example, The Economist, a sister publication to the Financial Times at that time, wrote:

Mr Giles's analysis is impressive, and one certainly hopes that further work by Mr Giles, Mr Piketty or others will clarify whether mistakes have been made, how they came to be introduced and what their effects are. Based on the information Mr Giles has provided so far, however, the analysis does not seem to support many of the allegations made by the FT, or the conclusion that the book's argument is wrong.

Scott Winship, a sociologist at the Manhattan Institute for Policy Research and critic of Piketty, asserts the allegations are not "significant for the fundamental question of whether Piketty's thesis is right or not ... It's hard to think Piketty did something unethical when he put it up there for people like me to delve into his figures and find something that looks sketchy ... Piketty has been as good or better than anyone at both making all his data available and documenting what he does generally".

In addition to Winship, the economists Alan Reynolds, Justin Wolfers, James Hamilton and Gabriel Zucman claim that FT's assertions go too far. Paul Krugman noted that "anyone imagining that the whole notion of rising wealth inequality has been refuted is almost surely going to be disappointed". Emmanuel Saez, a colleague of Piketty and one of the economists cited by Giles to discredit him, stated that "Piketty's choice and judgement were quite good" and that his own research supports Piketty's thesis. Piketty released a full point-by-point rebuttal on his website.

A 2017 study in Social Science History by University of California Riverside economic historian Richard Sutch concluded "that Piketty's data for the wealth share of the top 10 percent for the period 1870 to 1970 are unreliable ... Piketty's data for the top 1 percent of the distribution for the nineteenth century (1810–1910) are also unreliable ... The values Piketty reported for the twentieth century (1910–2010) are based on more solid ground, but have the disadvantage of muting the marked rise of inequality during the Roaring Twenties and the decline associated with the Great Depression."

Awards and honours

2014 Financial Times and McKinsey Business Book of the Year Award
2014 National Book Critics Circle Award (General Nonfiction) finalist
2014 British Academy Medal

Editions

Le Capital au XXI^e siècle, Éditions du Seuil, Paris, 2013, ISBN 978-2021082289 (in French)
Capital in the Twenty-First Century, Harvard University Press, 2014, ISBN 978-0674430006

Income tax

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Income_tax

An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Taxation rates may vary by type or characteristics of the taxpayer and the type of income.

The tax rate may increase as taxable income increases (referred to as graduated or progressive tax rates). The tax imposed on companies is usually known as corporate tax and is commonly levied at a flat rate. Individual income is often taxed at progressive rates where the tax rate applied to each additional unit of income increases (e.g., the first $10,000 of income taxed at 0%, the next $10,000 taxed at 1%, etc.). Most jurisdictions exempt local charitable organizations from tax. Income from investments may be taxed at different (generally lower) rates than other types of income. Credits of various sorts may be allowed that reduce tax. Some jurisdictions impose the higher of an income tax or a tax on an alternative base or measure of income.

Taxable income of taxpayers' resident in the jurisdiction is generally total income less income producing expenses and other deductions. Generally, only net gain from the sale of property, including goods held for sale, is included in income. The income of a corporation's shareholders usually includes distributions of profits from the corporation. Deductions typically include all income-producing or business expenses including an allowance for recovery of costs of business assets. Many jurisdictions allow notional deductions for individuals and may allow deduction of some personal expenses. Most jurisdictions either do not tax income earned outside the jurisdiction or allow a credit for taxes paid to other jurisdictions on such income. Nonresidents are taxed only on certain types of income from sources within the jurisdictions, with few exceptions.

