5:45 PM, April 27, 2022
the JDD* asked academics around the world to discuss the case of France. This dossier was coordinated by Mathieu Laine, chairman of Altermind.
Here’s Jason Furman and Antoine Levy’s proposal:
In recent years, France has lowered the corporate tax (IS) rate, simplified its capital tax and abolished the ISF. Yet incomes and wages have not grown as quickly as in the United States, Germany or other major economies. The next step should be less focused on the CIT rate than on how it is perceived: reforming it would encourage investment, let companies choose an economic (and non-tax) logic, and remove incentives for excessive borrowing. France can carry out this reform alone, without waiting for the other advanced economies.
In order to put corporate tax at the service of growth, it is necessary to approve the full and immediate depreciation of all productive investments while eliminating the tax deductibility of interest expenses. Such a reform would remove the main obstacle to investment in France faced by local and foreign companies, while addressing financial vulnerabilities and removing the current unfair and inefficient differential treatment between companies, assets or industries. Unlike cost of capital allowances that take effect long after the decision to invest and lose value with inflation, full amortization is more effective at promoting investment. This tax change would only benefit companies that actually make new investments and would continue to ensure that excessive profits are taxed at higher rates.
Avoid “double subsidy”
At the same time, to avoid a “double subsidy” on debt-financed investments, France must remove the option for companies to deduct their loan interest. This would make investments financed with equity and investments financed with debt tax justifiable. The debt tax advantage, which makes French companies among the most indebted countries in advanced economies, has already been eroded by a European regulation limiting deductible interest expenses to 30% of profits. Omitting it all would significantly improve financial stability and reduce the risk of expensive bailouts and bankruptcies in the future. These reforms, which seem abstract, are far from theoretical. Academic research into recent international experiences in the United States, China or Germany is clear. Full depreciation dramatically increases the investment and capital stock, resulting in significant employment and wage increases for employees. Moreover, much of the direct costs to public finances are offset by growth and higher tax revenues. One of us estimates in his work that such a reform in the United States could lead to a GDP increase of almost 6% in the long term.
To make the reform for the public finances as neutral as possible, it could be accompanied by a radical effort to simplify the money transport by allowing the abolition of most preferential rates, exemptions or credit taxes that undermine the base (and which currently justified by investment aid). It is one of the most important decisions that the new government could take to strengthen the production apparatus and increase its resilience. It would make taxation simpler, fairer and more favorable to purchasing power growth, by encouraging companies to make decisions for sound economic reasons, without disrupting the tax system.
†The French feel they are facing a cultural, social and economic downturn. In the rankings measuring the excellence of our Grandes Ecoles and our universities, we are on track to become the worst student in Europe. While the gnawing demand for purchasing power and rising prices undermines the morale of our fellow citizens. More than ever, society doubts itself and its elites. To get out of the infernal spiral of decay, the JDD went around the world in search of iconoclastic ideas that would be useful to France.
We called on Altermind, an innovative consultancy led by entrepreneur and essayist Mathieu Laine, which tracks down ideas and new trends in academia. She asked leading academics from the United States, Japan, Turkey, Egypt or Peru, where she taught at Berkeley, the London School of Economics, Oxford, Dauphine, Chicago or Harvard. Their disruptive and off-the-beaten-track proposals aim to inspire the next president of the republic, whoever he may be. Some have already proven their effectiveness in other countries, others are completely new. To be applied, they require neither devastating budgetary commitments, nor technological revolution, nor destabilizing social shocks, nor amending our constitution. Only political will and courage. Jerome Begle
– Macron’s challenges: “Give 1,000 scholarships to 1,000 talents from around the world”
– Macron’s challenges: “For a new social contract”
– Macron’s Challenges: “Towards an Ethical Metaverse”
– Macron’s Challenges: “Stop Thinking of the World as Nationalist or European Oriented”
– Macron’s challenges: “Create a French Darpa and target the tax credit for research on SMEs”
– Macron’s Challenges: “Defending the Western Model in the Face of Authoritarian Illusions”
– Macron’s challenges: “Create a politically acceptable carbon tax to decarbonize and enrich the most humble of people”
– Macron’s challenges: “Launch a historic five-year period to decarbonize transport infrastructure”