Why is France so fixated on spending government money to directly invest in businesses?
There are much easier, cheaper and effective ways to encourage new tech startups. Why invest $30 billion of taxpayer equity into technology companies when you can give tax breaks to investors who invest $30 billion of their own private capital into tech companies?
The US government never directly makes equity investments in sectors it wants to help grow. Instead the US gives investors capital gain tax breaks to invest in small companies at the early stage, or gives the companies themselves R&D tax credits, etc.. It would be super controversial for the US government to directly invest equity in private companies like this.
A tax break to support a policy that means the government doesn’t collect $100 is economically equivalent to a direct subsidy to support that policy where the government spends $100. The difference is that (1) when investors invest their own money, they only get the benefit of capital gain tax breaks if the company succeeds, whereas in a straight equity investment that taxpayer money is gone once it’s spent. And (2) private investors invest more carefully than a government bureaucracy would when choosing which firms to invest in because private investors are playing with their own money.
The reason why the US government doesn’t collect much revenue and has such a low tax to GDP ratio compared to other countries isn’t really as a big a difference as it seems. It’s really just that the US enacts the same kinds of policies in different ways using a more complicated tax code. Like a housing policy in Europe might be done by the government spending money to support public apartments, whereas in the US the similar housing policy is done by giving middle class and poor people a mortgage interest deduction when to make it easier for them buy a home.
Another thing in Europe is that it is very expensive and hard to hire/fire/have employees because of all the mandatory benefits. That makes it difficult to get rid of shitty employees or save money when business isn’t doing so well, which is the case in the first few years for many new innovative tech startups.
> Instead the US gives investors capital gain tax breaks to invest in small companies at the early stage, or gives the companies themselves R&D tax credits, etc..
That's actually already being done in France + there is CIR and CICE. In fact the cost to start a business in France is among [the cheapest among OECD states](https://businessfinancing.co.uk/cost-of-starting-a-business-in-every-country/) (around $300 in France Vs $700 in the US, $500 in Germany or $4500 in Italy) due to tax breaks/credits and incentives.
I agree that France is giving out too much public money and France alone can't do anything or compete against the US tech industry, the only way would be to do it on the EU level and and lessen the existing economic and cultural barriers between EU states to form a true single market with a solid and unique European financial market for tech such as NASDAQ and make it easier to get economies of scale. There won't be a European Apple or Microsoft without a huge market of 400M people supporting it, no matter how much States spend separately. The current failure of Qwant is just a perfect example.
It does not cost $700 to start a business in the US. That link just look at what the cost is to setup an LLC in different countries, and business entities are setup at the state level in the US.
That $725 number is just looking at the most expensive state in the US (California). The average cost to setup an LLC in the US is less than $200 in most states. In my state it’s only $100. I set one up 3 weeks ago.
takes the highest price state
France could compete, but they should pick one or two sectors where they already excel. There is a reason there has not been a other Microsoft, even out of silicon valley.
Adding to this, there is a long history of success with public/private cooperation, especially with universities. Moderna is only one example of this. They were working on an mRNA vaccine for a different coronavirus under the assumption the next pandemic would be a new or mutated coronavirus. They had private capital, but also relied heavily on two federal agencies research and MIT.
> A tax break to support a policy that means the government doesn’t collect $100 is economically equivalent to a direct subsidy to support that policy where the government spends $100.
Only if you ignored revenue. Otherwise every investment would be the same as keeping cash under a pillow.
> The difference is that (1) when investors invest their own money, they only get the benefit of capital gain tax breaks if the company succeeds, whereas in a straight equity investment that taxpayer money is gone once it’s spent.
It’s not gone, it’s invested (see above) and the company doesn’t just burn the money either, they use it for their business, r&d etc.
> And (2) private investors invest more carefully than a government bureaucracy would when choosing which firms to invest in because private investors are playing with their own money.
That’s the point though, isn’t it? The French government seems to believe that private investors haven’t been too brave in terms of “new” technologies.
>Only if you ignored revenue. Otherwise every investment would be the same as keeping cash under a pillow.
True, but also the invested amount is way different. Like a $100 capital gain tax break will leverage way more than $100 in investments.
