1 Jun 2020

The universal 1% asset tax and non-financial and non-property assets

My proposed universal 1% annual tax should be paid by everyone on the planet with assets. It would apply to individuals, companies and corporations, but also structures such as trusts that are frequently used to hide assets from the taxman.

In the past few days, I have been looking at the value of the financial and property assets, and the numbers are impressive. When the top 2000 publicly listed companies have combined assets of over $201 trillion, and you realize that there are around 45,000 such companies in the world, the numbers are going to get very large. Add in the thousands if not millions of privately owned companies, and the numbers will get even larger. Then there is the $360 trillion in real estate across the world. Some of that real estate may be owned by companies and corporations, and should not be counted twice. But a lot of real estate will be owned by private individuals.

We are presumably talking about several hundred trillion dollars worth of assets, possibly more than 1 quadrillion dollars in all. A 1% asset tax on that could generate a very handy $100 trillion a year.

But even these numbers are not the whole story. Ordinary people can have not just financial assets and real estate. They also own things - cars, furniture, jewelry, and so forth. And some people will own private jets, yachts, race horses and works of art. For me, it is absolutely vital that these sorts of assets are also subject to the 1% annual tax on assets. If not, it would be a simple tax dodge for someone with a million dollars worth of shares to avoid the 1% tax by using the money to buy a painting by Picasso.

So, how could we work out how much a persons assets are worth? It seems to me that there is a simple way. You could just take the value of the contents insurance that the person has. In the UK, for example, and according to figures from the ABI (the British Insurers Association), the average home has contents worth about £35,000 and the cost of insuring that amount averages about £139. That's about 0.4% of the value of the goods. Adding in my proposed 1% asset tax would be the equivalent of increasing the insurance costs from 0.4% to 1.4%.

Typically, any objects that are worth more than about £1500 need to be individually named. This would be an easy way of finding out when people have substantial wealth in the form of jewelry, for example. It may be that the cost of insurance varies with the type of item being insured. Jewelry may be easier to steal than a yacht, for example. But there again, a yacht is perhaps more liable to accidental damage.

Nevertheless, it seems plausible to me that the total value of someone's non financial and non property assets could be reasonably well measured by how much insurance cover they have.

Of course, if the typical annual cost of insurance is about 0.4% of the object's value per year, and this is used to decide how much value should be taxed at 1%,  this could result in people deliberately undervaluing the value of their physical assets to reduce the tax burden. You might even decide not to insure any of your valuables as a tax dodge. 

Interestingly, in the UK, one in four households has no contents insurance at all, despite the fact that the cost of such insurance has dropped to an all time low of around £2.40 a week. If the value of the contents insurance really was the method used to decide the level of asset tax, those households would effectively avoid having to pay the tax. But it could be that those households simply don't have any assets of any real value. If so, I have no problem with them not paying any tax.

Clearly, failing to have contents insurance, or not declaring the real value of your assets, would be a way to avoid the tax. But of course, if you do that, you would be taking a very serious risk. Would it really be so tempting to not declare a £10,000 necklace that you have hidden in a safe in order to save £100 in tax, and £40 in insurance? I think that most people would prefer to play safe.

And the key point is that you would know what your £100 was being used for. It would be used to help the entire community and you would simply be doing your bit to help. Being able to look at yourself in the mirror is actually quite nice.

It is true that, under the current system, there are people that take real pleasure in being able to find "optimisation" strategies that allow them to get away without paying their fair share. Indeed there is an entire industry whose main function is to find ways for wealthy clients to "avoid" taxation. The big four accounting companies (Ernst & Young, Deloitte, KPMC and PwC) owe a lot of their business to their ability to propose tax "optimisation" schemes that often involve tax havens. My universal 1% asset tax would be bad news for them. Too simple, too efficient, and too fair!

Personally, I think that the world would be a much better place if the 99% didn't have the impression that the 1% was not paying their share. Indeed, that is one of the main reasons that I am pushing for these reforms.




The 1% universal asset tax - taxing the wealth of both public and private companies

My proposed universal 1% tax on all assets should be able to raise very impressive amounts of revenue, using a simple and totally fair mechanism. One particularly attractive aspect of such a tax is that it would be remarkably simple to implement.

The fact is that the assets of all publicly listed corporations are provided every year as a legal requirement. By taking just the total assets of the Forbes Global list of the worlds 2000 largest companies, I had already obtained the impressive total of $201 trillion. But, according to Investopedia, approximately 630,000 companies are now traded publicly throughout the world. For some reason, this number is much larger than the figure provided by the World Bank (43,342 in 2018). Nevertheless, it is clear that there is a large reserve of wealth held by listed companies. If I had a team of researchers, I could plough through the annual reports of all those publicly listed companies to get a figure for the total tax take.

However, in addition to publicly listed companies, there are also some extremely wealthy privately owned companies that would never appear on the Forbes Global 2000 list.  Wikipedia has a list of the 50 largest privately owned companies, based on revenue. Together, they have combined revenue of over $2.5 trillion. I have compiled those figures in the following table.


It seems to me that if you are a private company with revenues of tens of billions a year, you would have to be fairly badly managed if you did not manage to accumulate assets over the years. And in many cases, those companies have been around for a long time. The Wikipedia page also provides year in which the company was founded, and so it is easy to verify that Cargill, the largest privately owned company in the USA, has been around since 1865. Koch Industries was founded in 1940. Aldi, the German supermarket chain was founded in 1946. Bosch, in 1886, and so on. It's difficult to imagine that those companies do not have very impressive assets that could, and indeed should, be taxed at 1% a year if people like me do the same thing.

But that list of 50 companies is very incomplete. For example, Forbes has a list of the USA's top 228 privately owned companies, all of which have revenue of over $2 billion a year. But even those companies are just the tip of the iceberg. In the US alone, there are 7,375,023 privately owned companies, over 1.8 million of which have more than 50 employees. Actually, the total number may be way higher, since  in 2013, Forbes put the number of US based companies at 27 million

So, what would be the number for the entire planet? I've not found any serious numbers, but in response to a question posed on Quora, one person suggested a figure of 115 million, while another said 295.2 million.

Accounting practices may vary quite a lot for privately held companies around the world, but in most places, companies are legally required to file accounts, and those accounts would presumably include the value of their assets. If so, it might not be impossible to get the relevant numbers. Getting the details would be tricky, unless a law was passed that obliged all companies to declare their assets, and pay 1% of the value of those assets every year - to the United Nations in situations where there was no asset based tax mechanism in place.

Of course, that's precisely what I am proposing. 

It goes without saying that if ever the world's citizens were to realize that a 1% annual asset tax could be a simple solution to many of the worlds problems, there will be massive resistance from the extremely wealthy people who own those thousands and millions of private companies. They will use their political influence and ability to control the media to keep this simple idea out of the limelight. 

But, in the end, since the proposal is simple, easy to implement, and above all absolutely fair, I think that it would be very hard to argue that the current system should be maintained. As I argued recently, the current system of taxing people's income, and reducing the ability of people to afford to buy the things they need to live decently by slapping VAT at 20%, massive taxes via social contributions etc makes no sense. The problem is that the system has clearly been designed to prevent the people, corporations and trusts that own the assets from ever having to pay their fair share. 

We need to change that.

31 May 2020

Applying an asset tax to property - how banks would contribute

In just over a week, I have written several posts about my suggestion of introducing a universal 1% annual tax on all assets - whatever their nature, and wherever they are located. When those assets are held by corporations, individuals or trusts in tax havens, the 1% would be paid to the United Nations to help fund the 17 Sustainable Development Goals that essentially everyone agrees with, but will need trillions every year in funding. If an individual, trust or corporation was already paying the 1% tax elsewhere (because the tax was already implemented locally), they would not be required to pay more. That effectively demolishes the current advantages that can be offered by tax havens.  Countries would be free to add an additional amount to the tax if they so desire (and it they thought that the risk of assets being shifted was not too high).

In today's blog I want to talk about how the tax would apply to people purchasing property. Essentially, if you take out a loan to purchase a house or apartment, you would only pay the tax on the percentage of the house value that belonged to you.


