For months, I have criticized the tax policies of France’s Socialist President Francois Hollande, particularly the confiscatory 75 percent tax rate for the wealthiest French. In addition to being in my view unfair, it is extremely bad economic policy. France’s Constitutional Council now appears to agree — at least on the equitable side. On Saturday, the Council rejected a 75 percent upper income tax rate on annual income above 1 million euros ($1.32 million) as an unfair treatment of different households. Popular figures like French actor Gerard Depardieu have opposed the tax and even left the country. The French experience should get some in the United States to dial down on our own over-heated rhetoric on economic policy. (Yes, I will now vent a bit on economic policy).
The court appears to have taken the second guarantee of Liberté, égalité, fraternité as extending to taxes.
Undeterred, Prime Minister Jean-Marc Ayrault said the government would redraft the upper tax rate proposal to address some of the equitable issues. It is not clear how these changes would suffice to answer the Council if the rate remained at 75 percent.
French officials have said that the loss of the controversial tax would not materially impact their deficit reduction plan. The tax rate was in my view a uniquely bad policy. In the end, it only applied to a few thousand people and could be circumvented, but the tax sent a hostile message to the top earners in the country. England has recently reduced its tax rate after top earners began to flee the country.
This “eat the rich” hostility is unfair and often ignores the substantial contributions of many wealthy family not just to the vast majority of tax revenue but to charitable and philanthropic enterprises. Some cities like New York continue to raise their taxes despite evidence that wealthy citizens are responding to the taxes by leaving the city. The same rhetoric is evident on the corporate tax rate which is too high in the U.S. The Canadians have lowered their tax rate because they are not idiots. With the rate so high in the U.S., Canada is draining our economy of businesses which respond as rational actors to one of the lowest rates in the world (and leave one of the highest). While Obama admitted during the campaign that our rate was too high, his administration has done little to rectify it in past years. However, it is the rhetoric that amazes me as smart people like John Stewart slam the proposals to lower the rate. Once again there is this rage that is blind to basic economic realities. Once again, I am not against increasing taxes. Yet, this is just stupid. Why do we think these businesses will stay in the U.S.? We are running our economic policies on soundbites and emotive appeals. As with the French tax rate, we think that these businesses are somehow a captive audience. We sit between Mexico and Canada and we are doing everything that we could do to increase that “giant sucking sound” to the South and the North as businesses leave the U.S. We are already a consumer economy and that trend will only worsen until we stop treating economics as part of a class war against the wealthy.
I am also critical of President Obama’s long campaign to raise taxes on people earning $250,000 and more as “the wealthiest” members of our economy. While I support increasing taxes, the rhetoric against top earners in this country has often outstripped reality. Those making $250,000 a year and more pay for the vast majority of tax revenues in this country and their demonization by many commentators is unfair and counterproductive. Nancy Pelosi has proposed a tax for those making $1 million and more in a compromise. In the end, I believe we have to raise taxes and can do it without negative economic consequences. However, Obama and Congress continues to spend wildly, including sending billions abroad to Iraq, Afghanistan, Israel, and other countries. My concern is that increasing revenues will take pressure off politicians to cut back on such expenditures as well as pork barrel projects.
Recently, in our return from Chicago on the holiday, my family was caught on the latest toll road off of I-66 in Washington. This thing is unbelievable. Not only does this road entrap drivers but you cannot get off of it for miles. While we have an EZ Pass, friends and family members have been nailed with an automatic ticket even if they have multiple passengers in the HOV lane (you also must have an EZ Pass). I cannot imagine why state and federal officials are not being tarred and feathered over this absurd project (I may have been particularly on edge after sitting for an hour at that vortex of hell known as Breezewood maintained by our politicians and government officials) It is also the latest example of handing over a core government function to a private contractor. We are sending billions to Iraq and Israel but we cannot simply pay for a highway outside of our Capital. Instead, average citizens are clipped for tolls and tickets.
Likewise, in Chicago, a contractor was given a 75 year exclusive contract for parking meters in a corrupt deal under the Daley Administration. The result is that Chicagoans are now in the gripes of a company that has made parking the most expensive in the nation: soon to be $6.50 an hour. These are regressive hidden taxes that are rarely discussed as our country burns hundreds of billions on foreign wars and military loans as well as other inviolate expenditures. It is doubtful that any of that will change as we increase revenues this year.
I find both the Republican and Democratic parties to be equally mindless on economic policy. We are unlikely, however, to have our courts play much of a role as they have in France. While no one is talking about a ridiculous tax like the 75 percent rate, tax policy in the United States is viewed as a political question to be left to Congress and the White House.