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[...] there’s a point that nevertheless goes strangely unmentioned in the Cotis report: firms have been pampering their shareholders in recent years, resulting in a troubling fall in the share of profits devoted to investment. This reality is hidden by the authors’ choice to focus on gross profits, or profits before deducting capital depreciation. But since productive capital is always depreciating, worn-out equipment must be upgraded or replaced before any new investments can be made: computers are regularly upgraded, buildings and other assets have to be maintained and repaired, and so on. From an economic as well as a tax point of view, the relevant concept is net profit—profit after deducting depreciation. These net profits are more difficult to estimate, but since INSEE takes the trouble to produce the best possible estimates of depreciation, it would be better to use them than to leave them unmentioned. Especially since the overall picture of profit distribution changes completely when you move from gross to net profits. The Cotis report tells us that over the last twenty years, gross profits have been 32–33 percent of firms’ value added, versus 67–68 percent for wages, which is true. But capital depreciation has been around 15–16 percent of value added, or roughly half of gross profits. In other words, pretty pie charts showing that firms generously devote half their profits to investment are kind of a joke. The truth is that companies replace old equipment before they pay their shareholders—which is the least they can do. If we use net profits, however, we see that firms paid out practically all their profits to their owners, in the form of interest and dividends. [...]
[...] When he became president in 1933, Roosevelt knew precisely nothing about the policies he would adopt. But he did know that the Depression and austerity were bringing America to its knees, that the state had to assert control over a financial capitalism gone mad. Today, in 2012, four years after the onset of the 2008 world financial crisis, Hollande finds himself in exactly the same situation. When he started his campaign he didn’t know he would end up proposing a 75 percent tax on incomes higher than €1 million. But he quickly came to the same conclusion as Roosevelt: taxes are the only weapon that can put a stop to the insane explosion of very high pay.
France has excelled at accumulating various direct taxes, with moth-eaten, overlapping tax bases, each with different rules: never mind, we’ll create a 75 percent bracket with a third tax base, different from both the income tax and the social security tax, and even more full of holes than the first two. One thing is certain: in the kingdom of Rube Goldberg machines, the tax advisers will be kings.
just a good quote
So how could inequality rise so sharply since the 1990s, despite the stability of the wage-profit split? First, because the wage structure has shifted markedly in favor of very high wages. While the vast majority have seen most of their wage increases absorbed by inflation, very high salaries—especially those above €200,000 a year—have experienced considerable increases in purchasing power.
The second explanation is that the much-discussed stability of the wage-profit split doesn’t take into account increased levies on labor (especially payroll taxes for social insurance) or the fall in taxes on capital (particularly the profit tax). If we look at the incomes actually pocketed by households, we find that the capital income share (dividends, interest, rent) has risen continually while the after-tax wage share has dropped relentlessly, making the growth of inequality that much worse. Not to mention that companies doped up by the stock market bubble and its illusory (and undertaxed) capital gains have doubled their dividend payouts in the last twenty years, to the point where their ability to self-finance their operations has gone negative (retained profits, which are less than half of gross profits, are not even enough to replace worn-out capital). The answer, again, lies in the tax system and requires a rebalancing between labor and capital—for example, by subjecting business profits to family-benefit and national health contributions. [...]
relating to job polarisation
Taking depreciation into account allows us to see, for instance, that French companies are currently in a situation of negative saving: they distribute more to their shareholders than they actually have to distribute, so that what they have left over is not even enough to replace used-up capital.
It’s easy to denounce the idiocy of a tax. For a simple reason: all taxes are more or less idiotic, in the sense that they all tax people and activities that, in the abstract, it would be desirable not to tax. Things get complicated when, having proudly announced the elimination of an idiotic tax, political leaders go off in search of new revenues to finance the spending that we all, by and large, consider desirable: education, health, roads, pensions. The exercise can then prove perilous—all the more so since with taxes, it’s always possible to come up with something more idiotic. [...]