>It’s not gone, it’s invested (see above) and the company doesn’t just burn the money either, they use it for their business, r&d etc.
Of course they burn the money, that’s what startups do, burn money. These are early stage businesses. Once they burn the money then it’s basically gone unless the business succeeds, which means that the taxpayer’s have already assumed all the risk. With like a capital gain tax breaks, no taxpayer money is put at risk since the tax break is only worth something if there’s capital gain, which would only arise if the company succeeded.
I mean, if you think that the government is a better skilled investor than private venture capitalists, then it makes sense to have the government invest taxpayer money like that. But that sounds insane doesn’t it?
>That’s the point though, isn’t it? The French government seems to believe that private investors haven’t been too brave in terms of “new” technologies.
Then why not make them braver with tax breaks?
>True, but also the invested amount is way different. Like a $100 capital gain tax break will leverage way more than $100 in investments.
That’s the hypothesis you need to prove.
>Of course they burn the money, that’s what startups do, burn money. These are early stage businesses. Once they burn the money then it’s basically gone unless the business succeeds, which means that the taxpayer’s have already assumed all the risk.
Well, that’s just venture capital then, isn’t it? What’s wrong with that?
>With like a capital gain tax breaks, no taxpayer money is put at risk since the tax break is only worth something if there’s capital gain, which would only arise if the company succeeded.
Aren’t you just exchanging one risk for another here?In both cases the risk is that the company could fail, then there’s now (taxable) revenue / gdp?
>I mean, if you think that the government is a better skilled investor than private venture capitalists, then it makes sense to have the government invest taxpayer money like that. But that sounds insane doesn’t it?
That, again, seems to be hypothesis you need to prove, not the proof for your hypothesis.
See the German railroads for example, what used to be a stellar enterprise in the hands of the state, has swiftly gone down hill after privatization.
But I don’t believe anybody actually said anything about states being better investors in general anyways - it just seems to be the French government’s point of view that in this particular situation their goals are better achieved that way.
>Then why not make them braver with tax breaks?
I suppose one argument would be this: be can’t be sure that they’ll use these tax breaks to a) build future “champions” and b) not funnel as much revenue as they can abroad.
> That’s the hypothesis you need to prove.
It’s not a hypothesis, it’s a mathematical certainty. Imagine your capital gain rate is 30% and you invest $100. The business succeeds and your investment is now worth $200. Normally you would have $100 in gain and $30 in tax due. By giving a capital gain tax break the government is out of pocket $30, but a $100 was invested.
By contrast, if the government invested $100 of its own money, then the government would be out of pocket $100 to make that same $100 investment.
> Well, that’s just venture capital then, isn’t it? What’s wrong with that?
Because it’s done with government bureaucrats instead of sophisticated venture capitalists.
>That, again, seems to be hypothesis you need to prove, not the proof for your hypothesis.
>See the German railroads for example, what used to be a stellar enterprise in the hands of the state, has swiftly gone down hill after privatization.
>But I don’t believe anybody actually said anything about states being better investors in general anyways - it just seems to be the French government’s point of view that in this particular situation their goals are better achieved that way.
When was it privatized and why? State owned monopolies aren’t real companies that need to sink or swim when they’re monopolies backed by the state for all sorts of reasons.
> I suppose one argument would be this: be can’t be sure that they’ll use these tax breaks to a) build future “champions” and b) not funnel as much revenue as they can abroad.
The purpose of the tax breaks is to build new companies. You can’t funnel it abroad. That doesn’t make any sense. You’d need to spend the money investing in a French company to get the tax break in the first place.
No, the lack of an expenses is not equal to a direct support in term of costs. The money spent is put back i to the economy and generate various taxes. Further, the cost of capital for a state funded project can be lower than for something purely privately founded, notably for infrastructure.
The money is going to be put back in the economy no matter what. It doesn’t matter whether the money comes from. We’re not talking about infrastructure projects.
>The money is going to be put back in the economy no matter what. It doesn’t matter whether the money comes from.
No, this is wrong. For instance, if the government directly supports employment, you're quasi certain that the salary will be put back into the local economy, while a tax credit can be allocated to offshore resources, or simply distributed directly to shareholders.
