Liberté,Egalité, Fraternité: French Court Strikes Down 75 Percent Tax on Rich

libertyFor 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.

Source: Reuters

80 thoughts on “Liberté,Egalité, Fraternité: French Court Strikes Down 75 Percent Tax on Rich”

  1. 1. Obama is spending a lot less ‘wildly’ than previous presidents and has put measures into place to try and cut waste in the Administration. He apparently is watching the government wallet much better than the Republicans who are more talk than action in that regard.

    2. As long as you have hawks like Graham and McCain in government – the supporting of other countries while screwing ours will continue. They’d rather our elderly starve than tell Israel or some other country to pay their own way.

    3. I think the rich need to “PAY” more. If you look at what they actually pay in taxes compared to what the rate states – there is a difference.

    4. The tax code needs to be fixed once again. This time they need to put something in the fix that states that future governments can’t add more loopholes. All the subsidies need to go away, farmers need to be able to grow what they want and sell it where they want to. Corporations should not be able to get tax rebates/credits for sending jobs anywhere or be able to play bookkeeping games to get around paying taxes. If they are going to keep the mortgage tax refund, then it needs to be fixed so it is only available for the primary residence and not vacation homes and yachts.

  2. It really is unfair to point out that (some) rich people pay a lot in taxes, as though they shouldn’t – at least that’s how JT’s statement strikes me. Oh well, i guess if you want rich clients, you should shill for their class interests.

  3. Swarthmore,
    in the long run, it may be better for the country to go over the cliff.. It will be hard for most, but it will produce a Congress more willing to actually do things in the best interests of the vast majority of the people. IMO

  4. MikeS, Man up..what was a “specious anecdote?” And, in what way was it “specious”?

    Regarding my alleged not responding to the subject, maybe it’s just that we fundamentally disagree on some subjects and I reject your suppositions on them. You reject mine. That’s when I suggest we just tap it out and go to our corners and have a laugh. Life’s too short. I would expect you to be able to understand that on a more profound level than I. But sometimes I wonder. With you and some others these discussions are SOOOO f@cking serious. These blog is a piece of sand on the Pacific beaches. What we say here doesn’t mean shit in the scheme of things. However, I’m come to realize for some this is a really big deal. Or maybe, as you and one or two others incessantly claim..I’m just of of my league. You should have a good idea on my response to that.

  5. “The major problem right now: Republicans want chained-CPI without lifting the debt ceiling.” (SWM)

    The chained CPI alone represent a major abandonment of the middle class. The debt ceiling charade is unconscionable.

  6. “The major problem right now: Republicans want chained-CPI without lifting the debt ceiling. Dem aide calls that a “poison pill.” Sam Stein. The talks fell apart again.

  7. To me there is a disconnect between saying income tax rate could be modified over 500k, or 750, or even 1mil and that all capital gains should be taxed as ordinary income. There are widely varying circumstances of people with high incomes, and low or retirement incomes who may receive capital gains. For example, someone in retirement might get SS, and even a pension, have a net worth of 500k and get a few thousand in capital gains, or even a loss. Apples and oranges between such a critter and someone with a 1mil income and any capital gains income — name your figure. So perhaps it would be equally more fair to have a progressive rate on capital gain based on relationship to some other measure, say, percentage of net worth.

    I’m not for complicating the tax code any more than it is, but I am definitely not for grinding up the minimal “unearned income” of the conscientious retiree or truly middle class worker who has acted prudently and has a small nest egg, like that which would be chump change to the more ‘well off’.

    But raise the payroll tax cap, most definitely . . .

  8. Plutocracy Rising
    October 19, 2012
    http://billmoyers.com/episode/full-show-plutocracy-rising/

    Summary
    The One Percent is not only increasing their share of wealth — they’re using it to spread millions among political candidates who serve their interests. Example: Goldman Sachs, which gave more money than any other major American corporation to Barack Obama in 2008, is switching alliances this year; their employees have given $900,000 both to Mitt Romney’s campaign and to the pro-Romney super PAC Restore Our Future. Why? Because, says the Wall Street Journal, the Goldman Sachs gang felt betrayed by President Obama’s modest attempts at financial reform.

    To discuss how the super-rich have willfully confused their self-interest with America’s interest, Bill is joined by Rolling Stone magazine’s Matt Taibbi, who regularly shines his spotlight on scandals involving big business and government, and journalist Chrystia Freeland, author of the new book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else.