Most jurisdictions require self-assessment of the tax and require payers of some types of income to withhold tax from those payments. Advance payments of tax by taxpayers may be required. Taxpayers not timely paying tax owed are generally subject to significant penalties, which may include jail-time for individuals. Taxable income of taxpayers resident in the jurisdiction is generally total income less income producing expenses and other deductions. Generally, only net gain from the sale of property, including goods held for sale, is included in income. The income of a corporation's shareholders usually includes distributions of profits from the corporation. Deductions typically include all income-producing or business expenses including an allowance for recovery of costs of business assets. Many jurisdictions allow notional deductions for individuals and may allow deduction of some personal expenses. Most jurisdictions either do not tax income earned outside the jurisdiction or allow a credit for taxes paid to other jurisdictions on such income. Nonresidents are taxed only on certain types of income from sources within the jurisdictions, with few exceptions.

History

The concept of taxing income is a modern innovation and presupposes several things: a money economy, reasonably accurate accounts, a common understanding of receipts, expenses and profits, and an orderly society with reliable records.

For most of the history of civilization, these preconditions did not exist, and taxes were based on other factors. Taxes on wealth, social position, and ownership of the means of production (typically land and slaves) were all common. Practices such as tithing, or an offering of first fruits, existed from ancient times, and can be regarded as a precursor of the income tax, but they lacked precision and certainly were not based on a concept of net increase.

Early examples

The first income tax is generally attributed to Egypt. In the early days of the Roman Republic, public taxes consisted of modest assessments on owned wealth and property. The tax rate under normal circumstances was 1% and sometimes would climb as high as 3% in situations such as war. These modest taxes were levied against land, homes and other real estate, slaves, animals, personal items and monetary wealth. The more a person had in property, the more tax they paid. Taxes were collected from individuals.

In the year 10 AD, Emperor Wang Mang of the Xin dynasty instituted an unprecedented income tax, at the rate of 10 percent of profits, for professionals and skilled labor. He was overthrown 13 years later in 23 AD and earlier policies were restored during the reestablished Han dynasty which followed.

One of the first recorded taxes on income was the Saladin tithe introduced by Henry II in 1188 to raise money for the Third Crusade. The tithe demanded that each layperson in England and Wales be taxed one tenth of their personal income and moveable property.

In 1641, Portugal introduced a personal income tax called the décima.

Modern era

United Kingdom

The inception date of the modern income tax is typically accepted as 1799, at the suggestion of Henry Beeke, the future Dean of Bristol. This income tax was introduced into Great Britain by Prime Minister William Pitt the Younger in his budget of December 1798, to pay for weapons and equipment for the French Revolutionary War. Pitt's new graduated (progressive) income tax began at a levy of 2 old pence in the pound (1⁄120) on incomes over £60 (equivalent to £5,500 in 2019), and increased up to a maximum of 2 shillings in the pound (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million a year, but actual receipts for 1799 totalled only a little over £6 million.

Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation. The income tax was reintroduced by Addington in 1803 when hostilities with France recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo. Opponents of the tax, who thought it should only be used to finance wars, wanted all records of the tax destroyed along with its repeal. Records were publicly burned by the Chancellor of the Exchequer, but copies were retained in the basement of the tax court.

In the United Kingdom of Great Britain and Ireland, income tax was reintroduced by Sir Robert Peel by the Income Tax Act 1842. Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds. The new income tax, based on Addington's model, was imposed on incomes above £150 (equivalent to £16,224 in 2019). Although this measure was initially intended to be temporary, it soon became a fixture of the British taxation system.

A committee was formed in 1851 under Joseph Hume to investigate the matter, but failed to reach a clear recommendation. Despite the vociferous objection, William Gladstone, Chancellor of the Exchequer from 1852, kept the progressive income tax, and extended it to cover the costs of the Crimean War. By the 1860s, the progressive tax had become a grudgingly accepted element of the United Kingdom fiscal system.

United States

The US federal government imposed the first personal income tax on August 5, 1861, to help pay for its war effort in the American Civil War (3% of all incomes over US$800) (equivalent to $20,600 in 2022). This tax was repealed and replaced by another income tax in 1862. It was only in 1894 that the first peacetime income tax was passed through the Wilson-Gorman tariff. The rate was 2% on income over $4000 (equivalent to $122,000 in 2022), which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions. The US Supreme Court ruled the income tax unconstitutional, the 10th amendment forbidding any powers not expressed in the US Constitution, and there being no power to impose any other than a direct tax by apportionment.