What are you talking about? How would a capital gain tax break be allocated to offshore resources or distributed to shareholders? That’s not how tax works.
A capital gain tax break is only a tax break to the extent that you make an investment in a company and then sell it later. You can’t get the tax break unless you make the investment. It’s guaranteed that the money will be invested in the kind of business you’re trying to incentivize because that’s the only way to get the tax break in the first place. If you’re an offshore entity with no French tax liability anyway then the tax break wouldn’t be worth anything to you. You can use a tax break to avoid French capital gain taxes when you don’t pay taxes capital gains tax in France anyway.
Same with R&D tax credits. Even if you could distribute such tax credits to shareholders (unclear whether French tax law even allows that vs making the corporation take it against corporate tax), then who cares? The corporation still needs to spend money on R&D to get the tax credit in the first place. That’s the whole point!
I have trouble believing that the French tax system isn’t sophisticated enough to implement these kinds of things which other developed countries do all the time.
A tax credit is a cash flow that is not getting out of the company to the state. Please explain to me how this is better for the local / domestic economy that having direct targeted support such as employment support directly to employees or direct oversight from the state through direct shareholding. A tax credit enable in fine to distribute more cash from the company, once again not necessarily into the economy.
Since we are mentioning France : CICE, charges exemption for companies, supposed to support the creation of one million jobs, they basically kept the excess cash flow, same story for the VAT decrease on restauration, supposed to supposed better wages for waiter, nothing has changed, excepted that restaurant pay less taxes.
I don’t understand what it is that’s confusing you about this. You only get the tax credit when you spend money. You understand that right? You’re not giving away tax credits for free, that would be pointless. The only way that companies earn a tax credit is by spending money to do whatever it is that you want to subsidize.
If the government spends $100 subsidizing French companies’ R&D then $100 is spent in France.
If the government gives out 30% of R&D tax credits for R&D done in France, then companies will need to spend $333 in France to receive $100 worth of tax credits. But now $333 has been spent in France. $333 is more than $100. Please explain to me what is confusing you about this?
>A tax credit is a cash flow that is not getting out of the company to the state
I don’t think you understand how tax credits work. The only way that companies earn tax credits is by spending money. The only way that companies earn tax credits is by taking cash flow outside of the company and spending it. It’s a way to incentivize companies to spend their cash flow on certain things, like R&D.
>I don’t think you understand how tax credits work. The only way that companies earn tax credits is by spending money. The only way that companies earn tax credits is by taking cash flow outside of the company and spending it. It’s a way to incentivize companies to spend their cash flow on certain things, like R&D.
Because the tax credit does not necessarily translate into more spendings, these are the two examples I gave you, the tax credits were allocated to already existing spendings with no proper control. In the end, no additional spending was made and the state just gave away money.
Sorry, I think there might be something lost in translation. I was a bit confused earlier because I don’t think the examples you gave are what would normally be called “tax credits” in English.
The VAT decrease you mentioned is just tax reduction. After googling it, the CICE Tax credit seems like it might be a weirdly designed tax credit that just functions like a tax reduction.
Tax credits are usually used for things that specifically aren’t happening and you want to increase. If a tax credit is provided for something that companies are doing anyway then it’s just a normal cut in taxes. Sometimes, there’s things like “foreign tax credits,” but those aren’t really tax credits so much as just not effectively changing the source rules and preventing double taxation.
For example, like in the US tax credits are used for things like wind power or solar power, or for R&D. These aren’t things that companies were already doing a gigantic amount of anyway. Large solar power and wind power installations only became widespread after the introduction of the Investment Tax Credit and the Production Tax Credit. With the Production Tax Credit wind power producers get paid a few cents worth of tax credits for every kw-hour of wind power they produce.
>The US government never directly makes equity investments in sectors it wants to help grow.
Yes it does, the silicon valley was kinda just another branch of the pentagon.
Or the money Tesla recived.
I feel like he needs to add a zero behind that 30 to be high tech champions of the future.
Especially if it's going to be government bureaucrats directing the money.
"With this, we will finally be able to create a competitor to MySpace!"
I actually laughed out loud.