Let’s also recall that no taxes are paid by businesses: ultimately, every euro of tax is always paid by households. In this fallen world, there is unfortunately nobody except physical, flesh-and-blood people who can pay taxes. The fact that businesses are technically required to remit some of them—in other words, to send a check to the tax authorities—says nothing about their final incidence. Inevitably, firms pass on everything they pay, to their workers (by reducing their wages), or to their shareholders (by reducing dividends or accumulating less capital in their name), or to consumers (by raising prices). The final distribution can’t always be seen with the naked eye, but one way or another all taxes end up being passed on either to the factors of production or to consumption. For example, businesses submit payroll-tax payments, calculated on the basis of their wage bill. It’s generally accepted that this tax is mainly paid by wages, which would be higher if the tax didn’t exist.
[...] if Barack Obama found himself caving in to the lobbyists and watering down his reform of the health care system, it’s because his preelection promises were not sufficiently specific. He hadn’t really been elected on a program, hence his current weakness. Looking on from Europe, where we’re more sensitive to the international dimension of Obama’s election, we tend to be more forgiving of the American president. Obama certainly should have avoided using Republican arguments in the primaries to criticize Hillary Clinton’s health plan, which was more ambitious than his. [...]
That doesn’t mean the central banks did the wrong thing: the new liquidity undoubtedly helped us avoid a cascade of bankruptcies and prevented the recession from becoming a depression. That is, provided governments now manage to impose strict financial regulations that prevent such disasters from recurring, demand accountability (and taxes) from the banks, and, to boot, unload the debt that the governments borrowed from them.
If that doesn’t happen, citizens might logically conclude that this whole episode is an economic absurdity: bank profits and bonuses rebound, job openings and wages remain weak, and now we have to tighten our belts to pay back the public debt, which was itself created to clean up after the financial follies of the bankers who, by the way, have gone back to speculating, this time against governments, with interest rates of nearly 6 percent imposed on Irish and Greek taxpayers. Greek taxpayers who, for their part, unwittingly paid out €300 million in fees to Goldman Sachs to prettify their own public accounts.
Obviously, this kind of metaphor, based on the morality of the household and family (sloth versus work, the prodigal child versus the good father), is a classic trope of reactionary rhetoric. The rich have been stigmatizing the poor this way since time immemorial. There’s nothing new under the Greek sun. Except that today, faced with the complexities of twenty-first-century capitalism and its financial crises, such moralizing metaphors seem to be spreading beyond the usual circles. When you can’t seem to understand the way the world is going, it’s tempting to fall back on a few basic principles. Given the extreme rhetorical violence of the media’s attacks, it’s gotten to the point where the Greek prime minister declared on his visit to Berlin: “Greeks no more have laziness in their blood than Germans have Nazism in theirs.” [...]
The problem with these household metaphors is that at the level of a country—and for individuals as well—capitalism is not just about merit. Far from it. For two reasons that can be summarized simply: the arbitrary nature of the initial inheritance, and the arbitrary nature of certain prices, especially the return on capital.
When it comes to the initial inheritance, Greece is one of those countries that have always been possessions of other countries. For decades, what the rest of the world owns in Greece (firms, real estate, financial assets) has exceeded what the Greeks own in the rest of the world. The result is that the national income available to Greeks for consumption and saving has always been less than their domestic production (after deducting the interest and dividends they pay out to the rest of the world). And that makes it rather unlikely that they’ll consume more than they produce.
In the Greek case, the gap between domestic production and national income on the eve of the crisis was about 5 percent (twice the fiscal adjustment now being demanded of Greece). In countries that have gone all in on foreign investment (like Ireland), it can exceed 20 percent, and even more in certain countries of southern Europe. One might object that these interest and dividend flows are merely the result of past investments, so it’s good and right for Greek debtors and their children to pay out part of their production to foreign creditors. Sure. Just as it’s good and right for the children of tenants to pay rents indefinitely to the children of landlords.