Economic proposals (4/6)

INTERMEDIATE VAT RATES
The possibility is being considered of introducing intermediate VAT rates to increase tax revenue from products/services that are not really basic. In this case, convergence with German VAT rates is being sought, which is not a bad idea.
It would be advisable, however, for both countries, to determine representative rates amenable to quick mental calculations. In management control, people are taught to think in terms of large masses, so that they can concentrate on what’s essential rather than silly decimal points pulled out of thin air or from maximizing tax revenue over one or two years, hence pretty sterile and futureless. I suggest the following:
1%: for the press, starch food (pasta, bread, potatoes, rice), another basic essential food; cabbage? (German)
5%: the rest of foodstuffs
10%: catering (sitting, fast, take out, delivered, etc.)
20%: normal rate 1/5
A 25% (1/4) extension could be considered if there is a 5% social VAT to reduce the companies’ social burden, or a 5% anti-relocation VAT to tax products issued from social, tax, carbon, or ecological dumping, etc.
33%: (1/3) luxury or comfort products, perfume, cosmetics, fashion brands, cars, flights, planes, etc.

I repeat that rates that can be calculated easily are not some gadget or other; rather, they constitute a necessary readability of taxation, the beginning of understanding, of proper budget management for households, companies (often made up of heterogeneous groupings not necessarily accounting-savvy – autoentrepreneurs, VSEs, SMEs, large companies). The project of a company, the State, or local authorities is more likely to succeed if it has been clearly conceived and executed, rather than another plan which is fuzzier and more brilliant!
Public accounts need to be readable by both taxpayers and the administrations – this should become all governments’ leitmotiv, mantra, obsession!

Today, tax flows between individuals, companies, territorial authorities, social benefit schemes, and the Nation-State look like a plate of spaghetti: no-one knows by which end to start the process of obtaining a clear and coherent idea of those flows. Sold by weight, the Fiscal Code 2011 weighs several kilograms: it’s an ineffective cathedral made up of articles added over time, with no coherence, no guiding principles; no-one, I repeat no-one, not even individual tax inspectors, understands all those articles. Only a few clever inspectors, gone into private practice and paid handsomely for their services, help the wealthy because they know the loopholes, the weaknesses of the tax system.
NB. What I said concerning the mumbo-jumbo and mixed salad effect of tax law is just as accurate regarding all other current French law Codes. It would thus appear that neither the French nor their representatives who make laws are endowed with clear, limpid reasoning abilities. To be sure, keeping things simple, neat, clear and effective is truly hard and requires work, time, and talent.

KEEP NUCLEAR TECHNOLOGIES AS LONG AS ENERGY ALTERNATIVES ARE NOT MATURE!
In this domain, I speak as a scientist, engineer, and researcher. I am highly aware of the drawbacks of our civil nuclear energy generation (radioactivity levels of nuclear waste, possible radioactive leaks following technical failure, attacks, natural disaster, and additional costs linked to the dismantling of nuclear power plants at the end of their lifecycle). It is essential to launch and prolong research on cleaner energy sources (production + storage): solar panels (photoelectric or other fundamental physics?), improving wind energy yields, capturing the energy potential of the sea and oceans in continual motion, etc. None of these technologies is currently mature. We’re still at the level of research, sometimes prototypes, demonstrators, not at the industrialization phase, let alone that of equipping our territory in terms of sufficient dissemination and overall energy capacity (issue of time and capital).
For centuries, or even longer, breakaway inventions have occurred at random, often as a result of research focused on something else. With their rather dubious training and relatively limited IQ as compared to that of Planck, Bohr, and others, politicians are not the ones who will change anything to that fact. Hence, claiming that we can change our energy model within a few decades is sheer utopia, or worse, an electoral lie. Within the presidential promises ambit, namely 1 or even 2 five-year electoral mandates, I bet there won’t be more than one change in the margin of the energy mix. Every man to his own trade: politicians and manufacturers should finance energy research and hope; researchers should work hard on several avenues leading to success, one day; but the timing cannot be predicted.

BANKING REFORMS
Banking has been weakened by its own greed and threatens the real economy, the one companies and consumers belong to, because it no longer does its core job, namely to collect savers’ extra cash then lend to investors.
The range of required reform measures can be found in L’échéance (The cutoff point) by François de Closets, pp. 263-272:
- The Tobin Tax regarding financial transactions to curb speculation by making it expensive.
- Reinforcing the banks’ own funds so they won’t go bankrupt in case of massive demand for redemptions.
- Limiting by law the leverage ratio to, for example, 1 Euro of own funds for 20 Euros on loan so as to limit the risks in case of an economic turnaround.
- Preventing banks from lending to hedge funds: this is where the gap is biggest between own funds (guarantee) and loaned funds in fine.
- In the stock exchanges, once-a-day quotation should replace continuous trading so as to curb speculation, in particular that made in one millisecond by automated algorithmic financial software (software for automatic speculation).
- Separating the banks’ market speculation activities from those of receiving deposits and supporting the real economy, in 2 different types of banks, as used to be the case in the US (the Glass-Steagall Act). The point is that in France, in 2011, these activities each generate half of the benefits of the mixed banks. Such a separation of activities would protect savers from the investment banking activities (speculation), particularly in case of bankruptcy. This would be a long-term measure to prevent a rerun of the 2008 banking crisis.
In 2011, the country that is ahead on the issue of banking regulation is Canada.

