30 Apr 2017

An Open Letter to Emmanuel Macron - Future French President?

Dear Monsieur Macron

In a weeks time, the French will vote to choose whether you or  Marine Lepen should be their next president. Many people will probably vote for you simply to prevent an extreme right Front National candidate getting into power. But many others, including myself, remain unconvinced that your brand of neoliberalism is really what we need. I would be reluctant to see you elected with more than the minimum support to beat Lepen, because I fear that your program is just going to be more of the same neoliberal policies that we have had with Hollande. I see little in your program that has any chance of fixing the real problems that face us.

That is why I am writing to you to argue that in fact there are a large number of alternative ideas that I believe you should be considering. You seem like an intelligent person, capable of listening. So please, listen for a bit. You might find something you like.

To start with, I think that most people can understand that almost all taxes are intrinsically bad. Income tax reduces the incentive to work. VAT reduces the incentive to buy products and services. The cost of social contributions discourages companies from employing humans - and pushes them to replace workers with robots whenever possible. And taxes on Company profits encourages businesses to relocate to places where the tax rates are lowest, with the result that there are entire industries devoted to minimising taxes for international corporations, biasing the playing field against the small entrepreneur.

For some years, I have been convinced that we could easily scrap Income Tax, VAT, social contributions, and taxes on profits. The solution would be to introduce a simple flat rate transaction tax on all financial transactions. Figures from the Bank for International Settlements show that transactions in 2015 totalled $9.76 quadrillion, and if you count the last 10 years, the total reaches $105 quadrillion. That's a one with 14 zeros after it ($105,000,000,000,000).  Here's a summary table, but you can find the original data on a Google Sheet here.

OK, I would agree that France only contributes a relatively modest amount to this eye-watering total (3.4%) - the bulk taking place in the US and UK, with a massive 10.9% being handled by multinational groupings like CLS which handles roughly half the world's $5.1 trillion in Foreign exchange transactions that occur EVERY DAY.

Nevertheless, even if we count just the numbers that are purely French, you will see that France's total over 10 years has been €2.745 quadrillion - or about €275 trillion a year on average.

So, just imagine what would happen if you were to impose a flat rate transaction tax on all electronic transactions in France of 0.2%. That would potentially generate up to €550 billion of revenue - enough to abolish every other tax!

I'm sure that your banker friends would say that a 0.2% tax on transactions would make the sky fall in. But it's 100 times less than the 20% VAT that the rest of us currently pay when we buy many things. It's also 100 times less that what many individuals and companies pay to the government in the form of income tax and profits.

Sure, the ridiculous and pointless frenetic activity on the financial exchanges would slow done, or move elsewhere. But imagine if France was the first country to scrap taxes on profits entirely. Multinationals would be swarming to Paris to be able to use their profits legally, rather than stashing them away in some taxhaven in the Caymans or Panama.

A second reform that goes hand in hand with abolishing income tax would be to set up an alternative way of restributing wealth. People say that they like Income tax because it provides a way a redistribing wealth from the rich to the poor. But what would happen with no income tax? Well, one way that produces a roughly equivalent redistributive effect would be to replace the redistributive tax system with direct payments to all citizens in the form of an unconditional basic income. I suspect that you think that this is a dangerous lunatic leftist proposal. But I would argue that it is quite the contrary.

Suppose that we have a system where you have scrapped taxes on company profits and abolished social security payments. This would already give a fantastic boost to French industry, because their costs would be slashed, making it substantially cheaper to produce goods in France than elsewhere.

But what few people seem to realize is that when an unconditional basic income is combined with a citizen's salary, this will also produce a massive boost for French industry. Someone with a family and kids would have basic income that would cover some percentage of their basic living costs. Additional money paid by the employer would add directly to the family's revenue, especially if we have also managed to scrap income tax. With the extra direct revenue from the basic income, the employer could manage to provide a decent living for less cost - thus again driving down the costs of producing in France.

In many respects, the same thing happens with any services that are provided as a basic citizens right. If people get free health care, free child care and free public transport, these are all things that they don't have to pay out of their salary, meaning that employment costs for the employer can be reduced.

It's odd that in the US, people still fail to understand that having an extortionately expensive health system that effectively has to be paid for by the employer means that US industry could never really compete on equal terms with industries in places like China.

Moving to a system where there is a basic unconditional income would not be a leftist fantasy. On the contrary, it should be seen as move that would greatly simplify the employment rules. If combined with the elimination of the vast majority of existing benefits schemes, it would result in a much simpler and understandable system in which everyone would know that whenever they work, they would be be guaranteed to increase their revenue. Under the current system with its labyrith of support measures, many people find that working ends up being unattractive because if they earn more than a given amount, they run the risk of losing the benefits they currently have. Such poverty traps are something that you could eliminate by simplifying the entire benefits system.

Monsieur Macron, don't you think that there are better ways out there that are worth considering. In the short message, I have talked about just two of them - fundamental tax reform and specifically the idea of replacing the majority of conventional  taxes with a universal transaction tax, and the basic unconditional income. If such ideas could be included in your program, I am certainly that many people would end up voting for you because they actually like what you have to offer - and not just as a way to prevent LePen gaining power.

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