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ORIGINAL FRENCH ARTICLE: La grande arnaque de la « TVA sociale »

by Dominique Bègles, Julia Hamlaoui, Grégory Marin, Yves Housson, and Max Staat

"Social" Sales Tax: The Great Hold-up

Translated Thursday 19 January 2012, by Henry Crapo and reviewed by Derek Hanson

Decryption. The bosses have long dreamed of not having to contribute to the financing of social security. Nicolas Sarkozy is preparing a move in that direction by creating a new tax, the "social sales tax", which will decrease purchasing power and will pave the way for privatization of social security.

Decryption by Dominique Bègles, Julia Hamlaoui, Grégory Marin, and Yves Housson

1. Social security contributions via the sales tax.

Demanded vociferously by management for years, and supported by President Sarkozy’s party, the UMP (even if the unpopularity of the "reform" forced it to adopt a more moderate stance), the project of "social sales tax" is to transfer part of the financing of Social Security (in particular the family branch), currently provided by payroll taxes, to the sales tax. This constitutes a profound challenge in the system established after the 1945 Liberation. The payroll tax, far from being the burden described by the neo-liberals, is a levy on wealth created, a "second income" - or social wage - distributed to employees and to the public, as equals, by the social security system. This justifies that it is managed by representatives of employees. The employers never really accepted that this power and money escape them. The sums involved are considerable: the UMP project involves a transfer of 30 billion euros over five years. Over and above its economic and social consequences, 
the tax would change the nature of the social security system: this would open the way for its transfer to complete state control, and would submit its financing to arbitration by successive governments, opening it to new pressures on the level of social coverage. And, ultimately, it would create conditions for privatization of social security.

2. New clothing for an old recipe: decreasing the "cost" of work.

It is no coincidence that the MEDEF is the most staunch supporter of the shift in taxes. Presented under the seductive but misleading label of "weapon against delocalization", the proposed "social sales tax" is part of the offensive undertaken over the years by the employers to lower the "cost" of labor. A cost considered to be the main barrier to higher employment and competitiveness of businesses, handily "forgetting", in passing, the bill paid in the form of benefits to capital, such as dividends paid to shareholders.

This time, the MEDEF proposes to go much further, to increase the sales tax by 3, 4, or 5 percent, in exchange for a reduction in employer contributions from 3.5 to 7.5 percent and employee contributions by 1.5 to 4.5 percent.

The overall transfer would be of up to 70 billion euros. If one were to believe what they say, businesses thus relieved of their contributions could lower their prices, thereby neutralizing the effect of the sales tax increase and, especially, resist delocalization, since the "social sales tax" would penalize imported products. A new look for an old recipe already fully tested: for three decades successive governments have added to the multifaceted relief from social security contributions, resulting in a huge cost to the state and taxpayers (the relief alone on contributions with respect to low wages amount to 21.8 billion euros in the 2012 budget), but had no effect on unemployment or on de-industrialization.

3. Salaries and purchasing power will be amputated in proportion to the percentage of sales tax.

The impact of "social sales tax" on the decrease of purchasing power of the French is denounced by the Left. But also by the Right. Thus, Jean-Pierre Raffarin spilled the beans in 2007, when the new President Nicolas Sarkozy began to discuss this project. Jean-Pierre Raffarin: "For me, the social sales tax will most likely decrease the purchasing power of the French people." Most consumer groups noted that this tax would be most unfair, making consumers bear the brunt of the fiscal reform: an increase of two points of the current sales tax at 19.6% would, in fact, create a drain of more than 10 billion euros from the budgets of consumers. For fuel, electricity and gas, the drain on household economies would be increased by 777 million euros.

More systematically, over a period of two to three years, this reform would amount to monetary devaluation in equal proportions to the percentage of displaced contributions. Businesses will immediately pass on the increase in sales taxes in their prices. However, wages would not adjust themselves immediately, and real wages would therefore be amputated. While the beneficial effects on employment and competitiveness are questionable, the only certainty would be the decrease in purchasing power of employees.

4. The ever-repeated blackmail threat of delocalizations in order to justify the regress in social protection.

"We must take pressure off work, and make imports, which compete with our products by using low-cost workers, contribute financially." This little phrase in the new year’s greeting speech of Nicolas Sarkozy allowed him to present the "social sales tax" in veiled terms as a measure conducive to avoiding massive layoffs and outsourcing.

In short, always the same refrain: reduce the "cost of labor", reduce the "social charges" in order to make companies more "competitive."

The same blackmail song already sung in November by the boss of the MEDEF [1] with its "fiscal and social covenant". However, many devices for exonerating management already exist: a reduction introduced by Fillon on low wages, overtime exemptions, free zones, elimination of the professional tax [2]. They have all proven to be ineffective: they have done nothing to put back to work the 4,244,800 unemployed in November, nothing to stop announcements coming from all parts of plant closures and other plans for layoffs. And for good reason, if the decline in labor compensation was actually a viable solution, the Chinese minimum wage being less than 150 euros, equalization would remove at least one zero from all payslips.

And even more from the earnings of bosses of the CAC 40 [3], who received an average of 2.46 million euros in 2010. In fact, the purpose of such measures is to allow shareholders to capture a larger share of the wealth produced, rather than to safeguard employment.