To illustrate the mechanism, I'm going to use a personal example, that has the additional interest that it illustrates how the way mortgages operate in different countries can be surprisingly different. As as Ex-pat Brit living in France for 38 years,  it's particularly surprising to see how the systems can be so different in the UK and France, despite the two countries being part of the European Union, until very recently.

In 2016, when I was already 60 years old, we decided to buy a four room apartment in the centre of Toulouse that I could use during the week to avoid commuting from our main house in the French countryside. I was able to borrow €235,000 with fixed monthly repayments over 20 years. The interest rate was fixed at 1.3%, and I know exactly how much the total cost of the interest will be over the 20 year period - it is €36,633.43. That's 15.58% of the total value of the loan, which I must admit seems remarkably low. When we purchased our first property in the Parisien suburbs in 1986, we were paying around 15% interest EVERY YEAR. How times have changed.

You may be asking yourself why on earth would a bank lend me €235,000 at age 60, with a loan that won't be repaid until I'm 80. Well, I guess that as a public sector researcher (I'm a Research Director with the CNRS who has reached the top of my career options) and a guaranteed state pension, I'm a pretty safe bet. But the loan was conditional on me getting comprehensive insurance so that, in the event of my dying, the insurance would pay off all the remaining loan. I had a fairly comprehensive health check, and was able to get insurance at an annual cost of 1.66% of the value of the remaining loan.

So, I have another document that says exactly how much the insurance will cost every year, with a maximum monthly payment of €298.95 a month at the start of the loan, decreasing to €52.07 a month when I reach 80. I know the total cost of the insurance over that 20 year period -it's €49,151.34. That means that the total cost over 20 years of borrowing the €235,000 needed to buy the apartment (interest payments and insurance) is still only 36.5% of the initial cost. Again, this seems pretty reasonable, especially when you realize that if I had dropped dead the day after taking possession of the property, the insurance would have paid off the entire €235,000, and my wife and sons would have a very nice apartment paid for by the insurance.

As I mentioned, the system in France is totally unlike that in the UK. In the UK, fixed term mortgages over 20 years don't even exist - not even for people in the 30s, and certainly not for those who are over 60. For many taking out a mortgage, the rates are only fixed for 2 or 5 years. After that, there is nothing to stop the banks from sending letters to all their customers to announce that "Sadly, economic conditions have forced them to double (or triple) the interest rate". I actually think that variable rate mortgages should be banned. Offering an attractive "teaser" rate for the first 2 years, in full knowledge that they can increase the rate to anything they can get away with later on, is extremely dubious, and can easily lead people to take on unmanageable levels of debt. Fellow Brits! Why do you put up with that? Indeed, for years I had thought that there was a very valid case for taking UK banks to court to force them to provide the same sorts of  20, 25 or even 30 year fixed rate mortgages available elsewhere in the EU. It should not be legal in the EU to discriminate between people simply  on the basis of their residence. But of course, now that people like Dominic Cummings managed to get people in the UK to leave the EU, that sort of protection is dead. It's tragic....

But I digress. Let me get back to the original point of this blog piece. How much would I pay this year if there was a 1% asset tax on the property that I purchased in 2016? My proposal would be that I should pay 1% of value of the part of the property that was already paid for. After 4 years, you might have thought that I would have already paid off around 20% of the loan. But that's not how my loan has been set up. My monthly repayments over the entire period are totally fixed, and that means that at the start of the loan period, nearly all the money is used to pay interest, and the amount of capital being paid off drops quite slowly. In fact, after 10 years, I will only have paid back about €89,000 (about 38% of the initial loan). It is that amount that would decide how much I should pay. With the asset tax set at 1%, this would mean me paying €890 a year, even after 10 years. The amount due would only reach 1% of €235,000 (i.e. €2350) after the entire repayment period is completed.

Actually, I think that the amount should not depend on the value of the property at the start of the loan, but actually the value at current market prices. There are various ways this might be done. One would be to take the increase in the French House Price Index which, according to EuroStat, has increased by about 10.6% since the apartment was purchased in 2016 (Check out the numbers on a Google Sheet I have set up here). Or it could use a more local figure  since prices in Toulouse have tended to increase more than the national average. But whatever method is used, it needs to track the actual value of the property. Otherwise, the 1% asset tax paid on a property purchased 50 years would be negligible.

But the other big question concerns what happens to the Bank who lent me the €235,000 back in 2016. For me, it is clear. If the bank is using the piece of paper that I signed saying that I owe them €235,000 as an asset, they should pay the 1% asset tax on the remaining sum that I owe them - €235,000 at the beginning of the loan - €0 at the end.

Yes, of course, the banks are going to scream that it's not fair. And it's true that since the world's 50 largest banks hold $68 trillion in assets, my proposal is going to cost them around €680 billion  a year. But this is a logical reflection of the way that money is created in the current system, and yes, it really is perfectly fair.

The fact is that the way in which my Bank managed to find the €235,000 that they lent me is critical. They might like people to believe that they are simply re-lending the money that savers have entrusted in them. According to that idea, my €235,000 came from an army of people who have put their savings in the bank and are hoping to get some money back from them. If that was true, the €235,000 they lent me would be compensated for by the banks liabilities to the savers that provided the money. In that case, it would be the savers who would be paying the 1% a year - not the bank.

But hopefully you won't have to think for too long to realize that this is pure myth. Firstly, since the bank is only charging me 1.3% interest, this would be a catastrophic misuse of their savers money. It's not even covering inflation. Admittedly, the rates banks currently provide to savers are terrible, but you don't hear banks justifying the crappy returns for savers by saying - ah, sorry, we can't provide you with better rates because we need to be able to lend people like Simon Thorpe (who is over 60) a fixed rate 1.3% loan over 20 years.

No, the simple truth is that the bank that lent me the money just created it out of thin air. That's what commercial banks can do. The fact that are only asking me for interest at 1.3% and this is extremely unlikely to beat inflation over the the 20 year period is not a problem. They know that, since they have a piece of paper saying that I will pay them €36,633.43 to thank them for creating the money, and that they have another piece of paper saying that if I die, the insurance company will pay off the loan, they are happy. Since creating the money costs them essentially nothing, they are able to get me to pay them €36,633.43 over 20 years, it's a no-brainer for them. The only slight drawback is that they have to add €235,000 to the list of their assets - and that's why French banks end up with astronomic amounts of assets. For example
  • BNP Paribas SA $2,427,625 billion
  • Crédit Agricole SA $1,982,329 billion
  • Société Générale $1,521,031 billion
If those banks were indeed forced to pay the 1% tax on the value of their assets, like everyone else on the planet, it might indeed force them to charge more for their loans. Yes, I wouldn't be able to borrow over 20 years at 1.3%. It would be 2.3% instead. Is that unreasonable, given that the European  Central Bank is supposed to have a target inflation rate of 2%? Not for me. Especially if European house prices have been increasing by over 4% a year for several years in a row.

No, the current system, where banks are allowed to inflate their asset sheets virtually with no constraints is one reason why our governments, businesses and households are now €255 trillion in debt. When commercial banks have a license to create money out of thin air, it's hardly surprising that people like me can get large amounts of "money" to buy property at remarkably little cost. Forcing those banks to depend on savers money to make loans by putting a 1% asset tax on their trillions of assets would be doubly effective. First, it would provide hundreds of billions of vital money for funding the really important things for our planet. And it would shine a light on the very dubious system that we have for creating the world's money supply as interest paying debt.



26 May 2020

The stupidity of our current tax systems

My recent obsession with the idea that we should consider imposing a flat rate universal 1% annual tax on all assets has led me to look at the way taxes are currently implemented by our governments. And my conclusions are extremely clear. The way we tax now is frankly stupid. Essentially all the current systems are designed to make the tax burden on the poor as high as possible, while protecting the individuals and corporations who hold the wealth.

If you don't believe me, take a look at the figures compiled by the OECD. They provide a very clear annual report on the tax systems in 36 different countries, using a standardized scheme that allows different tax regimes to be compared.

Their Table 3.4 divides tax revenue for each country into 6 main categories
  1. Taxes on incomes and profits 
  2. Social security
  3. Payroll
  4. Property
  5. Goods and Services
  6. Other
Further tables break down the first group into taxes on personal income and taxes on corporate income.  I've compiled all the key information into a Google Sheet, and put the figures in the following table.

