Wednesday, August 27, 2008

A Stunner!

Nicolas Sarkozy has decided to impose a 1% tax on capital--dividends and rental income--to finance the Revenu de Solidarité Active (RSA). This is a stunner. It not only rescues Sarkozy's promise to institute the RSA but also turns the tables on those who have accused him of being an American neocon hidden behind aviator sunglasses. Tax capital to pay for a welfare program!! Why, the very idea stands neocon political economy on its head. It is also an incredibly astute political move as the Socialists maneuver in advance of their convention. It undercuts their most potent attack against Sarkozy, that the TEPA was a giveaway to the rich whose cost has hamstrung government action on other fronts. It sets the tone of la rentrée politique and reinvigorates Sarko's presidency at a moment when some sort of tonic is sorely needed. A very interesting move.

6 comments:

kirkmc said...

It's a bold idea, but not as unexpected as all that. During the campaign here, when people would tell me how afraid they were of the "right-wing" Sarkozy, I would remind them that, if he were in the US, he would be a Democrat.

This said, capital is taxed, and adding another supplementary tax just confuses things more. As one of the socialists said in the article in the Le Monde magazine last week, there is a real need to simplify the tax system, and get rid of all these extra taxes that have been grafted on to the system. If they want to tax capital, they could raise the capital gains tax by 1%; would it be any different than what they are doing?

Kirk

TexExile said...

Kirk is undoubtedly right about the need to simplify the tax system. The irony is that the RSA is in part about "cleaning up" the transfer side of the equation, which has become far too complex and full of perverse incentives, but it apparently will be financed by a tax change that is likely to have the reverse effect on the revenue side. And, of course, until the details are clear, one will not know how this will affect various other strands of policy (such as those trying to use the tax system to encourage private saving). It is indeed a nice political move, as you suggest, but it is hard to see this as a step forward for the cause of tax reform.

Proteos said...

This is maybe a clever move but this is also short-sighted. It is also very telling of the dire financial situation the state is in and of the changes he wanted to implement.

The RSA will be paid by a new tax because the government has failed to cut expenses elsewhere. If the budget deficit is to disappear by 2012, some are unavoidable. And it should be noted that France will soon have his state expenses compred to GDP above Sweden's -- hardly a right-leaning state. We will then hold the european record. It tells also that he cut taxes last year, but now he needs to raise them once again, so these tax cuts where foolish. Finally it tells that nothing have changed: one problem, one tax. And this is not the first time this year...

Fr. said...

Indeed, Sarkozy managed to defuse two opposition bombs: (1) No progress on the RSA (2) Fiscal leniency for the wealthy. The Left still managed to monopolise the media today with the line: "Sarkozy implicitly recognises TEPA was a mistake." France Info played it with little or no commentary all day long.

So, what do you think of Delanoë? His interview in Le Monde does the job in my opinion. Conversely, Hollande's reaction (published as short quotes today) sounds erratic and quite stupid in the very Greek sense of the word.

Arthur Goldhammer said...

In what way does Delanoë's interview seem to you to "do the job?" It seemed rather bland to me.

Ronald said...

ron tiersky said:

Politically it's very difficult, even if desirable, to simplify an entire tax system in hard times. It's not a bad strategy at this point to make a small move, even if it adds another complexity. Politics is the art of the possible.

It's clear that Sarkozy is not a fundamentally ideological operator. In partisan political terms, this is a very clever move, seizing the initiative at the rentree while the Socialists continue their meanderings.