Wednesday, January 11, 2012

Social VAT vs Family Tax Credit

Bernard Girard contrasts the competing tax reform proposals of the left and right. The right proposes a social VAT, which, by reducing payroll taxes and shifting the burden of financing social programs to consumers, is supposed to make French industry more competitive, a claim that Bernard disposes of by referring to the arguments of economist Olivier Bouba-Olga. Meanwhile, the Socialists want to revise le quotient familial, more or less equivalent to the dependency deduction in the US, and add a tax credit that would award a larger break to those earning up to 3 times the SMIC while increasing the overall tax bill for earners above that line. 3*SMIC is a pretty healthy middle-class income, so if the PS program turns out to be workable when more details are released, it will give the lie to the charge made most prominently by Laurent Wauquiez that the left has abandoned "the middle class" by assisting only the poor and excluded. Hollande's reform seems intended to bolster the middle class while putting more money in the hands of those likely to spend it rather than save it--an effective stimulus measure and a break in the ranks of the "all austerity all the time" consensus that threatens to sink Europe as it is sinking Greece.

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