HOW TO CUT BACK ON SOCIAL BENEFITS
Today, politicians are caught between, on the one hand, the absolute need to cut back on social benefits and, on the other hand, their conscience that demands they should not negatively affect the living standards of citizens who are forever complaining, regardless of the situation and people’s social categories. Efforts must be prioritized. It is essential to retain the humanistic goal of avoiding worsening great poverty, which could even be reduced in this crisis phase through specific benefits such as the RSA (Active Solidarity Income) and getting all other social categories to contribute proportionally (right-wing policies) or progressively (left-wing policies).
Regardless of the taxation instrument (additional tax or cuts in benefits), a statistical indicator should be set up, then monitored by INSEE, to ensure that absolute poverty does not increase but instead is reduced through specific benefits reviewed every 3 or 6 months.

After taking this basic precaution, in the name of humanism and social cohesion, any and all tax instruments can be selected: pension reduction beyond a minimum level to be negotiated with the social partners (i.e. employer organizations and trade unions), perhaps between 0.8 and 1.3 of the monthly SMIC; contribution to light medical care according to people’s financial resources (e.g. 5 Euros per visit and/or 5 Euros for medicine for those who pay income tax, etc.); 20% VAT plus 5% for anti-relocation VAT allocated to the reduction of companies’ social charges; family allowances granted only to parents who do not pay income tax, etc. These reforms would protect the working and lower-middle classes while affecting the higher-middle and wealthy classes, i.e. those who can thus contribute to the national solidarity effort. People who belong to those well-off groups would be delighted to benefit from the same level of solidarity if they had been less lucky and experienced more knocks.

PROMOTING TEMPORARY WORK AMONG YOUNG GRADUATES
Youth just out of school are not necessarily immediately operational; hence, hiring them is less cost-effective for companies that balk at offering them long-term contracts (they’re not sure about the candidates’ performance) and a sufficient salary (lack of profitability). Besides, it’s in young people’s interest to keep learning in the various companies they could be hired in: the versatility acquired during temporary work (“temp”) contracts will prove to be a considerable professional asset. When there is a real match between the young individual, the job, and the entrepreneur, that is when the youngster will obtain his/her long-term job.
It would thus appear that a prerequisite to long-term employment is extensive experience, particularly through temp work. This type of work contract thus ought to be promoted among young people, particularly as it is being belittled by “insiders”, those who already hold a long-term contract and who wrongly give temping a bad name. Additionally, 20-year-olds should not be too greedy, and temp work is a good deal more formative and lucrative than the drifting brought about by unemployment!

SENDING ALL CITIZENS AN ANNUAL INDIVIDUAL ECONOMIC ASSESSMENT
I fully agree with Laurent Wauquiez when, in La lutte des classes moyennes (The struggle of the middle classes) pp. 136-137, he asks that a statement of what each individual has given the State and received from the State should be drawn up and sent to the citizen concerned. This would increase awareness that everybody benefits from State transfers – though at different levels - and it would promote personal accountability regarding social transfers: the culture of money is nonexistent in France, a catholic country in which money is still either taboo or secret, hidden, shameful. This is also a country where people increasingly demand State help without trying hard enough to manage on their own.

This is what Laurent Wauquiez writes:
“It would make sense to me to ask each French citizen to pay a minimal tax, at a nominal amount, even if that means reducing the CSG [contribution sociale généralisée or general social contribution, a supplementary Social Security contribution] by as much. What really matters is that individuals should be aware that their behavior generates expenses and that is to be found on their income tax sheet. We have got to the point where some people are forever demanding additional help from society; they moan about the slightest restriction, and no longer realize the extent to which French society is, in fact, supporting them most generously. As far as healthcare is concerned, this sense of irresponsibility is particularly acute. Medication and treatments lose their value when they are totally free and no information about them is given. I do believe that it would be a good idea to send the French people an annual summary of the national solidarity sums they have benefited from over the past 12 months. The purpose of such an act would not be to make people feel guilty but to make them aware of the huge sums that national solidarity devotes to their expenses. This type of approach would help promote a sense of accountability. Ultimately, it would be worth thinking of a kind of Republican balance sheet showing on one side what you have contributed to society (the amount of social security contributions, CSG, income tax, etc.) and on the other what society has done for you both in cash (various services, both universal and resource-dependent) and in kind (for education, public infrastructure, etc.). This highly symbolic step would enable all citizens to become aware of their role within a balanced social contract and of their responsibility regarding public expenditure”.

As always, it is a matter of considering the foundations of the Republic, our rights and obligations. It is necessary to remind people of the “obligation” side of things, which French citizens conveniently forget all the more readily as they get used to comfort, with its negative corollary, mental vulnerability.