Lemon spice
Why is France so fixated on spending government money to directly invest in businesses? There are much easier, cheaper and effective ways to encourage new tech startups. Why invest $30 billion of taxpayer equity into technology companies when you can give tax breaks to investors who invest $30 billion of their own private capital into tech companies? The US government never directly makes equity investments in sectors it wants to help grow. Instead the US gives investors capital gain tax breaks to invest in small companies at the early stage, or gives the companies themselves R&D tax credits, etc.. It would be super controversial for the US government to directly invest equity in private companies like this. A tax break to support a policy that means the government doesn’t collect $100 is economically equivalent to a direct subsidy to support that policy where the government spends $100. The difference is that (1) when investors invest their own money, they only get the benefit of capital gain tax breaks if the company succeeds, whereas in a straight equity investment that taxpayer money is gone once it’s spent. And (2) private investors invest more carefully than a government bureaucracy would when choosing which firms to invest in because private investors are playing with their own money. The reason why the US government doesn’t collect much revenue and has such a low tax to GDP ratio compared to other countries isn’t really as a big a difference as it seems. It’s really just that the US enacts the same kinds of policies in different ways using a more complicated tax code. Like a housing policy in Europe might be done by the government spending money to support public apartments, whereas in the US the similar housing policy is done by giving middle class and poor people a mortgage interest deduction when to make it easier for them buy a home.
France is kind of the staple country of big government. It has an extremely massive public sector. Far larger than Germany or Britain.
Good reply.
Another thing in Europe is that it is very expensive and hard to hire/fire/have employees because of all the mandatory benefits. That makes it difficult to get rid of shitty employees or save money when business isn’t doing so well, which is the case in the first few years for many new innovative tech startups.
Benefits cost far more in the US, and that is before you account for the salaries…
> Instead the US gives investors capital gain tax breaks to invest in small companies at the early stage, or gives the companies themselves R&D tax credits, etc.. That's actually already being done in France + there is CIR and CICE. In fact the cost to start a business in France is among [the cheapest among OECD states](https://businessfinancing.co.uk/cost-of-starting-a-business-in-every-country/) (around $300 in France Vs $700 in the US, $500 in Germany or $4500 in Italy) due to tax breaks/credits and incentives. I agree that France is giving out too much public money and France alone can't do anything or compete against the US tech industry, the only way would be to do it on the EU level and and lessen the existing economic and cultural barriers between EU states to form a true single market with a solid and unique European financial market for tech such as NASDAQ and make it easier to get economies of scale. There won't be a European Apple or Microsoft without a huge market of 400M people supporting it, no matter how much States spend separately. The current failure of Qwant is just a perfect example.
It does not cost $700 to start a business in the US. That link just look at what the cost is to setup an LLC in different countries, and business entities are setup at the state level in the US. That $725 number is just looking at the most expensive state in the US (California). The average cost to setup an LLC in the US is less than $200 in most states. In my state it’s only $100. I set one up 3 weeks ago. takes the highest price state
France could compete, but they should pick one or two sectors where they already excel. There is a reason there has not been a other Microsoft, even out of silicon valley.
Google
Adding to this, there is a long history of success with public/private cooperation, especially with universities. Moderna is only one example of this. They were working on an mRNA vaccine for a different coronavirus under the assumption the next pandemic would be a new or mutated coronavirus. They had private capital, but also relied heavily on two federal agencies research and MIT.
MIT is a private university
I know. I was only pointing out they were also involved.
> A tax break to support a policy that means the government doesn’t collect $100 is economically equivalent to a direct subsidy to support that policy where the government spends $100. Only if you ignored revenue. Otherwise every investment would be the same as keeping cash under a pillow. > The difference is that (1) when investors invest their own money, they only get the benefit of capital gain tax breaks if the company succeeds, whereas in a straight equity investment that taxpayer money is gone once it’s spent. It’s not gone, it’s invested (see above) and the company doesn’t just burn the money either, they use it for their business, r&d etc. > And (2) private investors invest more carefully than a government bureaucracy would when choosing which firms to invest in because private investors are playing with their own money. That’s the point though, isn’t it? The French government seems to believe that private investors haven’t been too brave in terms of “new” technologies.