The really important numbers, for the current argument, are the bottom line which give OECD averages for the different forms of taxation.

Of all the tax revenue raised by the 36 governments, on average
  • 32.4% comes from taxes on goods and services (with 20.2% due to VAT, which seems to exist everywhere except in the USA)
  • 26.0% comes from social security payments
  • 23.0% comes from taxes on personal income
  • 1.1% comes from payroll taxes
That's a total of 82.5% that are effectively paid by ordinary people, irrespective of how wealthy they are. When you pay 20% VAT for repairing your car, for example, nobody is interested in whether you are struggling to feed your children, pay the rent and so forth. Likewise, your social security payments are not a function of whether you are wealthy or not. You start paying social security from day one when you start work. It doesn't depend on how much you have accumulated. Note that, in countries such as France, a lot of the social security payments are described as being by the employer. But, in the end, it means less money is available to pay the employee.

While it's true that income tax will depend on how much you earn, it does not depend on how much you already have.

9.3% comes from taxes on corporate profits. But even they don't depend on how wealthy the corporation is. A small company with very few assets will typically pay the same rate as a mega-corporation. In fact, it is often the mega-corporation that has access to sophisticated tax optimisation schemes that allow them to get a selective advantage.

Essentially, the only type of tax that really depends on wealth is the average 5.8% of government revenue that depends on property taxes. Interestingly, there are a few countries where the proportion of tax revenue from property taxes goes into double digits  - the USA (16%), the UK (12.5%), Canada (12%), Korea (11.7%), Australia (10.3%). But these tend to be countries where the tax take as a percentage of GDP tends to be relatively modest (27-33%). And there are countries that apparently are hardly interested at all in taxing wealthy people with property. Austria, the Czech Republic, Estonia, Lithuania, the Slovak Republic, Slovenia and Mexico all get less that 2% of their tax revenue from property taxes. Surprisingly, even Sweden, with its generous welfare system, only gets 2.2% of its tax from property.

Is this split really the best way to raise taxes?

For me, this looks like a system that is designed to protect those with wealth from paying their share, and ensuring that the bulk of tax is paid by those at the bottom of the ladder. I thus think that there is a very strong case for moving towards tax schemes that depend on directly on wealth.

Many young people starting out in life are effectively crippled by the massive tax bills that they have, even when they have no real assets.  Many people now accept that our entire system is now too biased in favour of older, retired people, who are effectively not earning income anymore, but living off their accumulated assets.

My proposed 1% flat rate tax on all assets would provide a real alternative. If we take France as an example,  I have recently provided figures showing that the assets owned by households amount to nearly €14 trillion. This includes both property and financial assets. With an simple asset tax set at 1% per annum, this would generate 11.5% of all the current tax revenue (despite it being a very high percentage of GDP in France - 46.1%, which is higher than any other OECD country!).

But then we should also include the assets held by corporations and companies. My analysis based on the Forbes Global 2000 list shows that just the first 57 French companies possess assets worth over $10 trillion. I am not yet able to report asset figures for the 457  French companies listed on the stock exchange in 2018, but it is bound to be substantially more.

I could also note that my other proposal for tax reform would also radically shift tax from ordinary citizens to those with the wealth. Taxing all financial transactions at a very modest rate of 0.1% or less would also allow essentially all the current taxation mechanisms to be replaced. It's an idea I have been pushing for over 10 years, starting with a paper in 2010, but also with a TEDx talk in 2014.

The net result of replacing the current systems used by essentially all countries with two simple mechanisms - a 1% annual tax on all assets, and a 0.1% tax on all financial transactions would be radical. Instead of impoverishing people who hardly have anything to start with, taxation would target those entities (individuals, corporations, trusts) that currently are able to protect themselves from taxation.

It is important to realize that it is not because all 35 OECD countries (and very probably most other countries) have ended up with similar taxation systems, that this means that those systems are well designed. I suppose that it could be that our governments have all converged on the same ideas because they have actually thought this through, and made some sort of rational decision. But I think that a highly plausible explanation is that the shape of our tax systems has been set up by the wealthy to protect their interests.

And if that is the case, surely it is time for the other 99% of the population to wake up, and say that we want the system changed.





25 May 2020

Global Household Wealth - over $360 trillion

I'm continuing to explore what would happen if we were to impose a universal 1% annual tax (or contribution) on all assets. And for this, I was very interested to see the very thorough Global Wealth Report that has been produced by Credit Suisse every year for the past 10 years. The latest version, based on figures from mid-2019, is available as a 54-page document called the Global Wealth Report 2019 or as a very imposing 179-page document called the Global Wealth Databook 2019.

The bottom line for me, when trying to estimate how much could be generated by a 1% asset tax, is that in 2019 Global Wealth reached $360,603 billion - up 2.6% on 2018. This level of increase was actually very modest, compared with the 14% increase seen in 2017, or the roughly 10% annual increases seen in the early years of this century.

Nevertheless, the report predicts that the next five years will see a further 27% increase to reach €459 trillion by 2024.

For me, the implication is blindingly obvious. If we want to save our planet, which will cost $50 trillion between now and 2050 (according to Morgan Stanley), there is a simple solution. Just get everyone on the planet with assets to donate 1% per annum. That would generate around $3.6 trillion a year, increasing to $4.6 trillion a year in 2024.

Note that Credit Suisse's analysis is for Household Wealth. It presumably does not include the assets held by corporations. And, acccording to my analysis of the Forbes Global 2000, the 2000 biggest companies have assets worth over $201 trillion. Given that it is estimated that there are around 630,000 publicly traded companies around the world it is probably anyone's guess what the total quantity of assets is. I'm not sure I have the courage to download 630,000 company reports to get the information!

I also presume that Credit Suisse's analysis doesn't include assets held by trusts - as opposed to households or companies. There are dozens of different kinds of trust funds  and trying to get an idea of the value of the assets held by them seems to be very difficult. This, on its own is justification enough to impose a 1% annual levy on all assets. That way, the people who are using trusts to hide their wealth and "optimise" their tax payments, would no longer be able to do it legally. In my book, every structure, individuals, corporations, and trusts would all have to pay.  1% is hardly excessive in a world where (as you can see from the graph above), the value of assets has been soaring - thanks at least in part to the efforts of people like Mario Draghi at the ECB and the €2.8 trilllion that was injected into the financial markets since 2015.

But let me just return to the rich set of  data in the Credit Suisse report. Their data makes for fascinating reading - and I have put the key numbers for 2019 in a Google Sheet that you can explore.

Here, for example, I provide the numbers for the top 33 countries - those with household wealth exceeding $1 trillion. As you can see the other 137 countries only have $23.4 trillion between them. Obviously, taxing the top countries would do most of the work.

You can also sort the data by the average per capita wealth, which gives the following table for the top 50 countries.


Note that the Credit Suisse report does not take into account the relative cost of living in different countries. Average household wealth in Switzerland may be 10 times that in Chile, but a rich person in Chile might be able to live pretty well anyway.

But for the present purposes - namely, how effective would a universal 1% tax be, the numbers provided by this Global report seem perfectly relevant. They also gives a fairly realistic idea about what the average contributions would be for people living in each country. On average, for example, someone living in France would be contributing around less than €3000 per year. And, as I keep insisting, they could only be asked to pay if they had already accumulated (or inherited) assets.

Are such sums unreasonable? Well, I guess it depends how much you think it is worth to leave our children and grandchildren a planet that is habitable. I certainly think that we should be making that effort.

My 1% asset tax proposal - Detailed figures for France

The more I think about it, the more I think that a universal 1% annual tax on all assets could be a real game changer.

Yesterday, I talked about the figures provided by Savills Research that put the total value of real estate in the world at the end of 2017 at  280.6 trillion - up 6.2% in a single year. I also mentioned an earlier blog from Savills saying that the total figure for France was $6 trillion (with $4.7 trillion for residential property, and $1.3 trillion for commercial property).

This number was substantially smaller that the €10 trillion figure that I had been using.  But it turns out that even that number was too low.

In January 2020, the  French government statistics office (INSEE) published a detailed report on wealth in France, based on data obtained at the end of 2018. The key finding was that, "net national economic wealth amounted to 15,482 billion euros, or 8,0 times the net domestic product for the year. Pulled by the non financial wealth, and in particular by built land, it continued to grow, but at a slower pace than the previous year (+3,5% after +4,6%)."