5. Strip social security in order to stuff the pockets of private insurance companies: Sarkozy imitates Reagan

"Nicolas Sarkozy begins his campaign on the program of MEDEF." Benoît Hamon did not have to rack his brains to denounce the "social tales tax". The Right has long prepared to abandon solidarity in favor of "individual responsibility": less government, more private enterprise, the Reagan credo of the 1980s.

According to Nicolas Sarkozy, there are "new social needs whose coverage can not rely exclusively on national solidarity," as he told the congress of the French Mutualité in ]une 2009. He calls for a profound modification of the financing of Social Security, not by withholding at the source of wealth creation (the social contributions) but by a tax subject to political negotiation. In times of stringency, it is easy to cut back on health expenditures.

In a television interview, November 16, 2010, the Head of State outlined the Government Reform Bill for funding Social Security. "Do we have to create an insurance system?", he slips this line into his speech with false naiveté. Give priority to private insurance, which already funds "12.5% of the French health spending, a record in Europe," as the site Déchiffrages reports, is the second step. Recall that the owner of the private insurer Malakoff Médéric is none other than Guillaume Sarkozy, elder brother of the president. Class interests also lend themselves to family interests.

6. Other paths to competitively and toward social security

There are other paths to follow than this headlong rush into the lowering the cost of labor, as dangerous economically as it is socially unjust, to ensure the competitiveness of our economy, all the while ensuring the financing of a high level of social protection. It is not through social dumping that business can be efficient. It is through training, job security, recognition of the work of employees. It means, basically, to place in question the logic of short-term financial returns, the deadly influence of finance capitalism, and ensure public control of credit by creating, for example, a public banking place, in order to put work and useful economic activity before the interests of the shareholders. For the financial burdens that plague companies are not the financing of social protection, which is, moreover, as an economic asset. In this regard, Nicolas Sarkozy has remained, at best, at the level of pretty phrases, as illustrated by the sea serpent of "taxation of financial transactions". As for, "There is no need for social sales tax" to fight against delocalization, "What is required is an entry visa for merchandise" proposed yesterday the Left Front candidate, Jean-Luc Melenchon. Take care of employment, industry, and revaluation of wages; there, in one stroke, the best way to meet the needs for financing the social security system.

To read:

Éric Aubin of thé CGT : «Les questions sociales seront au cœur des débats à venir»
The social TVA "will have a négative affect on buying power", according to CGT 
Jean-Claude Mailly, general secretary of Force ouvrière : "La TVA sociale, une demande d’organismes patronaux"

The CGT general secretary Bernard Thibault on Wednesday described the social sales tax, which thé government wants to put in place before the presidential élection, as a "sting operation" and "anti-social measure", a measure to decrease the "cost of labor". "The social sales tax is a shell game", declared on France 2 television the leader of the CGT, for whom "the factors explaining unemployment are in no way dependent on wages and the cost of social protection".

Commentary by Max Staat

For a long time, employers have dreamed of ending their role in the financing of social protection, a contribution based on the wealth created by workers in their companies. Nicolas Sarkozy has announced his willingness to make this dream - a social nightmare for workers and their families - a reality. This, if the French people provide him the opportunity, by transferring the funding of our social protection via the contributions paid by employees and employers, to a tax, a "social VAT" [4], paid by all consumers. Watch for its impact on the purchasing power of the French!

Blaming the crisis, for which his government bears a large share of responsibility, Nicolas Sarkozy, as he announced a month ago in Strasbourg in an address to the students, thinks "that it gives our country an opportunity to take measures that would never be accepted outside of a crisis [5]."! It is thus not that necessity creates a law, especially in a matter where other choices are possible, but there exists an opportunity for the president to challenge one of the foundations of our pact res publica: the joint funding of social welfare.

Only the bosses will benefit

These are not the first shots to have been fired in the direction of this method of financing. Already at the beginning of the 1990’s, under the government Michel Rocard (Socialist Party), a portion of health insurance was no longer financed by joint contributions but by the general social contribution (CSG), already with consequences for purchasing power. Only there is a big bang systemic primer Nicolas Sarkozy, which could lead gradually to a real privatization of our social protection. Each knowing from experience what it is for the use of the tax, according to circumstances, can be used for anything other than what it was originally planned. The shortfall for our social welfare system could then lead to ensure that everyone, only within its means, social protection, growing up on a mutual and private insurance.

In this perspective, only the bosses would win. The bosses and not economic activity, and hence employment. Again, experience shows, all these years, that the exemptions of any kind and the many tax loopholes that benefit big business in particular never prevented the relocation or redundancy plans, but rather they swell the dividends of shareholders.

The union movement is opposed to this project

Already in 2007, between the presidential and legislative elections, the right, through the voice of Jean-Louis Borloo, had raised the idea of "social VAT" before putting it away hastily, in face of the protests. Today, Sarkozy plays the repeat offender, hoping the crisis will enable him to pass this provision. With the exception of the CFE-CGC, the entire labor movement opposes this political maneuver . The PS and the components of the Left Front, Communist Party and Left Party, are up in arms, saying that other choices are available to secure the financing of social protection while maintaining its solidarity dimension based on the wealth produced by labor in business.

[1employers’ union

[2a tax on commercial operations that formerly paid expenses of local governments

[3top 40 companies used in averaging prices on the French stock exchange

[4a value-added tax, that is, a "sales tax"

[5Translator’s note: This is a revealing statement, especially in light of Naomi Klein’s remarkable analysis of such political strategies, in her 2007 book "The Shock Doctrine: On the Rise of Disaster Capitalism"

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