In 1913, the Sixteenth Amendment to the United States Constitution made the income tax a permanent fixture in the U.S. tax system. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920. The amount of income collected via income tax has varied dramatically, from 1% in the early days of US income tax to taxation rates of over 90% during World War II.

Timeline of introduction of income tax by country

1799–1802: United Kingdom
1803–1816: United Kingdom
1840: Switzerland
1842: United Kingdom
1860: India
1861–1872: United States
1864: Italy
1872: France
1887: Japan
1891: New Zealand
1894–95: United States
1900: Spain
1903: Denmark, Sweden
1908: Indonesia
1911: Norway
1913: United States
1916: Australia, Russia
1918: Canada
1920: Finland, Poland
1921: Iceland
1924: Brazil, Mexico
1932: Bolivia, Argentina
1934: Peru
1937: China
1942: Venezuela
2007: Uruguay

Common principles

While tax rules vary widely, certain basic principles are common to most income tax systems. Tax systems in Canada, China, Germany, Singapore, the United Kingdom, and the United States, among others, follow most of the principles outlined below. Some tax systems, such as India, may have significant differences from the principles outlined below. Most references below are examples; see specific articles by jurisdiction (e.g., Income tax in Australia).

Taxpayers and rates

Individuals are often taxed at different rates than corporations. Individuals include only human beings. Tax systems in countries other than the US treat an entity as a corporation only if it is legally organized as a corporation. Estates and trusts are usually subject to special tax provisions. Other taxable entities are generally treated as partnerships. In the US, many kinds of entities may elect to be treated as a corporation or a partnership. Partners of partnerships are treated as having income, deductions, and credits equal to their shares of such partnership items.

Separate taxes are assessed against each taxpayer meeting certain minimum criteria. Many systems allow married individuals to request joint assessment. Many systems allow controlled groups of locally organized corporations to be jointly assessed.

Tax rates vary widely. Some systems impose higher rates on higher amounts of income. Tax rates schedules may vary for individuals based on marital status. In India on the other hand there is a slab rate system, where for income below INR 2.5 lakhs per annum the tax is zero percent, for those with their income in the slab rate of INR 2,50,001 to INR 5,00,000 the tax rate is 5%. In this way the rate goes up with each slab, reaching to 30% tax rate for those with income above INR 15,00,000.

Residents and non-residents

Residents are generally taxed differently from non-residents. Few jurisdictions tax non-residents other than on specific types of income earned within the jurisdiction. See, e.g., the discussion of taxation by the United States of foreign persons. Residents, however, are generally subject to income tax on all worldwide income. A handful of jurisdictions (notably Singapore and Hong Kong) tax residents only on income earned in or remitted to the jurisdiction. There may arise a situation where the tax payer has to pay tax in one jurisdiction he or she is tax resident and also pay tax to other country where he or she is non-resident. This creates the situation of Double taxation which needs assessment of Double Taxation Avoidance Agreement entered by the jurisdictions where the tax payer is assessed as resident and non-resident for the same transaction.

Residence is often defined for individuals as presence in the jurisdiction for more than 183 days. Most jurisdictions base residence of entities on either place of organization or place of management and control.

Defining income

Most systems define income subject to tax broadly for residents, but tax nonresidents only on specific types of income. What is included in income for individuals may differ from what is included for entities. The timing of recognizing income may differ by type of taxpayer or type of income.

Income generally includes most types of receipts that enrich the taxpayer, including compensation for services, gain from sale of goods or other property, interest, dividends, rents, royalties, annuities, pensions, and all manner of other items. Many systems exclude from income part or all of superannuation or other national retirement plan payments. Most tax systems exclude from income health care benefits provided by employers or under national insurance systems.