The full report (in French) can be downloaded as a pdf file, and the figures as an excel sheet. But since  French accounting terms can be a bit obscure, I have generated an English version as a google sheet, which is shown here.

The bottom line is that a straight 1% annual tax (lets call it a "contribution") would in principle raise nearly €155 billion, although you would probably want to exclude the assets held by General Government (€303 billion), reducing the amount by about €3 billion. To be honest, I would personally say that it would be good to apply the tax to government too - it would be a simple accounting operation, but it would really make the point that everyone is in this together.

It's interesting to see that the totals for Financial assets and liabilities almost exactly cancel each other out (just €7 billion difference). But the financial assets of households exceeds the liabilities by nearly €3.7 trillion. For me, this wealth, held by the most affluent individuals should be added to the values for property (€7.37 trillion) that should be subject to the 1% tax. There are also some other numbers which are a bit difficult to identify, such as the €465 billion worth of "other non-produced assets" held by households. Overall, the €8 trillion of non-financial assets held by households is a nice number to have in mind.

It's also interesting to see that the fact that net financial assets are nearly balanced, despite the fact that households have a large excess. This is essentially due to the massive amounts of debt owed by non-financial corporations (€2277 billion) and by general government (€1813 billion - although, as we know, that number has gone up a lot since). It seems logical to me that my proposed universal 1% tax should only apply to net assets. This seems to imply that businesses would only have to contribute about €2.7 billion.

However, I think this would be wrong. A few days ago, I reported that  the top 57 French based companies have combined assets worth over $10 trillion. Some of this is due to the fact that the Forbes Global 2000 list includes many "financial corporations" - banks and insurance companies. But many of the top  57 companies are not banks - they are companies like EDF, Total, Renault, Sanofi, Orange, LVMH, Peugeot and so forth that are asset rich.  It could be that there are many thousands of smaller companies with such massive amounts of debt that net assets really do drop to just €2.7 trillion. If that is the explanation, it means that the net amount of revenue generated by a 1% tax on all company's net assets would be much larger that the €2.7 billion figure.  The thousands of companies with net debt would, of course, not pay anything. But the really big players (and especially banks) would contribute a lot. That seems fair and reasonable to me.

France is one of a relatively small number of countries that have had direct taxes on wealth.
There was something called the ISF (Impot sur la Fortune), which had a whole series of different rates - 0% under €800,000 increasing to 1.5% for fortunes over around €10 million. But in 2017, Emmanuel Macron's government scrapped it, leaving just a tax on property. It's been something of a tug of war between the left and right that has continued for decades.

But, it seems that all previous attempts to tax assets (whether non-financial or financial) have been targetted - applying only to those with above a certain level of wealth. And it seems to me that this is bound to cause real resistance. People with large amounts of wealth could naturally feel that they are being treated unfairly - increasing the temptation to avoid the tax by setting up trusts and other schemes in tax havens.

However, with my proposal, everyone with any assets would pay exactly the same amount - 1% per annum, with zero tax loopholes. It's much harder to argue against such a scheme.

First, given that the rate increase in the value of virtually all such assets has been going up by far more than 1% per year, it is very hard to argue that it would lead to hardship. If you know that everyone is making exactly the same contribution, it gets very hard to convince yourself that you are getting a bad deal.

Another argument that demolishes resistance is that since humans have lifespans that are rarely more than 100 years, even contributing 1% a year means that someone who is wealthy at age 20, will still have plenty left even at the end of their lives. Arguing that their descendants should keep everything is clearly unfair too.

So, I would like to make the proposal that this form of universal tax on all net assets could be a key to ensuring the future, not only of France, but for the entire planet. 

24 May 2020

The value of real estate in the world - $280 trillion and rising

Continuing with my idea about imposing a universal 1% tax on all assets, I thought I would try and find some numbers on the total value of real estate in the world. I already had a figure of €10 trillion for France. But what about other countries?

It turned out to be remarkably easy to find some numbers. Thanks to Google (!), I found a blog piece called "The 10 most valuable real estate markets in the world" written by Paul Tostevin, Director of World Research at Savills.

I think the simplest thing is to simply quote what he wrote:

Just 10 countries contain 70 per cent ($141.5tn) of all global commercial and residential value (totalling $200tn). China and the US together make up 42 per cent ($84.8tn) of global property value alone.

China is home to more of the world real estate market assets (by value) than any other country at $42.7tn or 21 per cent of global real estate value, just ahead of the US at $42.1tn.
Japan, the UK, India, Germany, France, Brazil, Italy and Russia round off the top 10, between them accounting for 28 per cent, or $56.8tn, of the global real estate asset total.

We have estimated total residential and commercial property worldwide to be worth just over US $200tn (US$200,000,000,000,000). The vast majority of this is residential, accounting for 84 per cent, or $168.5tn.

The article includes the following figure, corresponding to 2016.



 I've put the numbers in the following table, which is also available as a Google Sheet.

I note that the figures for France are less than the €10 trillion figure that I was using. So maybe even Savill's impressive numbers could be underestimates.
But those numbers are shooting up. At the end of 2017, Svill's estimate of the value of the world's real estate reached $280.6 trillion, up 6.2% in a single year.  (Actually, 280 trillion is 40% up on the number they gave for 2016. But I imagine that they are still getting to grips with the numbers). Their graph from 2018 shows that the value is considerably higher than the value of equities ($83.3 trillion), debt securities ($105.3 trillion), oil reserves ($114.1 trillion) or even gold ($7.6 trillion).

The graph also shows that residential real estate accounted for the largest share ($US220.6 trillion) of that huge figure, with commercial real estate (US$33.3 trillion) and agricultural and forestry real estate ($US27.1 trillion) making up the rest.



The fact that real estate values are going up by 6.2% a year (possibly more now - I haven't seen the numbers for 2018-2020), makes it even more obvious that my proposal of applying a 1% universal tax should not be a problem. If you own property, you can be very confident that its value will increase by far more than the amount you will be asked to pay. Indeed, this is likely to remain true until we get rid of the current absurd system where commercial banks can create essentially unlimited amounts of "money" when they make loans to people buying property.

The incredible increases in the value of real estate are clearly one of the principle reasons for the massive increases in inequality that we have seen in recent years. People with no real estate get nothing. Those who own thousands of acres and dozens of properties just need to sit back and see their wealth go through the roof. For this reason, it is very difficult to argue that a 1% tax, half the target rate of inflation for central banks like the ECB, could be seen as unfair. 

Despite the obvious good sense of applying such a tax globally,  I realize that it may be tricky to get global agreement on this. But my suggestion is that the United Nations could ensure that any individuals, trusts, or corporations owning real estate in countries where the 1% tax was not implemented would have to pay their share directly to the United Nations. At a stroke, this would total demolish the tax haven problem. It would no longer matter where you located the trust that owned your property, you would still have to pay the 1%.

 The UN would then be able to allocate those funds to any of its vital global operations. For info, there are 19 of them, but for me, the most deserving for a share of the $2.8 trillion would be:
  • FAO - Food and Agricultural Organization
  • UNESCO - United Nations Educational, Scientific and Cultural Organization
  • IFAD - International Fund fror Agricultural Development
  • WHO - World Health Organization
  • WFP - United Nations World Food Program
  • UNHCR - United Nations High Commissioner for Refugees
Personally, I could quite easily imagine creating additional UN agencies for dealing with specific problems such as Climate Change and indeed any of the UN's 17 sustanaible development goals.

Just about everyone is happy to sign up for those 17 objectives. The only thing needed is the funding to make them happen. A universal 1% asset tax would be one very effective way to get there.

23 May 2020

EUREKA - A universal 1% tax on all assets

A couple of days ago I posted a piece about recent French efforts to make proposals for the post-pandemic world. In it I mentioned my specific proposal for an annual 1% tax on the value of all real estate assets. With the estimated value of property in France at €10 trillion, such a tax would raise a very useful €100 billion a year.

While I was thinking about such a scheme, it occurred to me  that the same idea could be extended to cover not just real estate, but to all assets - no exceptions. And that's why yesterday I had a look at the Forbes Global 2000 list, which shows that the total assets held by those 2000 companies amounts to over $201 trillion.

