Responding to the anti-billionaire passion that gripped some would-be Nupes revolutionaries, Bernard Arnault courteously declared that “the French don’t know the economy well.” What some have called social contempt is really just a kind understatement. Far beyond the question of billionaires, the incredibly confused debate over dividends or share buybacks illustrates this vividly. For the left of the left, life is simple: you have to tax dividends, to finance pensions, school, university, justice, ecological transition and so on… This passionate enthusiasm largely based on resentment is also based on ideas which can easily be shown to be largely erroneous.
First misconception: dividends are low taxed. The dividend paid to shareholders is a share of profits. However, in our country, the tax rate on profits is 25%, and the flat rate tax on dividends is 30%. Dividends are therefore taxed at more than 50%, which is a lot, and even probably still excessive insofar as our companies must attract capital to finance their investments in digital, artificial intelligence, robots, decarbonization , the circular economy… None of these transitions will be made without capital.
Second misconception: companies pay huge dividends. Most of the statements in this sense take the dividend payments of CAC40 companies without relating them to a magnitude that makes this figure interpretable. In reality, it is necessary to look at the dividends paid by French companies by relating them to the added value generated by these same companies. In the segment of non-financial corporations, according to calculations by economist Eric Dor based on Eurostat data, the share of dividends in value added in France is around 5%, one of the lowest rates in Europe (Spain is at 6%, Germany at 13%, Italy at 17.5%). Nothing spectacular or outrageous.
Encourage popular savings invested in shares
Third misconception: the payment of dividends is made to the detriment of wages. This may have been the case in the early 1980s but not since. From the beginning of the 1990s, the share of wages in value added was stable, at around 65%. Variations in the distribution of dividends, either upwards or downwards, therefore had no impact on the dynamics of wages. Fourth misconception: dividends replace business investment. This fallacy is completely invalidated by the numbers. The corporate investment rate (the ratio of investment to their added value) has been increasing since the beginning of the 1990s. There is no visible transfer between dividends and investment.
Fifth misconception: share buybacks only have deleterious economic effects. A share buyback operation is the exact opposite of a capital increase. It responds to two desires that can be combined. On the one hand, some companies that make significant profits during a financial year but do not want to commit to an increase in dividends that shareholders could consider as lasting, prefer to pay them cash by buying them shares, which which also drives up their valuation (there are fewer shares on the market, so they are more expensive). On the other hand, some companies do not find profitable investment projects. They therefore reduce their capital by buying back the shares of their shareholders. Capital is thus freed up which can be directed towards the companies which need it to invest. Distributing cash to shareholders (dividends and/or share buybacks) is a technical decision that involves many financial management considerations. If we step back, for thirty years, these decisions have not had a significant impact on the sharing of added value and economic growth. On the other hand, it would be good to allow the French to receive more of these dividends by encouraging popular savings invested in shares, by developing employee shareholding or by setting up pension funds for employees in the private sector. This is a magnificent political project based, not on resentment, but on efficiency and justice.