As elsewhere, could the return to balance not be combined with lower levies and strong growth.
Origin of the research
The origin of my research and the discovery that followed dates back to 1975, during the recovery plan known as the “Chirac plan”.
Close to Robert Galley, Minister of Equipment at the time, I saw this competent man working day and night to polish his part. He assured that it was the same for all the other ministers concerned. However, this highly studied and refined plan, considered excellent by most economists of the time, which mobilized around 2.3% of GDP, which is quite considerable, only gave mixed results in terms of growth and unemployment, which was its objective. Why ? At this level of commitment, could a structural flaw in the very principle of reasoning be at the origin of this failure?
Having both scientific (engineer) and economic training, I set myself the goal of answering these questions.
So I looked for other stimulus packages of this type around the world. On observation, they did not carry better effects elsewhere either. The only apparently convincing case: Franklin D. Roosevelt’s “new deal”. However, if we study it more closely, there is a lot to be said (for example, unemployment started to rise again as early as 1937 whereas the plan was launched in 1933), so even this case is not so convincing.
On the strength of this observation, I reread my reference economists, looked closely at the successful recoveries abroad without stimulus, other elements as well. This was done without leaving the reality on the ground, alongside a career as a consultant and then as an industrial company manager. One day, an idea for a track came to me, it seemed to explain my findings … I then embarked on numerous verifications, providing new information, which all pointed in the same direction. This gave the following.
The reconstructed approach
The first question, which deserves to be asked is: is growth necessary for the economy, should it be sought? The observation of what happens in his absence and many considerations detailed in the book lead to a positive answer to this question.
Then, if we look at the recent history of 58 countries in the world representing 93% of its economy from a statistical perspective, by comparing growth rate and compulsory tax rate, the result is very clear: The higher the latter, the lower the former. I would add that this phenomenon is of course known but no one to this day knows exactly for what reason nor therefore how to calculate the effects. Let us also note the fact that France is the only country of the European Union which simultaneously presents higher unemployment than the average of this EU and a decrease of it less sharp than the average of the same ones in 2018. Would that be it? due to the effect of compulsory levies for which France holds the world record?
After that, the observation of successful fiscal adjustments is enlightening: They all started with spending cuts, then allowing for compulsory levies, followed by an increase in that same growth. Another important clue: The initial restrictions penalized growth very little, unlike the dominant doxa in France claiming that “public spending supports growth”.
In the same sense, if, apart from the need for reimbursement, the state or the province simultaneously reduce spending and withdrawals, growth accelerates and we observe that it is equivalent in absolute value to several times the decrease in withdrawals (on average observed, multiplication by five)! This is a good clue for my research.
What is more, many leading (but often forgotten) economists, including a Nobel Prize winner, tell us and show us that too much tax is bad for growth. In addition to these leading economists, there are operational economists (IMF, ECB, European Commission, rating organizations, etc.) who have also understood this and who recommend doing the same thing and who obtain results when their recommendations are applied. To balance our budget, they were not asking France for new taxes before the pandemic, but savings on spending!
Let us now turn to growth. When it is there, it means that, overall, there is more wealth in the country at the end of the year than at the beginning. How does this come about? Which organizations in their accounts may have created wealth year over year? Only the company in the broad sense (independent worker, company, etc…), which I will call the entrepreneurial actor, can do it and this is called the result. This phenomenon of wealth creation is validated by battalions of accountants and auditors. This data is important because it brings to light two elements: On the one hand the turnover constituted by the invoices paid by the customers and on the other hand the small part which remains at the end when the purchases, the salaries, the taxes, the taxes, etc … have been paid (Around 5% on average in France according to the INSEE during the study) which is the result (which can also be called profit or profit, it doesn’t matter). This data, total turnover which returns and result, small part of the turnover which remains, is eminently important. This phenomenon is quite comparable to the case of the employee who receives a gross salary, but to whom after payment of his salary charges, then all his expenses (housing, food, energy, transport, etc.) really only has a very small portion of his gross salary. Here is a piece of the puzzle to be well remembered.
Now, it is important to note that the amounts collected by the various and varied means that we know are practically equal to those distributed in aid, subsidies, pensions, etc … not to mention the salaries of civil servants and others who carry out this which we call redistribution. So if the incoming amounts are equal to the outgoing amounts when we saw previously that they do not have the same effect on growth, it is because there is a DIFFERENCE IN NATURE between them. This is fundamental evidence! (even if it’s counterintuitive) Now it’s just a matter of finding out what that difference is.
The money levied by a new tax is very similar to a levy on distributed profits or the result while the distributed money is very similar to turnover. To put it simply, if I take 100, I take 100 from growth, if I distribute 100, it’s turnover, in the end there will only be about 5 left for growth (and vice versa). Further calculation as appropriate is required, it is explained in detail in the book. I would add that the phenomenon is generally understood by many economists but that no one before me has made this fundamental contribution based on the difference in nature between the inflows and the outflows of what I call “the administrative machine” .
Since the figures are public, it is easy to calculate the effect of each measure. For the cases studied, on average, any reduction in compulsory levies corresponding to real savings led in absolute value to additional growth of about 5 times the fall in levies (verified in the national accounts of the countries which carried out this operation). I insist on the expression “real savings”: The disappearance of a tax niche is not a saving but a tax increase. Conversely, we can imagine by saying that each creation of an additional non-hospital public post, whatever it is, we send or maintain on average 5 private employees with a salary equivalent to unemployment.
Another approach: By making substantial savings, the first half of which would be used to reduce debt and the second half would be devoted to the reduction of compulsory contributions, we would automatically obtain several points of additional growth allowing to improve the well-being of the greatest number via, in particular, employment.
As for the recovery, it must always be remembered that the abolition of compulsory levies is 5 times more efficient for the economy than a subsidy. If, when the situation has returned to “normal”, we finance the debt generated by the recovery with additional levies, we run into disaster., if we finance it with savings we will have a good chance of getting by.
I would add that I am not a staunch ideologue in the fight against levies, having been a recipient of public aid myself when my father died in a traffic accident when I was three and a half years old. , my eighteen-month-old brother with a mother without a profession, a stay-at-home mother as they said at the time.
We were able to get by in a France which took only 30% of the national wealth and I am not sure that today with around 50% of compulsory deductions, in the same situation, things would go as well.
Note: This text is the summary of a book which describes my approach. This book is published by Bookelis with the same title in paper and electronic form.