Imagine what it would mean if the 1% annual tax on assets applied to that sum as well. It would generate up to $2 trillion in revenue every year. You  could do a lot of very useful things with that much money. OK, it's not enough to provide a basic income at 50% of median revenue for everyone on the planet - that would require around $10.6 trillion a year. But it's what would be needed to save the planet by tacking climate change. According to Morgan Stanley, this will need around $50 trillion between now and 2050.

That's less than $2 trillion a year, an amount that could be provided by a 1% tax on the assets of just the 2000 largest companies and corporations in the world. Would it be worth it? I believe so.

But what I like about the idea of imposing a universal 1% annual tax on all assets is that it could be implemented in a totally fair way. The tax would be applied to absolutely any entity that possesses assets. This would include me - because I'm lucky enough to own my own house. But it would also apply to anyone who owns land, even when there was no accommodation - the owners of agricultural land, forests, lakes etc. This would include property owned by companies of course. But, very importantly, it would apply to assets held by a trust. The use of trusts is one of the most widely used methods for avoiding tax, a point that has been very well documented by Nicholas Shaxson in his excellent book "The Financial Curse - how global finance is making us all poorer".  I've not been able to find any figures for the total amount of assets held by trusts, but it is likely to be a very large sum.

Since I live in France, I am particularly interested in thinking about how such a universal tax on assets would work in my own country. I've already mentioned the €10 trillion value property in France, that would generate around €100 billion a year.

Let's now add in the assets held by the 57 largest French based companies, based on the data from Forbes, that you can find here.


You can see that, as for real estate assets, the 57 French companies in the Forbes 2000 list would add a further $10 trillion to the assets that could be subject to the tax. At a rate of 1%, this would allow the state to raise an additional $100 billion - roughly €92 billion.

Of course, I can imagine that the boards of these 57 companies would not be at all happy if they were told that they were going to be asked to contribute €92 billion. But it should be born in mind that the CAC40 (i.e. the 40 most significant French companies) will this year pay out no less than €54.2 billion in dividends to their shareholders. They are apparently not that short of cash.

It's also interesting to compare these numbers with the amount of revenue raised via taxes on companies. In 2018, the French government raised €65.3 billion from taxes on company profits. If you offered companies a choice between taxing their profits, or taxing their assets, what would they choose? For me, it seems likely that a highly predictable tax on assets could be much better than a much more complex tax on company profits. Of course, it is clear that some multinationals are very well practiced at using devious schemes to reduce their overall tax liabilities - including the use of different tax jurisdictions to reduce the level of tax. But such schemes are much less easy to operate for companies that are based entirely within one country. For these reasons, it might be a major advantage to switch to an assets-based taxation scheme.

I can also imagine that the Banks, who hold trillions of dollars worth of assets, will complain that if they were forced to pay 1% of the value of those assets every year, this would increase costs for borrowers. This may indeed be the case. Currently, Banks in France are offering loans to people purchasing property at unheard of fixed rates that can be as low as 0.86% per year over 25 years (not including insurance). This is way below the European Central Banks target inflation rate of 2%. It really doesn't seem to make sense that Banks should do this. But of course, when you realize that the banks who make such loans don't actually have the money that they lend - they literally create the money out of thin air when they make the loan - it seems somewhat less incomprehensible.

But this means that, even if the banks were to pass on the 1% asset tax to borrowers, it would hardly be the end of the world. It might increase the interest rate from 0.86% to 1.86% - still below target inflation.

Perhaps a bigger problem with the idea of slapping a 1% universal tax on all assets is that, if one country were to try and impose such a tax (France, for example), companies could simply shift their location to a place where there was no asset tax.

I see at least two solutions to this problem. First, the introduction of the asset tax could be associated with the abolition of other taxes, including taxes on company profits. I have already made a similar argument for the introduction of a minimal tax on financial transactions. A country that decided to scrap taxes on profits and replace the tax with a financial transaction tax could well see the opposite effect - companies swarming to install their head offices in a place where the tax situation was much simpler and easy to control. Exactly the same thing could apply in the case of an asset-based tax. For the CEO of a company who wanted to reduce the asset-tax burden, the calculation could be fairly simple. Just sell off some of the companies assets, and use the money for investment, paying salaries, or even paying dividends - you will save 1% of the asset price every year.

A second option would be to organise the introduction of the 1% asset tax at a global level. A structure such as the IMF or United Nations could potentially decide to impose such an asset tax at the global level - on all corporations, trusts and individuals. The amount could be fixed at 1%, even for businesses registered in places with no asset tax. In such cases, the revenue raised could be used to directly tackle global challenges such as climate change,  the Covid-19 pandemic, or the next pandemic, whenever that will be. Companies that were already paying up to 1% in asset taxes in a given country would not have to pay.

In this way, there would be no advantage in relocating. The corporation would still pay exactly the same amount. the only difference is that, by localising in a country that imposed the asset-based tax locally, the company or corporation could preferentially help the local economy by opting for the locally based version.

Such a system could also be proposed for multinationals that have operations localised in several countries. The 1% asset tax could be split according to the percentage revenue in the different locations.

So, there you have it. Another example of a tax that affects everyone equally, but allows those with the largest wealth to make a greater contribution. Like the universal financial transaction tax that I proposed back in 2010 this universal asset tax has a number of really significant advantages.
  1. It is totally fair, since the same rates apply to all entities - individuals, companies, corporations and trusts. No one is singled out.
  2. There are zero loopholes - and no way of avoiding payment by using elaborate tax "optimisation" schemes
  3. It would be extremely simple to implement, and would simply require that business provide the same information that they already provide for the purposes of accounting
  4. The amount of tax to be paid is very easy to predict, making it very easy for businesses (and individuals) to plan ahead.
Maybe the idea of a universal asset tax has been suggested before. But I've certainly not heard of such a scheme. Who knows. Maybe my blog post today could be the start of something really big. That would be nice....

Finally, I might note that this idea might have a better chance of success if we avoided the word "tax" completely. How about calling it a universal 1% asset-based contribution?


The Forbes 2000 companies - over $201 trillion in assets

Forbes produces a list of the worlds 2000 largest public companies. based on 4 different metrics -  sales 2000, profits 2000, assets 2000, and market value 2000. They explain that each of the lists has a minimum cutoff value in order for a company to qualify: sales of $4.79 billion, profits of $323.2 million, assets of $11.63 billion and a market value of $5.27 billion. A company needs to qualify for at least one of the lists in order to be eligible for the final Global 2000 ranking. This year about 3,600 companies were needed to fill out the four lists of 2000, each company qualifying for at least one of the lists.

So, I thought it would be interesting to use the data to get a number for the total assets of those 2000 companies. I have compiled the data from all four lists in a Google Sheet that you can find here

The results were eye-opening.The following table gives the number of top 2000 companies for each country, together with the total assets for the country.



The bottom line total for total assets is $201,442 billion - over $201 trillion. The USA and China have the lion's share, with 23.6% and 19.7% respectively, followed by Japan (11.2%) and the UK (6.85%).

It's quite interesting to see that, with over $10.6 trillion in assets, French companies are actually substantially richer than those in Germany, with just $7 trillion.

It's interesting to compare that number to the total amount of global debt reported by the Institute for International Finance's Global Debt Monitor which reported that at the end of the Q1 2020, debt had reached €255 trillion. Given that Forbes own  data set includes a further 1600 companies that were not reported here, it seems plausible that quite a bit of that extra debt could also be held as assets by other companies.

So, what sorts of Public companies are we talking about? The following table lists the top 100 companies in terms of assets, that together hold well over half the total.
As you can see, the overwhelming majority of this top 100 are banks and insurance groups, with 4 of the top 5 being banks in China.  But you can find some non-financial companies such as AT&T (at #68), Volkswagen (#70), Royal Dutch Shell (#92) and ExxonMobil (#100). I was intrigued to find the London Stock Exchange at #32. Obviously, the percentage of non-banks increases as you go further down the list.

I will talk about the possible implications of this impressive data set in a separate blog.