Deductions allowed

Nearly all income tax systems permit residents to reduce gross income by business and some other types of deductions. By contrast, nonresidents are generally subject to income tax on the gross amount of income of most types plus the net business income earned within the jurisdiction.

Expenses incurred in a trading, business, rental, or other income producing activity are generally deductible, though there may be limitations on some types of expenses or activities. Business expenses include all manner of costs for the benefit of the activity. An allowance (as a capital allowance or depreciation deduction) is nearly always allowed for recovery of costs of assets used in the activity. Rules on capital allowances vary widely, and often permit recovery of costs more quickly than ratably over the life of the asset.

Most systems allow individuals some sort of notional deductions or an amount subject to zero tax. In addition, many systems allow deduction of some types of personal expenses, such as home mortgage interest or medical expenses.

Business profits

Only net income from business activities, whether conducted by individuals or entities is taxable, with few exceptions. Many countries require business enterprises to prepare financial statements which must be audited. Tax systems in those countries often define taxable income as income per those financial statements with few, if any, adjustments. A few jurisdictions compute net income as a fixed percentage of gross revenues for some types of businesses, particularly branches of nonresidents.

Credits

Nearly all systems permit residents a credit for income taxes paid to other jurisdictions of the same sort. Thus, a credit is allowed at the national level for income taxes paid to other countries. Many income tax systems permit other credits of various sorts, and such credits are often unique to the jurisdiction.

Alternative taxes

Some jurisdictions, particularly the United States and many of its states and Switzerland, impose the higher of regular income tax or an alternative tax. Switzerland and U.S. states generally impose such tax only on corporations and base it on capital or a similar measure.

Administration

Income tax is generally collected in one of two ways: through withholding of tax at source and/or through payments directly by taxpayers. Nearly all jurisdictions require those paying employees or nonresidents to withhold income tax from such payments. The amount to be withheld is a fixed percentage where the tax itself is at a fixed rate. Alternatively, the amount to be withheld may be determined by the tax administration of the country or by the payer using formulas provided by the tax administration. Payees are generally required to provide to the payer or the government the information needed to make the determinations. Withholding for employees is often referred to as "pay as you earn" (PAYE) or "pay as you go."

Income taxes of workers are often collected by employers under a withholding or pay-as-you-earn tax system. Such collections are not necessarily final amounts of tax, as the worker may be required to aggregate wage income with other income and/or deductions to determine actual tax. Calculation of the tax to be withheld may be done by the government or by employers based on withholding allowances or formulas.

Nearly all systems require those whose proper tax is not fully settled through withholding to self-assess tax and make payments prior to or with final determination of the tax. Self-assessment means the taxpayer must make a computation of tax and submit it to the government. Some countries provide a pre-computed estimate to taxpayers, which the taxpayer can correct as necessary.

The proportion of people who pay their income taxes in full, on time, and voluntarily (that is, without being fined or ordered to pay more by the government) is called the voluntary compliance rate. The voluntary compliance rate is higher in the US than in countries like Germany or Italy. In countries with a sizeable black market, the voluntary compliance rate is very low and may be impossible to properly calculate.

State, provincial, and local

Income taxes are separately imposed by sub-national jurisdictions in several countries with federal systems. These include Canada, Germany, Switzerland, and the United States, where provinces, cantons, or states impose separate taxes. In a few countries, cities also impose income taxes. The system may be integrated (as in Germany) with taxes collected at the federal level. In Quebec and the United States, federal and state systems are independently administered and have differences in determination of taxable income.

Wage-based taxes

Retirement oriented taxes, such as Social Security or national insurance, also are a type of income tax, though not generally referred to as such. In the US, these taxes generally are imposed at a fixed rate on wages or self-employment earnings up to a maximum amount per year. The tax may be imposed on the employer, the employee, or both, at the same or different rates.