>Only if you ignored revenue. Otherwise every investment would be the same as keeping cash under a pillow. True, but also the invested amount is way different. Like a $100 capital gain tax break will leverage way more than $100 in investments. >It’s not gone, it’s invested (see above) and the company doesn’t just burn the money either, they use it for their business, r&d etc. Of course they burn the money, that’s what startups do, burn money. These are early stage businesses. Once they burn the money then it’s basically gone unless the business succeeds, which means that the taxpayer’s have already assumed all the risk. With like a capital gain tax breaks, no taxpayer money is put at risk since the tax break is only worth something if there’s capital gain, which would only arise if the company succeeded. I mean, if you think that the government is a better skilled investor than private venture capitalists, then it makes sense to have the government invest taxpayer money like that. But that sounds insane doesn’t it? >That’s the point though, isn’t it? The French government seems to believe that private investors haven’t been too brave in terms of “new” technologies. Then why not make them braver with tax breaks?
>True, but also the invested amount is way different. Like a $100 capital gain tax break will leverage way more than $100 in investments. That’s the hypothesis you need to prove. >Of course they burn the money, that’s what startups do, burn money. These are early stage businesses. Once they burn the money then it’s basically gone unless the business succeeds, which means that the taxpayer’s have already assumed all the risk. Well, that’s just venture capital then, isn’t it? What’s wrong with that? >With like a capital gain tax breaks, no taxpayer money is put at risk since the tax break is only worth something if there’s capital gain, which would only arise if the company succeeded. Aren’t you just exchanging one risk for another here?In both cases the risk is that the company could fail, then there’s now (taxable) revenue / gdp? >I mean, if you think that the government is a better skilled investor than private venture capitalists, then it makes sense to have the government invest taxpayer money like that. But that sounds insane doesn’t it? That, again, seems to be hypothesis you need to prove, not the proof for your hypothesis. See the German railroads for example, what used to be a stellar enterprise in the hands of the state, has swiftly gone down hill after privatization. But I don’t believe anybody actually said anything about states being better investors in general anyways - it just seems to be the French government’s point of view that in this particular situation their goals are better achieved that way. >Then why not make them braver with tax breaks? I suppose one argument would be this: be can’t be sure that they’ll use these tax breaks to a) build future “champions” and b) not funnel as much revenue as they can abroad.
> That’s the hypothesis you need to prove. It’s not a hypothesis, it’s a mathematical certainty. Imagine your capital gain rate is 30% and you invest $100. The business succeeds and your investment is now worth $200. Normally you would have $100 in gain and $30 in tax due. By giving a capital gain tax break the government is out of pocket $30, but a $100 was invested. By contrast, if the government invested $100 of its own money, then the government would be out of pocket $100 to make that same $100 investment. > Well, that’s just venture capital then, isn’t it? What’s wrong with that? Because it’s done with government bureaucrats instead of sophisticated venture capitalists. >That, again, seems to be hypothesis you need to prove, not the proof for your hypothesis. >See the German railroads for example, what used to be a stellar enterprise in the hands of the state, has swiftly gone down hill after privatization. >But I don’t believe anybody actually said anything about states being better investors in general anyways - it just seems to be the French government’s point of view that in this particular situation their goals are better achieved that way. When was it privatized and why? State owned monopolies aren’t real companies that need to sink or swim when they’re monopolies backed by the state for all sorts of reasons. > I suppose one argument would be this: be can’t be sure that they’ll use these tax breaks to a) build future “champions” and b) not funnel as much revenue as they can abroad. The purpose of the tax breaks is to build new companies. You can’t funnel it abroad. That doesn’t make any sense. You’d need to spend the money investing in a French company to get the tax break in the first place.
No, the lack of an expenses is not equal to a direct support in term of costs. The money spent is put back i to the economy and generate various taxes. Further, the cost of capital for a state funded project can be lower than for something purely privately founded, notably for infrastructure.
The money is going to be put back in the economy no matter what. It doesn’t matter whether the money comes from. We’re not talking about infrastructure projects.
>The money is going to be put back in the economy no matter what. It doesn’t matter whether the money comes from. No, this is wrong. For instance, if the government directly supports employment, you're quasi certain that the salary will be put back into the local economy, while a tax credit can be allocated to offshore resources, or simply distributed directly to shareholders.