22 May 2020

French propositons for the post-Covid world - and 6 of my own proposals

Over the past couple of months, there has been an interesting attempt by 66 French deputés to organise a public debate about the sort of world we want to live in once the current pandemic is over.

They set up a site called "lejourdaprès.parlement-ouvert.fr" - the day after.  A total of 17,555 people particated, making a total of 8,687 propositions on a set of 11 topics.
  1. The most important thing is health : what kind of health care system for tomorrow?
  2. Metro, work, sleep : what kind of work world do we want?
  3. Consume in moderation: towards a society of sobriety?
  4. Social bonds rather than goods: how to rebuild solidarity?
  5. Education and youth: how can we build a learning society?
  6. Man versus machine: can we humanise the digital world?
  7. A more open democracy: how can power be shared?
  8. The future of our territories: what new contract to strengthen them and preserve their diversity?
  9. Europe in the world: how can we recreate European and international solidarity?
  10. Our wealth is invisible: how to better evaluate the common good?
  11.  The key problem: what financing & what new sharing of wealth?
They then worked to produce a set of 30 propositions that reflected the most popular ideas, grouped into 4 main themes : Health, Sobriety, Solidarity, Soverenty. Here is their list (translated with the help of DeepL!).

Health

  1. Make the hospital a national priority, increasing the share of the budget for hospitals, strengthening care teams, redefining hospital governance and imposing a moratorium on hospital bed closures so that the hospital can function on a continuous basis. 
  2. Recognize caregivers, starting with a €200/month pay increase, in the framework of a large social dialogue on their remuneration, their careersand their working conditions. Home helpers, nursing auxiliaries, nurses, and category B and C hospital workers with a high proportion of women are essential to our system of needs, and they now need to be recognised as being of a statutory nature.
  3. Open 200,000 additional posts in 3 years in homes for the elderly and home help services to better accompany dependent persons.
  4. Prevent rather than cure, by encouraging changes in French diets, physical activity and the creation of environmental health centres which could be initiated by commissions on Environmental Health.
  5. Guarantee  health security by reinvesting in scientific and medical research, by relocating the production of medical material in France and Europe, and by creating a strategic public establishment to manage pandemics.

Sobriety 

  1. Encouraging part-time work to limit the carbon footprint of home-workplace commuting, wherever possible, while at the same time providing a better framework to avoid new nations
  2. Undertake the evolution of carbon-free mobility and cycling, while stopping the subsidisation of fossil fuels and the use of the heaviest and most polluting individual vehicles
  3. Reconstructing the city's inner city through a major plan for the energy-efficient renovation of public and private housing and buildings
  4. Tax unnecessary and non-recyclable packaging, record the removal and implementation of a "zero plastic" plan
  5. Integrate environmental issues at all levels of education, from kindergarten to higher education
  6. Moving from intemperance to digital obviousness and ethics, including through a Digital Constitutional Charter
  7. Better control of advertising in the public space
  8. Accompany companies in this transformation by means of tax incentives, public orders and investment resources earmarked for the environmental transition
  9. Open a full debate on the definition of European trade policy in order to adapt free trade agreements to environmental and human rights requirements

Solidarity

  1. Provide a universal income, starting by extending the current adult income support schemes to 18-25 year-olds, so that young people are no longer excluded from the social minima. Build social protection adapted to self-employed workers and workers on the gig economy
  2. Enhance occupational equality and inclusion in employment and involving more closely companies, and guaranteeing the right to training through a universal training allowance
  3. Create a "zero-expulsion" fund to prevent illegal evictions and complement the anti-poverty plan with investment aid for communities and associations
  4. Create an asset tax for the sole purpose of financing the Transformation Plan and review the income tax to make it truly progressive
  5. Promote the learning of civic engagement at school and strengthen education against all forms of discrimination.
  6. Strengthen budgetary means dedicated to gender equality: gender-responsive budgeting and gender-responsive budgeting and plan for investment in the fight against violence against women, education for equality and sexuality.`
  7. Reform parental leave to make it more equal 
  8. Promote international and European solidarity in support of public development aid (Objective 0.7 GNI points).

Sovereignty

  1. €10 billion in investment by local authorities in ecological transition, water protection and biodiversity protection
  2. Put an end to land grabbing and the artificialization of soils
  3. Massively support the development of regional food projects for local, quality and short circuit agriculture, including urban agriculture
  4. Ensure effective citizen participation, through a multiplicity of experimentation in the field of drawing and participatory budgeting initiatives, both at the local and national levels
  5. Prevent private interests from undermining general interest: strengthening the regulation of lobbies; providing real education on misinformation
  6. Establish a genuine European "GreenDeal" financed by a more cohesive European budget (backed up by a tax on financial transactions, a compensation mechanism for coal at Europe's borders and a tax on digital giants) to serve the territories
  7. Set up a "BuyEuropeanAct" and study the need for vigilance to ensure Europe's strategic autonomy in economic and industrial matters and the respect of social and environmental rights in Europe and elsewhere on the planet.
  8. Allowing for the creation of a genuine European level of resources by removing the unanimity decision rule
Overall, I think that they did a pretty good job, and there's not really much in the set of 30 propositions that I would object to.That said, some of the propositions are not very explicit.

I would say that the site itself was really good. Everyone's propositions could be discussed openly, and participants could support or criticize each proposition.

I made a number of propositions myself, some of which may have had some influence on the final choice. Here are my six contributions. I must say that I think that some of them could well be added to the 30 that made the final selection. Indeed, some of them are ones that are close to propositions that I made myself - they are the ones that I highlighted in bold. For those who can read French, you might like to follow the links, because there is some quite interesting discussion on the site - particularly for my proposal on financing a Universal Basic Income.

1. We have to stop the explosion in housing prices...

House prices in the Eurozone  have just risen by 4.2% in one year https://ec.europa.eu/eurostat/documents/2995521/10294612/2-08042020-AP-EN.pdf/d624aabc-eca8-029c-868b-f80efec5b89a

At the same time the general inflation rate fell to 0.7%.
https://ec.europa.eu/eurostat/documents/2995521/10294612/2-08042020-AP-EN.pdf/d624aabc-eca8-029c-868b-f80efec5b89a

Of course, this difference is very good for those who already own their own house or flat, and even more wonderful for those who own a lot of property.

But for tenants, and young people, it's catastrophic. And this discrepancy has existed for decades.

How is that possible? The key is that banks, when they make loans, don't need to have the money they lend. Don't you believe that? Listen to Bernard Maris
https://www.youtube.com/watch?v=B6H2v4DaEyo

Creating money out of thin air to lend to someone to buy property with the guarantee that, in case of difficulty the bank can take over the property is a great deal for a bank. It explains why it is easy to find fixed rate loans over 25 years at around 1% (at least in France!).

Why would a bank want to lend to businesses, where the risks much greater?

The solution is to change the way money is created. Instead of giving this function to commercial banks, any money creation must be exclusively in the public interest  - not the shareholders of private banks.

2. A basic income of 920 € coupled with the abolition of income tax and VAT!

It sounds incredible, but yes, it is possible! The Gironde department has set up a superb website where you can test your proposals for implementing a basic income, and try to finance it by adjusting the current levels of different taxes and benefits. https://simulrb.gironde.fr/digdash_dashboard/gironde/simulRB.html

So, while playing with their simulator, I developed the following scheme which is fully funded (there is even a net surplus of 8 billion euros!).

How is this possible?
I chose a system in which each adult receives a basic monthly income of €920 and half of this amount (€460) for every child under 18.

Based on these selections, the overall cost of the Basic Income to be financed would be €645 billion.
- 16.4 Million miners at 460 €/Month/Person: 91 Billion €uro(s)
- 5.3 Million 18-24 year olds at 920 €/Month/Person: 59 Billion €uro(s)
- 31.2 Million adults at 920 €/Month/Person: 345 Billion €uro(s)
- 13.7 Million pensioners at 920 €/Month/Person: 151 Billion €uro(s)

Secondly, I propose to finance this amount by fusing all the existing aids
- RSA and activity premium: 15.43 MD€.
- Housing aid: 17.4 MD€.
- Exemption of low salaries: 38.7 MD€.
- Elimination of tax niches: 34 MD€.
- Family benefits: 36 MD€.
- Pensions: 219 MD€.
- Unemployment Insurance: 38.06 MD€.
- Tax individualization : 37 MD€.
Then I propose to abolish income tax altogether! By fixing it at 0%, we lose 82.8 MD€ of income, because the current rate is around 9%.