Some jurisdictions also impose a tax collected from employers, to fund unemployment insurance, health care, or similar government outlays.

Economic and policy aspects

Multiple conflicting theories have been proposed regarding the economic impact of income taxes. Income taxes are widely viewed as a progressive tax (the incidence of tax increases as income increases).

Some studies have suggested that an income tax does not have much effect on the numbers of hours worked.

Criticisms

Tax avoidance strategies and loopholes tend to emerge within income tax codes. They get created when taxpayers find legal methods to avoid paying taxes. Lawmakers then attempt to close the loopholes with additional legislation. That leads to a vicious cycle of ever more complex avoidance strategies and legislation. The vicious cycle tends to benefit large corporations and wealthy individuals that can afford the professional fees that come with ever more sophisticated tax planning, thus challenging the notion that even a marginal income tax system can be properly called progressive.

The higher costs to labour and capital imposed by income tax causes dead weight loss in an economy, being the loss of economic activity from people deciding not to invest capital or use time productively because of the burden that tax would impose on those activities. There is also a loss from individuals and professional advisors devoting time to tax-avoiding behaviour instead of economically productive activities.

Bracket creep

Bracket creep is usually defined as the process by which inflation pushes wages and salaries into higher tax brackets, leading to fiscal drag. However, even if there is only one tax bracket, or one remains within the same tax bracket, there will still be bracket creep resulting in a higher proportion of income being paid in tax. That is, although the marginal tax rate remains unchanged with inflation, the average tax rate will increase.

Most progressive tax systems are not adjusted for inflation. As wages and salaries rise in nominal terms under the influence of inflation they become more highly taxed, even though in real terms the value of the wages and salaries has not increased at all. The net effect is that in real terms taxes rise unless the tax rates or brackets are adjusted to compensate.

Types of income

Many types of income are subject to income tax, which is very variable. It all depends on the country and its tax laws. In general, countries impose taxes on income from wages, salaries, interest, dividends, and rental income. The most typical ones are wage and salary, which are almost always subject to taxation withheld by employers. Some one-time payments such as bonuses paid to employees are taxable. Dividends and interest (stocks or bonds) are usually also taxed.

There is a very wide variation in the amount of taxation in different countries. For example, countries such as Singapore, Belgium and United Arab Emirates levy low income tax on interest and dividends, while countries such as Denmark, France and United States have very high income tax for this type of income. For profits that are earned by selling assets or a real estate (capital gains), the income tax varies between countries, and is different from for any other types of income. Rental income may also sometimes be subject to income tax, but many countries offer deductions or even exemptions for this type of income.

Around the world

Income taxes are used in most countries around the world. The tax systems vary greatly and can consist of a flat fixed rate, progressive, or regressive, structures depending on the type of tax. Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. Tax laws in most countries are extremely complex, and tax burden falls differently on different groups in each country and sub-national unit. Of course, services provided by governments in return for taxation also vary, making comparisons all the more difficult.

Countries that tax income generally use one of two systems: territorial or residential. In the territorial system, only local income – income from a source inside the country – is taxed. In the residential system, residents of the country are taxed on their worldwide (local and foreign) income, while non-residents are taxed only on their local income. In addition, a very small number of countries, notably the United States, also tax their non-resident citizens on worldwide income.

Countries with a residential system of taxation usually allow deductions or credits for the tax that residents already pay to other countries on their foreign income. Many countries also sign tax treaties with each other to eliminate or reduce double taxation.

Countries do not necessarily use the same system of taxation for individuals and corporations. For example, France uses a residential system for individuals but a territorial system for corporations, while Singapore does the opposite, and Brunei taxes corporate but not personal income.

Transparency and public disclosure

Public disclosure of personal income tax filings occurs in Finland, Norway and Sweden (as of the late-2000s and early 2010s). In Sweden this information has been published in the annual directory Taxeringskalendern since 1905.