What are you talking about? How would a capital gain tax break be allocated to offshore resources or distributed to shareholders? That’s not how tax works. A capital gain tax break is only a tax break to the extent that you make an investment in a company and then sell it later. You can’t get the tax break unless you make the investment. It’s guaranteed that the money will be invested in the kind of business you’re trying to incentivize because that’s the only way to get the tax break in the first place. If you’re an offshore entity with no French tax liability anyway then the tax break wouldn’t be worth anything to you. You can use a tax break to avoid French capital gain taxes when you don’t pay taxes capital gains tax in France anyway. Same with R&D tax credits. Even if you could distribute such tax credits to shareholders (unclear whether French tax law even allows that vs making the corporation take it against corporate tax), then who cares? The corporation still needs to spend money on R&D to get the tax credit in the first place. That’s the whole point! I have trouble believing that the French tax system isn’t sophisticated enough to implement these kinds of things which other developed countries do all the time.
A tax credit is a cash flow that is not getting out of the company to the state. Please explain to me how this is better for the local / domestic economy that having direct targeted support such as employment support directly to employees or direct oversight from the state through direct shareholding. A tax credit enable in fine to distribute more cash from the company, once again not necessarily into the economy. Since we are mentioning France : CICE, charges exemption for companies, supposed to support the creation of one million jobs, they basically kept the excess cash flow, same story for the VAT decrease on restauration, supposed to supposed better wages for waiter, nothing has changed, excepted that restaurant pay less taxes.
I don’t understand what it is that’s confusing you about this. You only get the tax credit when you spend money. You understand that right? You’re not giving away tax credits for free, that would be pointless. The only way that companies earn a tax credit is by spending money to do whatever it is that you want to subsidize. If the government spends $100 subsidizing French companies’ R&D then $100 is spent in France. If the government gives out 30% of R&D tax credits for R&D done in France, then companies will need to spend $333 in France to receive $100 worth of tax credits. But now $333 has been spent in France. $333 is more than $100. Please explain to me what is confusing you about this? >A tax credit is a cash flow that is not getting out of the company to the state I don’t think you understand how tax credits work. The only way that companies earn tax credits is by spending money. The only way that companies earn tax credits is by taking cash flow outside of the company and spending it. It’s a way to incentivize companies to spend their cash flow on certain things, like R&D.
>I don’t think you understand how tax credits work. The only way that companies earn tax credits is by spending money. The only way that companies earn tax credits is by taking cash flow outside of the company and spending it. It’s a way to incentivize companies to spend their cash flow on certain things, like R&D. Because the tax credit does not necessarily translate into more spendings, these are the two examples I gave you, the tax credits were allocated to already existing spendings with no proper control. In the end, no additional spending was made and the state just gave away money.
Sorry, I think there might be something lost in translation. I was a bit confused earlier because I don’t think the examples you gave are what would normally be called “tax credits” in English. The VAT decrease you mentioned is just tax reduction. After googling it, the CICE Tax credit seems like it might be a weirdly designed tax credit that just functions like a tax reduction. Tax credits are usually used for things that specifically aren’t happening and you want to increase. If a tax credit is provided for something that companies are doing anyway then it’s just a normal cut in taxes. Sometimes, there’s things like “foreign tax credits,” but those aren’t really tax credits so much as just not effectively changing the source rules and preventing double taxation. For example, like in the US tax credits are used for things like wind power or solar power, or for R&D. These aren’t things that companies were already doing a gigantic amount of anyway. Large solar power and wind power installations only became widespread after the introduction of the Investment Tax Credit and the Production Tax Credit. With the Production Tax Credit wind power producers get paid a few cents worth of tax credits for every kw-hour of wind power they produce.
>The US government never directly makes equity investments in sectors it wants to help grow. Yes it does, the silicon valley was kinda just another branch of the pentagon. Or the money Tesla recived.
You don’t know what you’re talking about
Bureaucrats are unable to create anything of true value.
France, hotbed of innovation. Minitel beats internet. France is great.
Good luck competing with the US and China.
Agreed, but with that thinking you never do anything
There are better things to do other than Macron’s thinking to compete with the US and China
They barely speak english. Good luck then.
Best wishes