But, instead, I propose to put the CSG (General Solidarity Contibution)at 30% (a strong increase compared to the current rate of 7.90%). Note that 30% is the rate chosen by the government for the tax rate on financial income (dividends etc). The idea is indeed to use the CSG to introduce a tax on any form of income - whether it be business income, retirement pensions, wealth income or investment products.

Then I have chosen to vary the other taxes in the following way.

Firstly, I propose abolishing VAT altogether too! We lose 130MD€, but VAT is a tax that particularly affects those living on low incomes. If you earn a lot, and you manage to save rather than spend all your income, your effective tax rate goes down. Cutting the VAT gives a selective increase in purchasing power to people who will spend their money (or pay off their debts), rather than to those who will save, with a direct and positive effect on the economy.

Next, I propose to increase the wealth tax to 2% (currently 1.18%) to get 84.74 MD€ of additional revenue. In reality, I think we could have an equivalent effect with a lower rate (1%, for example) but applied more widely (real estate, land, etc.).

To help save the planet, I set the amount of a carbon tax at €100 per ton (which generates 17.64 MD€).

I chose to promote the fight against tax fraud (20 MD€), a figure that is necessarily underestimated. The French Court of Auditors estimates that VAT fraud deprives the state  of €15 MD€ per year. By already suppressing VAT, we will recover at least this amount. And the fraudulent use of the current tax niches to reduce one's income tax would also be impossible with my proposals.

I also kept the €15M generated by the current tax on financial transactions. But I propose to increase this revenue by applying a micro-tax on all transactions in the economy - not just stock market transactions. According to BIS figures, the amount of transactions in France in 2018 was €440 trillion. I propose to tax all these transactions (including those of citizens!) at 0.012%. This would be a perfectly fair tax that would not target anyone in particular, would cost almost nothing to implement, and would be almost impossible to avoid. Yet, even with this derisory rate, we could generate €50M of revenue per year.

I chose this rate of 0.012% and 50MD€ because it was the maximum allowed by the simulation site. But it goes without saying that if we wanted to increase the Basic Income to 1000€ per month (for example), the additional 50MD€ needed could be financed by increasing this micro-tax to 0.024% instead of 0.012%. You want €1200 per month? Well, set the micro-tax at around 0.05%. Of course, traders will explain to us that with a 0.05% tax, they will stop working. But this rate is similar to the charges typically applied by banks themselves, so it's not true.

Voila! Thanks again to the people who allowed me to do these simulations with accurate figures.

3. A nest egg for every young person from the day they turn 18

Many people are proposing a basic income, but typically with a lower amount for those under 18. Should we conclude that a child is worth less than an adult? My proposal would really be to give the same amount to everyone, but to keep part of the amount for the children in order to build up a nest egg, which would become available to them on their 18th birthday.

With €300 per month, the total accumulated by the time he turns 18 is €64,800. What could this amount be used for? The idea would be to give the young person a choice. Many will want to go to higher education. Today the taxpayer pays most of the costs - about €11,500 a year in France. Instead, we could charge the real price, and use the money to finance the 3 years of a Bachelor's degree (including the cost of living) or even the tuition fees for a 5-year Master's degree, more specialized short-term studies, or studies abroad. It would be up to each student to choose.

But we could also finance apprenticeships in industry. Or allow young people to set up their own business. Or simply contribute to the purchase of a home. Some might decide to devote several years to community service, volunteer work, saving the planet, or spending a year or two traveling around the world.

Note that it is not a question of crediting the young person's bank account with €64,800! Each young person's project should be discussed with advisors to see if it is realistic. It is also a question of releasing the sum as needed. By financing studies, the sums could be paid out year by year. And the nest egg could also be used later in life.

Imagine the effect on young people in disadvantaged suburbs. They could use their nest egg to revive their communities, and could no longer blame society for forgetting them. And, by putting the finances directly in the hands of young people, we would have a kind of direct democracy where decisions are made directly by citizens.

Since the vast majority of young people today are in higher education, the total cost of the operation should not be excessive. Moreover, there could be a very beneficial effect on the quality of higher education, because in order to attract students, universities would have to ensure the quality of the courses on offer in order to remain attractive. 


4.  A 1% universal tax on real estate assets

The value of French real estate is considered to exceed €10 trillion. Let us suppose that a universal tax is imposed on all this real estate at a rate of, for example, 1% per year. Such a tax should generate about €100 billion per year in revenue for the state. One of the advantages of such a tax is that one cannot hide one's real estate assets in a tax haven! But, to avoid the accusation that this is a tax specifically aimed at the rich, I propose that every owner would be obliged to pay at the same rate. Thus, if someone owns an apartment worth €100,000, they would be obliged to pay €1,000 a year, and someone with a chateau worth €10 million would have €100,000 of tax to pay a year. One would also have to pay if one is a farmer, but with the average price of a hectare of land at €6000 and an average farm size of 27 hectares, one can estimate that an average farmer could have an annual bill of around €1600. And similarly, the owners of a factory, a supermarket, or a motorway would also have to pay 1% of the value of their real estate per year. There would be no exceptions to this rule.

Importantly, if the owner does not have the agent to pay (which is quite possible!), they would still have the option to transfer a percentage of the property to the state. Thus, the famous retiree from the island of Ré who couldn't pay the wealth tax could simply sell 1% of his land per year without having to pay any money (This was a classic criticism of wealth taxes in general). And in the case of a chateau, one could also redeem 1% of the value of the property per year. Thus, after 30 years of non-payment, the state would be entitled to 30% of the value of the property on sale. And if the descendants wished to keep the castle, they would be obliged to find the necessary amount to pay off the debt. One of the enormous advantages of such a system is that it is really fair - everyone is treated equally, which increases the sense of belonging to society. And tenants who don't have personal assets won't have to pay anything. So we could replace the wealth tax, and property and housing taxes with this system, which I think is much simpler.

Finally, if the basic tax would be paid to the state, the localities could add an additional percentage to finance actions at the local level without having to invent an additional mechanism. 


5. Stop paying interest on public debt!

Every citizen must understand that when we say that French public sector debt has reached €2380 billion, it means that a very large percentage of our taxes is only used to pay the interest on this sum. And that was before the current crisis.

Specifically, in 2019, we paid €34.9 billion in interest on the public debt. And if we add up the interest paid since 1995, we find the staggering figure of €1161.6 billion - which is 73% of the increase in public debt over the same period.

In other words, if we had not had to pay this interest, French national debt would have been halved! And we must also understand that the money that is lent to our government by the banks is created by the banks themselves. The banks don't need to lend money invested savers - they create money ex nihilo, without risk, and sell the bonds on the markets. These annual payments can be considered totally unjustifiable, especially now that the ECB has shown that it is perfectly capable of creating money - with more than 2.79 trillion in money creation since March 2015.

In order to restore the confidence of the citizens of the Eurozone in the institutions of Europe, and especially the ECB, our government must campaign for the ECB to use its money creation capacities to buy back the debts of the Eurozone states. These purchases should be made simply on the basis of the population of each country. Thus, instead of using the €2.79 trillion to bail out the financial markets, the same amount of money could have been used to buy back the debts of the states. With about 20% of the population of the Eurozone, France could have reduced its public debt by €500 billion since March 2015! And in less than 10 years, France's public debt could be completely wiped out.

Eliminating public debt in this way would have another very beneficial effect. Today, our governments are effectively at the mercy of the financial world, because any government that dares to antagonise financiers runs the risk of seeing its interest rates explode (as was the case for Greece, for example). President Macron could really convince the French people that he is really fighting for them (and not for his former banker colleagues) if he had the courage to tackle this thorny issue.

6. Limit dividend payments

In February 2009, Nicolas Sarkozy had proposed that when a company makes profits, a simple three way split should apply - one third of the profits should go to employees, another to shareholders (in the form of dividends) and the last third should be reinvested in the company "to finance its development". Christine Lagarde, at the time at Bercy, pronounced that this was not possible. http://www.leparisien.fr/economie/lagarde-la-regle-des-trois-tiers-est-impossible-14-05-2009-512919.php

But, maybe his time has come? Last year, CAC 40 companies distributed more than €54 MD, an increase of 5.9% (https://www.lerevenu.com/bourse/dividendes-un-nouveau-record-pour-le-cac-40).