Wednesday, January 31, 2024

Heterojunction

From Wikipedia, the free encyclopedia

https://en.wikipedia.org/wiki/Heterojunction

A heterojunction is an interface between two layers or regions of dissimilar semiconductors. These semiconducting materials have unequal band gaps as opposed to a homojunction. It is often advantageous to engineer the electronic energy bands in many solid-state device applications, including semiconductor lasers, solar cells and transistors. The combination of multiple heterojunctions together in a device is called a heterostructure, although the two terms are commonly used interchangeably. The requirement that each material be a semiconductor with unequal band gaps is somewhat loose, especially on small length scales, where electronic properties depend on spatial properties. A more modern definition of heterojunction is the interface between any two solid-state materials, including crystalline and amorphous structures of metallic, insulating, fast ion conductor and semiconducting materials.

Manufacture and applications

Heterojunction manufacturing generally requires the use of molecular beam epitaxy (MBE) or chemical vapor deposition (CVD) technologies in order to precisely control the deposition thickness and create a cleanly lattice-matched abrupt interface. A recent alternative under research is the mechanical stacking of layered materials into van der Waals heterostructures.

Despite their expense, heterojunctions have found use in a variety of specialized applications where their unique characteristics are critical:

Solar cells: Heterojunctions are formed through the interface of a crystalline silicon substrate (band gap 1.1 eV) and amorphous silicon thin film (band gap 1.7 eV) in some solar cell architectures. The heterojunction is used to separate charge carriers in a similar way to a p–n junction. The Heterojunction with Intrinsic Thin-Layer (HIT) solar cell structure was first developed in 1983 and commercialised by Sanyo/Panasonic. HIT solar cells now hold the record for the most efficient single-junction silicon solar cell, with a conversion efficiency of 26
Lasers: Using heterojunctions in lasers was first proposed in 1963 when Herbert Kroemer, a prominent scientist in this field, suggested that population inversion could be greatly enhanced by heterostructures. By incorporating a smaller direct band gap material like GaAs between two larger band gap layers like AlAs, carriers can be confined so that lasing can occur at room temperature with low threshold currents. It took many years for the material science of heterostructure fabrication to catch up with Kroemer's ideas but now it is the industry standard. It was later discovered that the band gap could be controlled by taking advantage of the quantum size effects in quantum well heterostructures. Furthermore, heterostructures can be used as waveguides to the index step which occurs at the interface, another major advantage to their use in semiconductor lasers. Semiconductor diode lasers used in CD and DVD players and fiber optic transceivers are manufactured using alternating layers of various III-V and II-VI compound semiconductors to form lasing heterostructures.
Bipolar transistors: When a heterojunction is used as the base-emitter junction of a bipolar junction transistor, extremely high forward gain and low reverse gain result. This translates into very good high frequency operation (values in tens to hundreds of GHz) and low leakage currents. This device is called a heterojunction bipolar transistor (HBT).
Field effect transistors: Heterojunctions are used in high electron mobility transistors (HEMT) which can operate at significantly higher frequencies (over 500 GHz). The proper doping profile and band alignment gives rise to extremely high electron mobilities by creating a two dimensional electron gas within a dopant free region where very little scattering can occur.

Energy band alignment

The behaviour of a semiconductor junction depends crucially on the alignment of the energy bands at the interface. Semiconductor interfaces can be organized into three types of heterojunctions: straddling gap (type I), staggered gap (type II) or broken gap (type III) as seen in the figure. Away from the junction, the band bending can be computed based on the usual procedure of solving Poisson's equation.

Various models exist to predict the band alignment.

