France Digital Tariff…er Tax Blunder

France has stated that it will begin charging a 3% digital tax which will be implemented within 21 days and apply retroactively to January 1, 2019.  While Trump has issued a statement calling for a retaliatory tax on French wine, the tech industry seems eerily quiet. Why?

The tax is designed to specifically target online advertising, online intermediary activities, and the sale of user data.   A study conducted by Deloitte reveals that the reason the techs don’t care is because they will absorb just 5% of the 3%, consumers will pick up 55% and businesses will bear 40%.

So once again, the income redistribution will target consumers and small businesses, not billion dollar tech companies. They yawn.

For France alone they expect to rake in roughly $550 million annually which will be deposited into the government coffers along with their VAT tax, income tax, corporate tax, gas tax, wealth tax, stamp tax, professional tax, residence tax, local tax, payroll tax, gift tax, and land tax.

Interestingly, the amount of tariff/tax imposed on tech companies will likely equal the lost increase in gas tax that caused rioting in the streets for months.

Trump’s response is to tax French wine. The US imports roughly $2.1 billion annually and exports about $435 million.   Of course, Macron and his finance minister are completely incensed that we would even consider such a measure claiming they are imposing a tax, and Trump would be imposing a tariff. It would seem, they don’t understand a tariff by definition is a ‘Tax’.   Vive la France.

So what is really going on?

France’s budget deficit is slated to reach 3.4% of GDP next year, which overshoots the EU limit of 3%. But then France has not had a balanced budget since 1974. The reason for the deficit – France is considered a welfare state, thus Health care, pensions, assistance programs, and education account for the repeated inability to balance.

According to the EU rules that nobody abides by, a country’s debt ratio should not exceed 60%. France’s is 99%.   The consequence? Nothing. The EU notoriously establishes rules but few countries take them seriously and haven’t for decades. It is no different than the Paris Climate Accord wherein the convenient wording is stipulated as “guidelines”. Thus everyone can sign it, but no one is obligated to actually adhere to anything – including Germany.

These inconsistencies are part of the reasoning for BREXIT.   The European Union created a standard that all member countries are to abide by, and yet most simply don’t and haven’t since it’s formation. The Commission is thus another useless government authority collecting wages, accumulating pensions, and doing – nothing.

The companies that will be hit by this newly imposed 3% tariff include: Google, Amazon, Apple, and Facebook. Amazon has stated they applaud the Trump administration for defending fair trade.   The others have given no comment.

While the EU Commission had recently ruled down such a tax, Macron defends his stance stating that France is a sovereign nation and can do whatever it wants.   In addition he stated that between ‘allies’, “we can and we must resolve our disputes without resorting to threats”.

WHAT?

DEBT vs GROWTH – which is better?

While America’s debt now stands at 105% of GDP, Europe is quickly catching up. The UK debt hovers over 96%, France is closing in on 95%, Greece is at 196%, Italy is 140%, and Germany is at 68.7%. But some of the largest and smallest numbers are not always talked about. For example; Japan tops out at 199.4% and Russia lingers at just 11.3%. Part of the problem is in the numbers – as in, who is reporting the numbers? The Japanese government is reporting debt at 199.4%, while Bloomberg and The Economist say it is 240%, but not to worry because public debt is really only 140%. Well that puts them over Italy and no one is saying that Italy has nothing to worry about. But then Italy’s ‘public’ debt is 114%, so while Japan is ‘really only’ – well, Italy is ‘really only’ – less.

The Scandinavian countries routinely come in low, although not the lowest with 20-50% ratios. Even Pakistan and South Africa come in under 40%. Low debt does not equate to a good standard of living, but it does equate to a theory of management. High debt certainly creates the aura of near implosion. So why does the mainstream news keep plugging the failing economy of a country that has the lowest debt to GDP ratio in the world and virtually ignore the country with the highest debt?

Because information molds views and more than anything the view that the media wants to extol is that – Russia is imploding. But it’s not.

Japan has a low inflation rate and low unemployment. But on a comparison basis, consumer prices for food and rent are 25-39% higher in Japan. In 2014, Japans growth rate went into negative territory. While the rate is back in the positive, it is a barely there number at .6%. Italy’s growth rate is currently at .3% whereas the US is lingering at .2%. The countries with the highest growth rates include Senegal at 22% and Kazakhstan at 8%. While the Ukraine’s growth rate had ranked in the positive at 3.3 before the coup, it now lingers in the toilet at -17.6%. In the wisdom of Dr. Phil – ‘How’s that coup workin’ for ya?’

So where do these statistics leave us? Correlations seem to be lacking.

Simply looking at one number obviously fails to tell anything of worth. So what can we learn from Italy and Japan?

While high debt is an indicator, in combination with stagnant to negative growth, a country is doomed. What stimulates growth? What lowers debt?

Growth is stimulated by competitiveness and private sector returns, public sector investments in education, infrastructure and technology are all drivers. So, how do you do that? Well, for one thing taxing out the public and private sectors is an obvious faux pas. What can hamper these natural stimulations? According to a Nobel Laureate Economist, quality government is the key. Governments that abuse their power, make decisions for the elite, and favor the special interest groups, will create the implosion no matter where the debt stands.

Within the government initiative there is the obvious – demand. Demand is high when wages are more indicative of a thriving economy. Low wages = low consumer spending = low consumer confidence = low overall growth rate.

How do we increase wages?

The Obama solution is – redistribution of income through taxation. It’s an economic absurdity to even consider this a solution. Taxing a corporation reduces their bottom line more which will effectively redistribute nothing to anyone but the government. Corporations are motivated by profit. They want a greater return if they are going to pay more wages. They want increased productivity to justify the wage increase. Right or wrong – that’s how their mind works. Resume writers want their clients to show how they created greater wealth for their previous employer because that’s what sells an employee’s worth.

Stagnant wages make for low morale and stagnant growth. Corporations don’t have the American morale any longer, they see cheap India labor as their driver. If the government spent more time and money ‘incentivizing’ corporations to pay better wages and keep them in the US, entitlement programs could begin to fall away thereby redirecting the entitlements to incentives. It might be a breakeven for the government, but that would be their ‘job’, and moral, confidence and earning power would be the end result for the citizens the government represents.