The fact is that, under the current system, there is almost no limit on the amount of money that can be distributed as dividends. One can even have the situation where a company borrows money to be able to pay dividends! This was the case of SFR-Numericable in 2015.
https://lexpansion.lexpress.fr/actualite-economique/dividendes-pourquoi-les-entreprises-s-endettent-pour-recompenser-leurs-actionnaires_1726102.html

 
This may be explicable to keep the share price artificially high to avoid a takeover by a competitor. But increasing a company's debt for the benefit of shareholders cannot be a good long-term plan.

In the world afterwards, perhaps this dividend distribution needs to be regulated. If dividends were limited by law to (for example) one third of profits, there would be two advantages. Firstly, the employees of these companies would no longer feel that the fruits of their labour go mainly to people who do nothing useful for the company (once the first fundraising is done). But, moreover, the companies will have a good reason to make a profit.

Today, a company may very well try to limit its profits to avoid paying corporate tax. And to do so, they imagine all kinds of schemes, with structures in tax havens to hide their profits. If, by using these schemes, companies were to deprive themselves of the possibility of distributing dividends, it could make them think again.


25 Apr 2020

Eurozone Government Debt Goes over €10 trillion - 193.4 billion in Interest Payments for 2019. Stop the madness!

It's April, and so this week, Eurostat released its official figures for Government Debt and Interest Payments for 2019.  You can explore the data yourselves here, but I've extracted the essential information and done a little bit of analysis on my own Google Sheet that you can find here.

I've been doing this analysis in April for many years, and I have always found it both fascinating and mind-blowing. Feel free to check out some of my older posts on the topic.


Note that sometimes my blog headlines talk about just the Eurozone figures, and sometimes it's the for the European Union.  Anyway, I trust no-one will claim that I haven't been trying to draw attention to this!

A key figure in the latest set of data is the finding that Eurozone public sector debt now exceeds €10 trillion (€10,022,826200,000 to be precise) - up 0.92% on 2018. If we include all 28 countries in the European Union, the total debt is now over €13 trillion (€13,053,825,900,000), up 2% in a year.

A few countries have actually managed to get their debt levels down a bit. Sweden, which has its own currency, got its debt level down by 5.93% - well done Sweden. Within the Eurozone, the most successful countries have been the Netherlands (-2.68%), Austria (-1.70%), Slovenia (-1.48%) and Cypress (-1.40%). But, amusingly, Greece (-1.09%) actually did better than Germany, which only reduced its debt by -0.75%.  But Lithuania, Luxembourg, Romania all had double digit percentage increases in debt, while French government debt increased 2.82% to reach €2.38 trillion. Meanwhile, the UK's debt also increased 2.92% to reach a record £1.892 trillion. 

The tables also provide all these numbers in terms of GDP, but frankly, I find it more interesting to measure how things are going in hard cash numbers. Otherwise, you might be tempted to say that Germany's debt is minor, because it's a mere 59.8% of its GDP, compared with 98.1% for France, 117.7% for Portugal, 134.8% for Italy and 176.6% for poor old Greece. But Germany is has been over €2 trillion in debt every year since 2014. Is that something to be proud of?

The critical importance of these massive debt levels come in to sharp focus when you look at the other fascinating information provided in the new data - the staggering amounts of taxpayers' money that gets sent to banks, pension funds and the other rich investors who currently hold all our debt, and just have to sit back and wait for the money to arrive.

In 2019, Eurozone taxpayers  handed out a generous €194,383,000,000 to these groups in interest payments. Now, I suppose the good news is that the number is down 8.66% on 2018. Some would argue that this is thanks to all the bond purchases made by the European Central Bank (via the secondary markets). This  has meant that for some countries, interest rates on national debt has even gone negative. This seems to have been particularly successful for some countries. Sweden's interest payments are down a whopping 23%. Within the Eurozone, Ireland's payments dropped by an impressive 16.16%%, France's by 13.4% and Germany's by 13.18%. I suppose that does count as good news.

But the fact is that even these reduced payments are a total scam. 

Add up the total interest payments made over the period from 1995 to 2019, and you discover that this brilliant system has allowed €6.59 trillion of tax payers hard-earned money to be transferred to banks, pension funds, and rich investors.  And, what may I ask did they do in return for these generous handouts? The simple fact is that they do absolutely nothing. We got nothing whatsoever of value from those payments, which only take place because the entire system has been rigged to allow the enormous parasitic tape-worm that is the financial sector to feed itself and its collaborators with our money.

Once you have realized that Banks can lend money that they don't have (see the Bank of England's revealing statement in 2014 if you don't believe it), it becomes obvious that the Lisbon Treaty's rules designed to force our governments to borrow "money" from commercial banks is a complete scam.

The amount of money that has been ripped off in this way since 1995 amounts to €20,000 for every single man, woman and child in the Eurozone. Imagine how much better we would all be if we had been able to get rid of this insane system 25 years ago. 

It's also "amusing" to note that if you compare this colossal  waste of our tax money with the increase in government debt over the same period, you make another fascinating discovery. For the Eurozone, government debt has increased by €5.17 trillion since 1995. That number is a mere 78.5% of the amount paid out in interest charges!

Put simply, ALL the austerity programs that our governments have imposed on us over this period, including obviously, the bailout of the banking system following the financial crisis in 2007 were a complete sham. The real reason for all that austerity was to ensure that the financial sector and its associates could continue to stuff themselves with our hard-earned money. 

Now, with the current Corona virus crisis, there have been increasingly loud calls for the European Central Bank to provide direct funds to governments to help them deal with the crisis. After all, Mario Draghi, the ex-Goldman Sachs Director who was appointed at the head of the ECB, managed to create €2.7 trillion since 2015 that he used to artificially pump asset prices on the financial markets, on the pretext that this was designed to get inflation to the "optimal" value of 2%. (Of course, what it actually did was to make a lot of rich people even richer).  And Christine Lagarde, the new head of the ECB, has turned on the pumps again, with a further massive injection. 

But, when it was proposed that the money should be provided directly to governments, the vast majority of deputies in the European Parliament voted against. They are either ignorant (quite likely), or being paid by the financial sector to keep the current system in place (not impossible, at least for some of them).

Surely, the time has come to put an end to this insanity. The ECB should use its money creation power to directly cancel Eurozone government debt, and thus reduce this ridiculous waste of tax-payers money. 

Of course, Germany and the Netherlands may continue to try and block this by arguing that they don't want to foot the bill. But the solution to that one is very simple. The payments made by the ECB to Eurozone governments should simply depend on the number of citizens in each country. If the injection is €3.2 trillion (a similar amount used by the ECB to boost asset prices with precious little positive effect for citizens), then that would mean €10,000 for every citizen in the Eurozone. Germany and the Netherlands could not possibly claim that "they" are paying for it. They would get their fair share, like every other country. 

The usual claim that "printing" money causes inflation can easily be avoided. Governments could be obliged  to use the funds to buy back debt, rather than spending the money. If so, the inflationary effect would be zero. It would immediately release billions of extra money to pay for more useful things than keeping bankers and other rich people rich, and financing pension funds in the US and Canada. How about using the money to fight the corona virus crisis? Or tackle climate change? Or provide a basic income to eurozone citizens.

Of course, I would say that there is no reason to stop at €3 trillion. If we would force the ECB to create the €10 trillion needed to wipe out all Eurozone public sector debt, and then we would never again have to use our hard earned cash to feed the finance sector's parasitic monster.  And it would demonstrate once and for all that there is a simple way to get out of the global debt crisis. According to the latest edition of the Insitute of International Finance's Global Debt Monitor, it topped €255 trillion at the end of 2019, and is now "40% ($87 trillion) higher than at the onset of the 2008 financial crisis—a sobering realization as governments worldwide gear up to fight the pandemic". Nobody seems to have made any sensible suggestions about how to deal with this. 

Hopefully, you will be able to see that there is a simple solution. And that starts with massive debt cancellation of government debt via Central Banks, both in Europe and the developing world.