The simplest (and least accurate) model is Anderson's rule, which predicts the band alignment based on the properties of vacuum-semiconductor interfaces (in particular the vacuum electron affinity). The main limitation is its neglect of chemical bonding.
A common anion rule was proposed which guesses that since the valence band is related to anionic states, materials with the same anions should have very small valence band offsets. This however did not explain the data but is related to the trend that two materials with different anions tend to have larger valence band offsets than conduction band offsets.
Tersoff proposed a gap state model based on more familiar metal–semiconductor junctions where the conduction band offset is given by the difference in Schottky barrier height. This model includes a dipole layer at the interface between the two semiconductors which arises from electron tunneling from the conduction band of one material into the gap of the other (analogous to metal-induced gap states). This model agrees well with systems where both materials are closely lattice matched such as GaAs/AlGaAs.
The 60:40 rule is a heuristic for the specific case of junctions between the semiconductor GaAs and the alloy semiconductor Al_xGa_1−xAs. As the x in the Al_xGa_1−xAs side is varied from 0 to 1, the ratio $Δ E_{C} / Δ E_{V}$ tends to maintain the value 60/40. For comparison, Anderson's rule predicts $Δ E_{C} / Δ E_{V} = 0.73 / 0.27$ for a GaAs/AlAs junction (x=1).

The typical method for measuring band offsets is by calculating them from measuring exciton energies in the luminescence spectra.

Effective mass mismatch

When a heterojunction is formed by two different semiconductors, a quantum well can be fabricated due to difference in band structure. In order to calculate the static energy levels within the achieved quantum well, understanding variation or mismatch of the effective mass across the heterojunction becomes substantial. The quantum well defined in the heterojunction can be treated as a finite well potential with width of $l_{w}$ . In addition, in 1966, Conley et al. and BenDaniel and Duke reported a boundary condition for the envelope function in a quantum well, known as BenDaniel–Duke boundary condition. According to them, the envelope function in a fabricated quantum well must satisfy a boundary condition which states that $ψ (z)$ and $\frac{1}{m^{*}} \frac{\partial}{\partial z} ψ (z)$ are both continuous in interface regions.

Mathematical details worked out for quantum well example.

Nanoscale heterojunctions

Image of a nanoscale heterojunction between iron oxide (Fe₃O₄ — sphere) and cadmium sulfide (CdS — rod) taken with a TEM. This staggered gap (type II) offset junction was synthesized by Hunter McDaniel and Dr. Moonsub Shim at the University of Illinois in Urbana-Champaign in 2007.

In quantum dots the band energies are dependent on crystal size due to the quantum size effects. This enables band offset engineering in nanoscale heterostructures. It is possible to use the same materials but change the type of junction, say from straddling (type I) to staggered (type II), by changing the size or thickness of the crystals involved. The most common nanoscale heterostructure system is ZnS on CdSe (CdSe@ZnS) which has a straddling gap (type I) offset. In this system the much larger band gap ZnS passivates the surface of the fluorescent CdSe core thereby increasing the quantum efficiency of the luminescence. There is an added bonus of increased thermal stability due to the stronger bonds in the ZnS shell as suggested by its larger band gap. Since CdSe and ZnS both grow in the zincblende crystal phase and are closely lattice matched, core shell growth is preferred. In other systems or under different growth conditions it may be possible to grow anisotropic structures such as the one seen in the image on the right.

It has been shown that the driving force for charge transfer between conduction bands in these structures is the conduction band offset. By decreasing the size of CdSe nanocrystals grown on TiO₂, Robel et al. found that electrons transferred faster from the higher CdSe conduction band into TiO₂. In CdSe the quantum size effect is much more pronounced in the conduction band due to the smaller effective mass than in the valence band, and this is the case with most semiconductors. Consequently, engineering the conduction band offset is typically much easier with nanoscale heterojunctions. For staggered (type II) offset nanoscale heterojunctions, photoinduced charge separation can occur since there the lowest energy state for holes may be on one side of the junction whereas the lowest energy for electrons is on the opposite side. It has been suggested that anisotropic staggered gap (type II) nanoscale heterojunctions may be used for photocatalysis, specifically for water splitting with solar energy.

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