    Following the conversation, Bill shares his thoughts on corporate executives who — enabled by the Citizens United ruling — are strong-arming their employees to vote as they say, from the Murray Energy CEO who reportedly made his workers spend unpaid time at a pro-Romney rally; to David and Charles Koch, who sent anti-Obama and pro-Romney materials to the 45,000 employees of their subsidiary Georgia Pacific; to ASG Solutions boss Arthur Allen, who sent an intimidating email to his employees.

  9. “All jokes are unfunny to people who take themselves sooo seriously. Maybe we lock horns so much because we both have some arrogance in us. Ever think of that?”

    I take myself less seriously the you could ever understand, but yes I do have a certain arrogance. As I’ve tried to make clear to you Nick it isn’t your arrogance that bothers me, it is the fact that you never seem to respond to what is being discussed, but to what you wrongly perceive is being discussed. That is of course if you actually address/refute the points being made in even a semi-logical fashion. Plus I find your jokes unfunny, but maybe that’s just me. I bet you’re a laugh riot around your friends.

  10. How Income Inequality Is Damaging the U.S.
    By Frederick E. Allen
    10/2/12
    http://www.forbes.com/sites/frederickallen/2012/10/02/how-income-inequality-is-damaging-the-u-s/

    Excerpt:
    New research indicates that growing income inequality isn’t just unpleasant; it is seriously hurting the U.S. economy. And economists are figuring out just how the damage is done, according to a fascinating new article by the journalist Jonathan Rauch in National Journal. This challenges a long-standing consensus that, as Rauch puts it, “inequality is the price America pays for a dynamic, efficient economy. . . . As long as the bottom and the middle are moving up, there is no reason to mind if the top is moving up faster.”

    He begins by pointing out that we have learned in recent years that a rising tide does not necessarily lift all ships. The Congressional Budget Office recently reported that between 1979 and 2007 the top 1% of households doubled their share of pretax income while the share of the bottom 80% fell. Then came the great recession. Economists including David Moss of the Harvard Business School noticed that “the last time inequality rose to its current heights was in the late 1920s, just before a financial meltdown. . . . In 2010, Moss plotted inequality and bank failures since 1864 on the same graph; he found an eerily close fit.”

    But does that imply a cause-and-effect relationship? It looks that way, Rauch writes. Economists have been tracing the following chain of causality. Those who make the least consume the most of their income; those who make the most tend to save a great deal, and for that reason, according to the economist Christopher Brown, at Arkansas State, “income inequality can exert a significant drag on effective demand.” Rauch writes that

    “In a democracy, politicians and the public are unlikely to accept depressed spending power if they can help it. They can try to compensate by easing credit standards, effectively encouraging the non-rich to sustain purchasing power by borrowing. They might, for example, create policies allowing banks to write flimsy home mortgages and encouraging consumers to seek them. Call this the “let them eat credit” strategy.”

    Then “the economy, propped up on shaky credit, becomes more vulnerable to shocks. When a recession comes, the economy takes a double hit as banks fail and credit-fueled consumer spending collapses.” The instability this time was worsened by the fact that the ever-richer richest Americans “needed liquid investments into which to put their additional wealth. Their appetite for new investment vehicles fueled a surge in what Arkansas State’s Brown calls ‘financial engineering’—the concoction of exotic financial instruments, which acted on the financial sector like steroids.”

    So as income inequality grew, the government propped up spending by promoting easy credit for less wealthy Americans, and much of the profit from that easy credit fed the wealth of the richest, widening the gap between rich and poor yet further. “Alas, when the recession struck, the financial sector’s gigantism and complexity helped turn what might have been a brush fire into a meltdown.”

    *****

    Inequality and Its Perils
    Emerging research suggests that the growing gap between rich and poor harms the U.S. economy by creating instability and suppressing growth.
    Share on facebookShare on twitterShare on emailMore Sharing Services
    By Jonathan Rauch
    Updated: September 28, 2012
    September 27, 2012
    http://www.nationaljournal.com/next-economy/essay-the-growing-income-gap-in-the-u-s-harms-the-economy-20120927?page=1

    Excerpt:
    At a salon dinner in Washington recently, the subject was inequality. An economist took the floor. Economic inequality, he said, is not a problem. Poverty is a problem, certainly. Unemployment, yes. Slow growth, yes. But he had never yet seen a good reason to believe that inequality, as such—the widening gap between top and bottom, as distinct from poverty or stagnation—is harmful to the economy.

