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“Too many taxes kill taxes,” reminds our columnist Marc Touati, president of the ACDEFI firm. Instead of increasing taxes to reduce public deficits, it is better to work on reviving economic growth, according to the economist.
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– Income tax
It’s mind-boggling: while we thought that the craze to increase taxes further in France was reserved for a certain category of dogmatic people and far from the economic reality of France, this particularly dangerous temptation in a country that is already the world leader in the ratio of compulsory levies to GDP now seems to be gaining ground almost everywhere. Not only at Matignon, whose new tenant is already starting to cause concern, but also within the institution that should normally be the guardian of economic seriousness, in this case the Bank of France. Thus, far from his duty of reserve, the governor of the latter called for lifting “the taboo on tax increases“, recommending in particular “an exceptional and reasonable effort on certain large companies and certain large taxpayers“A disciple of Jean-Luc Mélenchon could not have said it better!
Jokes aside, this proposal is as far-fetched as it is sad. It actually goes against one of the basic economic rules that students learn in their first year of economics, so it is surprising that the governor of the Bank of France does not remember it… This rule is both simple and unstoppable: from a certain level, increasing taxes amounts to breaking economic activity and thereby reducing the tax base. In other words, we collect more, but from a smaller pie, which amounts to collecting less tax revenue than before the tax increase. This is what is called the Laffer curve, summarized by the famous “Too much tax kills tax“.
Tax hike: why has this option become a “red line”?
The middle class will pay the bulk of the tax bill
Furthermore, the term “big taxpayers” is particularly out of place, even demagogic. Indeed, to the extent that the wealthiest French people are often domiciled abroad and/or have access to the services of experienced tax specialists, they will be only slightly affected by an increase in taxation. On the other hand, and as has always been the case for the past forty years, it is the middle class that will pay the bulk of the bill and will unfortunately end up becoming poorer.
As for the taxation of “large companies“, let’s not forget that 80% of the profits of the latter (and in particular those of the CAC 40) are made abroad. It will therefore be complicated to tax them more. In addition, an increase in taxation on companies will encourage them either to reduce their sails or to leave our “Beautiful France”, which will further break economic activity, increase unemployment, and therefore public deficits. In other words, further increasing taxes and duties in France will have exactly the opposite effects to those announced.
© ACDEFI
Rather than raising taxes, it is better to boost economic growth
In this oh so perilous context of a dramatically high public deficit and weak growth, the solution is obviously elsewhere. Let us not forget that, since 2020, growth has been artificially supported by the explosion of public debt: between the first quarter of 2020 and the first quarter of 2024 (latest figure available), public debt soared by 774 billion euros, while, over the same period, GDP in value (i.e. increased by inflation) only increased by 419 billion euros. Yes, you are not dreaming: there is a shortfall of nearly 360 billion euros! Enough to measure the extent of the waste of public funds!
It is therefore urgent to reverse this trend and seriously boost growth. To do this, we must first restore the confidence of French businesses and households, which will require two major measures. 1. Stop lying to them. The strategy of denying reality by French leaders for years has already done too much harm to our country. 2. Lower taxes for all, particularly the CSG and taxes on production: – 25 billion euros in both cases, i.e. a “loss of revenue” of 50 billion, but which will be partly offset by the rebound in growth and the elimination of numerous tax loopholes, which will make it possible to recover at least 30 billion euros. At the same time, it will obviously be essential to reduce operating expenses, which have soared by 15.4% in three years, compared to + 12.5% for total expenses. They now represent 32% of all public spending, compared to 33% for all social benefits.
© ACDEFI
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The scourge of tax fraud must be tackled
It is therefore high time to reduce them by at least 50 billion euros. To do this, simply read the report of the Court of Auditors which describes each year the extent of the waste of public money. It will also be necessary to remove a few layers of the administrative millefeuille, which constitutes the quintessence of the waste of operating expenses, which, let us not forget, come from the taxes paid by the French. In addition, it will also be crucial to fight against all fraud: tax fraud which fluctuates between 30 and 50 billion euros per year, but also social fraud which is between 20 and 40 billion euros per year, or in the worst case a gain of 50 billion euros. In total, the public deficit could therefore be reduced over a year by at least 80 billion euros. The solutions therefore exist, we just need to have the courage to put them in place!
Marc Touati, economist, president of the ACDEFI firm, author of 8 economic bestsellers, including RESET II – Welcome to the world after, released in September 2022.
© Marc Touati
You can also find his video chronicles on his YouTube channel, which has more than 187,500 subscribers, including the latest: “United States, Eurozone, BRICS: Who will dominate the world?”
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