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Posts Tagged ‘Sarkozy’

The German Chancellor and French President have put together a plan to boost growth. Sounds like a good goal, but what specifically are they proposing?

Some of the obvious ideas include:

But those are only obvious ideas if you want a growth plan that actually leads to…(drum roll, please)…more growth.

Merkel and Sarkozy must have some other objective in mind, because they’ve proposed a plan comprised of new taxes, higher taxes, and tax harmonization.

This is beyond satire. Even if I was trying to make fun of the French and Germans (perish the thought), I wouldn’t be able to make up something this absurd.

Here’s some of what the EU Observer reported.

A six-point plan drafted by France and Germany has suggested corporate tax “co-ordination,” an EU financial transactions tax and the re-deployment of EU funds in troubled countries as ways to spur growth and jobs. …Paris and Berlin have teamed up once more and drafted a six-page paper called “Ways out of the crisis – strengthen growth now!” …The financial transactions tax – a pet project of French President Nicolas Sarkozy ahead of his re-election bid in April – features among the six proposals under “efforts to reinforce the framework of financial market.” …plans for “tax co-ordination” and another Franco-German proposal to be put forward by end of February on the “convergence of their corporate tax.” “European institutions and member states should accelerate the process of tax coordination in order to foster growth” …Apart from the Tobin tax, both leaders want to speed up EU legislation on an energy tax and a “common consolidated corporate tax base.”

Even Obama is not this blind to reality. He’s a big fan of higher taxes, of course, but at least the President realizes you don’t pass the laugh test if you tell people that higher taxes will “spur jobs and growth.”

Returning to Merkel and Sarkozy, the dynamic duo of statism also have some bizarre ideas on the spending side of the fiscal ledger. Here are a couple of additional passages from the story.

…proposal would have 25 percent of unspent EU regional funds in countries under a bail-out program or under serious economic difficulties redirected to a special “fund for growth and competitiveness.”  …As for employment-boosting measures, one of Sarkozy’s make-or-break campaign themes, the document asks governments to instruct employment agencies to make an offer to every unemployed person – be it for a job, an apprenticeship or further training.

The notion that bureaucrats and politicians can boost prosperity with some sort of “fund for growth and competitiveness” is hardly worth a rebuttal. I’ll just wish them luck as they create European versions of Solyndra.

The other idea, though, is worth a bit more analysis. If the article is correct, the Merkozy twins are going to wave a magic wand and direct employment agencies to make an offer to everybody.

Gee, isn’t that wonderful. While they’re at it, why don’t they turbo-charge the wand and insist that all the offers be for jobs making twice the national wage. With this kind of magical thinking, it’s just a matter of time before 90 percent of the population is part of the top-10 percent.

You may be thinking the previous sentence doesn’t make sense, but that’s probably because you’re one of those crazy libertarians who doesn’t understand how higher taxes boost economic performance.

In previous posts, I’ve expressed some pessimism about the future of Europe. After considerable reflection, I want to retract those statements and instead say that the outlook is hopeless. If you’re reading this from Europe, get out while you still can.

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P.S. I’ve been reminded that Merkel and Sarkozy are not alone in their crazy theory that higher taxes are good for growth. The geniuses at the Congressional Budget Office have written that higher taxes are good for long-run growth, even to the point of implying that 100 percent tax rates would maximize economic performance.

P.P.S. I’m further reminded that the Congressional Research Service also seems to think that higher taxes increase economic growth. Perhaps German and French spies have taken over Washington?

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I realize this is about as productive as talking to a brick wall, but I’m going to explain some basic economics to statist French policymakers (oops, pardon the redundancy).

This heroic – albeit surely futile – impulse is triggered by a recent proposal from President Sarkozy to supposedly boost job creation by lowering payroll taxes and raising the value-added tax

Here’s how the Wall Street Journal described the proposal.

The proposal…calls for reducing the amount companies contribute to the state-run health-care and pension systems. To make up for the lost income, the center-right government would raise France’s value-added tax—a levy similar to sales taxes in the U.S.—which is currently as high as 19.6%. …Mr. Sarkozy is expected to discuss the VAT proposal together with other job measures at a meeting with unions and business leaders on Jan. 18.

At first glance, this seems to make sense. After all, won’t it help to shift the tax burden from jobs to consumption?

If we look only at direct effects, the answer is yes. But if we channel our inner Bastiat and look at both the seen and the unseen, the answer changes.

The key thing to understand is that people prefer leisure to work. The reason they get jobs, by and large, is to obtain the income needed to consume and enjoy life.

As such, anything that expands the “tax wedge” between pre-tax income and post-tax consumption is going to impose similar levels of economic harm.

Here’s a simple example. If I earn $100, does it matter to me if the government takes $25 as I earn that income (either with a payroll tax or income tax) or as I spend that income (either with a sales tax or value-added tax)?

Is there any reason that my incentives to earn and produce will be altered by shifting from one approach to the other?

To be sure, there are probably some short-run effects when government reshuffles the tax burden in the way Sarkozy is proposing. People don’t react instantaneously when policy changes. That’s presumably even more true when some taxes are disguised, which is definitely the case with both the VAT and payroll taxes that are collected at the business level.

But transitory effects won’t solve France’s problems.

The bottom line is that Sarkozy shouldn’t expect any permanent boost in employment if all he does is shift the collection point for a small portion of a large tax burden.

If he really wants to improve the French economy, he should copy the Baltic nations and dramatically reduce the burden of government spending, while also replacing a punitive tax system with a simple and fair flat tax.

But don’t hold your breath waiting for this to happen. The French people occasionally show signs of intelligence, but the political elite have no incentive to change a system that gives them wealth and power.

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