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“Digging Europe’s Grave:” Thomas Piketty on Franco-German Tax Policy

Thomas Piketty—

To love Europe is to want to change it. The French and German governments which have been in power for the past ten years claim to be Europhiles, but the truth is that they are first and foremost Euroconservatives. They do not wish to make any fundamental changes to present-day Europe, for fear of losing their power and their illusory hold over Brussels affairs. By so doing, they are digging Europe’s grave. Even Brexit does not seem to give them reason for doubt.

The most recent episode is the Franco-German Treaty, or the so-called Elysée Treaty, renegotiated in January, proposing the creation of a Franco-German Parliamentary Assembly to enable the elected members from both countries to discuss questions of defense or of company law together. This is an excellent initiative, except that this Assembly is purely consultative and will have no real power.

However, one could very well entrust it with the task of voting the urgent measures of fiscal justice which we need. For example, it is about time that we had a tax on carbon emissions which would tax major emitters more than the smaller ones.

At the moment, the exact opposite is happening; in the name of competition and European rules, those who take their cars to go to work are taxed full pelt, while the kerosene for those who take the plane to go on a weekend break is exonerated.

The Franco-German leaders claim to be concerned about global warming. But how do they intend to make these policies acceptable with such absurd policies?

More generally speaking, it is ridiculous to spend time explaining that it is impossible to tax the richest at national level, without proposing anything specific to coordinate action at a higher level. In this instance, the Franco-German Assembly could also be responsible for voting common taxes on the profits of major companies and on the highest incomes and wealth holders. This is a simple question of common sense. In a large-scale federal community, bound by agreements on the free movement of goods, people, and capital, it is logical to entrust a central government with the key role for the taxes, ensuring the greatest redistribution.

In the United States, progressive taxes on the top incomes and estates are managed primarily at the federal level, in the same way as are taxes on company profits, while U.S. states rely mainly on quasi-proportional forms of tax or indirect taxes.

In Europe, it is the reverse: the European Union regulates VAT but leaves individual states to deal with the damage of cutthroat competition in matters of taxation on company profits, incomes, and estates. The result is that Europe is the leader in the global movement of the race to lower rates on company profits and has concentrated the rises in taxation on the lowest incomes. All this derives from the fact that Europe and its institutions were built to manage a big market and have failed to respond to the new challenges.

The result is that the tax system is increasingly biased in favor of the most mobile, to the extent that the costs of fiscal competition are becoming increasingly heavy for the middle and working classes, potentially heavier than the gains from market integration. In other words, the growing distrust which Europe has evoked among the lower income groups for decades is not an irrational whim, but does, on the contrary, correspond to a profound reality, a fundamental mistake in conception that needs to be corrected as a matter of urgency before the situation becomes explosive.

Now the fact is that the creation of a Franco-German Assembly, open immediately to Italy, Spain, and all the countries that so desire, and qualified to adopt strong measures of fair taxation, is not a utopia. This could be set up immediately. This would permit a reduction in the tax burden on the lower income groups and the financing of the ecological transition. A detailed proposal, developed by lawyers and citizens from all over Europe, has received the support of over 100,000 signatures. It can and should be improved. The main point is that each government and political movement should publicly defend specific proposals, and stop declaring that this is impossible and taking refuge behind the reluctance of the others.

Should it be impossible to convince the twenty-seven for the moment, then we must resolve to cut the Gordian knot and build separate political institutions for a small number of countries; these would complement the current EU institutions. The present institutions are blocked by the unanimity rule, and it has now been demonstrated that these do not enable the adoption of the slightest tax in common. We therefore have to build new institutions which the other countries will join when these have proved their efficiency.

If the French and German governments refuse to change Europe, it is also because basically they remain convinced that the advantages of tax competition outweigh the disadvantages or that the benefits are not large enough to justify such a huge change. By so doing, they demonstrate that they are not in step with the times: They have not yet recognized the strong trend to increase inequalities. Their position was tenable in the 1990s. But ten years after the financial crisis in 2008 demonstrated the fragility of the euro and of Europe, this position is outdated. If Europe does not stand for fiscal justice, then the nationalists will win the day.

From Time for Socialism by Thomas Piketty. Published by Yale University Press in 2021 and in paperback in 2022. Reproduced with permission.

Thomas Piketty is director of studies at the École des hautes études en sciences sociales (EHESS) and professor at the Paris School of Economics. He is the author of Capital in the Twenty-First Century and Capital and Ideology.

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