FINANCING HIGHER EDUCATION
I fully support a significant increase in university fees to an annual registration fee of 1,000 Euros, namely 1 month of net SMIC. We need to find a realistic compromise between the real cost of one year at university and what households can afford. Why? Because France is bankrupt. Because those who benefit most from higher education have a privileged background – they hail from well educated and well-off socioprofessional families. Therefore, because financial transfers must be limited for these categories, already privileged, else other categories would be disadvantaged (working classes, employees); those need classrooms and apprenticeship positions and opportunities in the professional and technical secondary sector. Even if this type of distribution is not inevitable in our republican education system, the statistics are overwhelming.
Laurent Wauquiez does not agree with me on this notion of a significant increase in university fees. Having said that, in order to keep to the spirit of his book, La lutte des classes moyennes (The struggle of the middle classes) pp. 173-178, Wauquiez does put forward a number of good ideas regarding the financing of university studies. Here is what he says:
• “Strengthening the steps designed to support large families by considering the possibility of aligning the registration fees with the “family-quotient system” (family-based taxation)”
• “The first step was taken in 2009 when a State-guaranteed bank loan was created. I suggest we should go further. To help students finance their studies, the State would offer them an interest-free loan. Students would start paying the loan back only when they had obtained their first stable job. There would be a salary-based upper limit on annual repayments so as not to overburden our youth. The higher their salary, the faster they would be able to reimburse their debt.”
• “However, we should also fight the practices of some private owners who take advantage of students by charging exorbitant rents for tiny surface areas, particularly in the large cities. I have joined forces with Benoist Apparu in suggesting taxation on mini-surface areas as a deterrent to such practices.”
• “Students will be able to obtain from partner banks an advance of the bond guarantee, corresponding to one month rent; they will reimburse this interest-free when leaving their lodgings. The CROUS will stand as collateral security, as this often constitutes ground for refusal on the part of agencies and owners towards low-income families.”
The section concludes thus:
“Sometimes, with a little common sense, one can set up useful tools at little cost”. I fully agree!

PROMOTING CIVIC-MINDED SOCIAL EXPERIMENTS
In the section “Humanism against administrativism” included in his book, La lutte des classes moyennes (The struggle of the middle classes) pp. 203-206, Minister Laurent Wauquiez puts forward a number of good practical ideas (and that is precisely what we need, within both Right- or Left-wing politics!) regarding social contract experimenting to revitalize our Rule of Law: “In the post-crisis civic society, we need a facilitating rather than simply regulating State.”
Here is what he says:
• "Mentoring within companies. We waste skills in companies because we don’t know how to organize the transfer of know-how. The different generations ignore one another, seniors are asked to leave overnight, and the youngsters are not helped. To correct this situation, the idea would be to get one youngster and one older worker to team up. The older one takes the young one under his wing, helps him to get his bearings, and passes on his experience. Everybody wins. The company does not lose the human capital that feeds its competitiveness, a lifetime of work is given full meaning through the transfer process, and the youngster can take his first steps in the company safely.
• “A young student who struggles to find lodgings ought to be able to secure a reasonable rent for a room from an older person whose apartment has become too large. In return, the student would commit to regular meals with the older person and small services, such as doing some shopping. This type of intergenerational mutual assistance is not merely a financial arrangement; it is also a means to fight solitude and re-establishing social ties. This type of meaningful give-and-take between a young student and an elderly person used to be seen frequently in our parents’ generation, but it has gradually died off. We need to reactivate the process through, for instance, offering a rental agreement that gives security to both parties.”
• “A young student is offered, for 100 -150 Euros per month, a room in a furnished apartment in a disadvantaged neighborhood; in return, he will spend a few hours each week in a local association tutoring young children, running cultural or sport events, etc. Again, this is the type of initiative that ought to be extended because it strengthens neighborhood ties and promotes social diversity.”

These are not anecdotal examples. Widespread civic social actions linked to a loosening of the overly centralized judicial Jacobin spirit would avoid many concrete problems the French have to face throughout their lives, from the cradle to the old age home.

ENHANCING THE REPUBLICAN SOCIAL CONTRACT
There are books one does not regret having spent time reading. La lutte des classes moyennes (The struggle of the middle classes) by Laurent Wauquiez is one of those for me. Granted, I do not share his defense of the middle classes as a priority; I strongly believe that it is the working classes that experience real hardship and are excluded from the social game. However, Wauquiez makes a number of useful, concrete suggestions (see previous articles) and he has a good approach to what welfare can be in a Republican State. I ask that you read at least chapter 6, “Rights and obligations: the new social contract” and its conclusion, pp. 181-216.
Summary of Chapter 6:
Everyone for himself and no-one for us all
The risk of infantilization: The State can do everything, must do everything – A society of distrust – “I am entitled to” – Lack of public spirit and impunity – Not in my garden – Solitude in the networked society
The middle classes, the backbone of the Republican Pact
Renewing the social contract
A solid foundation, refusing antisocial behavior – Rights and obligations – Responsibility of the elites: we need a few French Bill Gates – Humanism vs. administrativism – Rediscovering making a commitment to others: somewhere between voluntary service and civic service
Conclusion