A Third Way to Cut Taxes

March 2000 may prove to be a landmark date in French politics. The French Prime Minister — after half-heartedly flirting with ideas of pension reform and restructuring the French bureaucracy — seems to have conquered his leftist tendencies by recruiting Mr. Fabius, a hard-nosed centrist and member of the Parti Socialiste, to be his de-facto deputy prime minister.

The move is evidence that the Third Way — the reorientation of Europe’s social democrats toward the political center — is taking hold in the three largest economies in Europe. And it comes only nine months after German Chancellor Gerhard Schröder felt emboldened enough to publish a Third Way manifesto with Tony Blair, Britain’s reformist Prime Minister, in June 1999.

The Schröder–Blair treatise was titled, predictably enough, “Europe: The Third Way/Die Neue Mitte.” Laying out their vision of how social democracy needs to adjust to global realities, the document is rife with statements that puzzled many died-in-the-wool Social Democrats. There is talk of tax cuts, further privatization, limiting the role of government and supply-side reforms.

“Une horreur!” cried the French, a protest then shared by Mr. Jospin, the Prime Minister. But Mr. Jospin’s eventual embrace of the Third Way is made even more apparent by his willingness to hire Mr. Fabius, who many suspect has aspirations to regain the leadership of Mr. Jospin’s party. In that regard, the appointment is somewhat reminiscent of Mr. Blair finding a place in his cabinet for Gordon Brown, a one-time rival to lead Britain’s Labor Party.

Should French union leaders and social democrats fear that the Jospin-Fabius team will closely follow the Blair-Schröder script, our research has uncovered a true consolation prize. In the section of the manifesto that calls for tax relief, Messrs. Schröder and Blair took the art of targeted tax cuts to a whole new level. As the manifesto proclaims, “The taxation of hard work and enterprise should be reduced.”

In other words, the architects of Europe’s Third Way are not in favor of tax cuts per se, but only in the case of “hard work.” Most everyone would agree that construction work — building houses, roads, bridges — is hard work. Therefore, under the Third Way plan, construction workers might just be entitled to tax relief.

But don’t hope for tax cuts if — in the course of your daily work — you don’t often break a sweat.