    Perhaps he spoke too soon.

    Once in a while, a new economic narrative gives renewed strength to an old political ideology. Two generations ago, supply-side economics transformed conservatism’s case against big government from a merely ideological claim to an economic one. After decades in which Keynesians had dismissed conservatism as an economic dead end (“Hooverism”), supply-siders turned the tables. The Right could argue that reducing spending and (especially) tax rates was a matter not merely of political preference but of economic urgency.

    Something potentially analogous is stirring among the Left. An emerging view holds that inequality has reached levels that are damaging not only to liberals’ sense of justice but to the economy’s stability and growth. If this narrative catches on, it could give the egalitarian Left new purchase in the national economic debate.

    “Widely unequal societies do not function efficiently, and their economies are neither stable nor sustainable in the long term,” Joseph E. Stiglitz, a Nobel Prize-winning economist, writes in his new book, The Price of Inequality. “Taken to its extreme—and this is where we are now—this trend distorts a country and its economy as much as the quick and easy revenues of the extractive industry distort oil- or mineral-rich countries.”
    Stiglitz’s formulation is a good two-sentence summary of the emerging macroeconomic indictment of inequality, and the two key words in his second sentence, “extreme” and “distort,” make good handles for grasping the arguments. Let’s consider them in turn.

    INEQUALITY’S BROKEN PROMISE

    Equality and Efficiency: The Big Trade-off was a 1975 book written by the late Arthur Okun, a Harvard University economist and pillar of the economic establishment. Okun’s title encapsulated an economic consensus: Inequality is the price America pays for a dynamic, efficient economy; we may not like it, but the alternatives are worse. As long as the bottom and the middle are moving up, there is no reason to mind if the top is moving up faster, except perhaps for an ideological grudge against the rich—what conservatives call the politics of envy.

    For years, the idea that inequality, per se, is economically neutral has been the mainstream view not just among conservatives but among most Americans outside the further reaches of the political Left. There might be ideological or ethical reasons to object to a growing gap between the rich and the rest. But economic reasons? No.

    “The debate for many years looked settled,” said Robert Shapiro, an economist with Sonecon, a Washington consulting firm. “Changes in the economy and changes in the data have reopened the debate.”

    Economists know more today than they did in Okun’s day about the distribution of income. “There’s been enormous progress in measuring inequality—Nobel Prize-level progress,” said David Moss, an economist at Harvard Business School. As the data came in and the view got clearer, the picture that emerged was unsettling.

    “In the 1990s,” Moss said, “it began to appear that income was being concentrated among the very highest earners and that stagnation was occurring not just at the low end but across most income levels.” It wasn’t just that the top was doing better than the rest, but that the very top was absorbing most of the economy’s growth. This was a more extreme and dynamic kind of inequality than the country was accustomed to.

    According to a recent Congressional Budget Office report, those in the top 1 percent of households doubled their share of pretax income from 1979 to 2007; the bottom 80 percent saw their share fall. Worse, while the average income for the top 1 percent more than tripled (after inflation), the bottom 80 percent saw only feeble income growth, on the order of just 20 percent over nearly 30 years. The rising tide was raising a few boats hugely and most other boats not very much.

  11. Mike,
    I agree with the capitals gains should be taxed like any other income. While we are at it, why is the Social Security tax capped at around $113,000? Why shouldn’t all income be subject to this tax? If it was, there would be even less reason to make any changes in SS.

  12. I am late to this discussion, but I cannot imagine that earning $500,000 a year only makes you “more comfortable”! The French example of a 75% tax rate for the very wealthy is not equivalent to our situation here. We are talking about a increase in the tax rate from 35% to 39%! The idea that it is the middle class at war with the wealthy is laughable. The wealthy have enjoyed a huge increase in benefits ever since the Reagan administration. When you have the discrepancy between the wealthy and the middle class and poor that we have now, it is no surprise that people are not happy with the wealthy buying elections and politicians.
    While I agree with Prof. Turley’s aversion to privatizing the roadways, it is not politicians that are causing that problem. The wealthy and corporations buy their politicians to obtain the rights to privatize the commons. Without the money in politics, the politicians would not be voting to privatize anything.
    Great link Elaine.

  13. All jokes are unfunny to people who take themselves sooo seriously. Maybe we lock horns so much because we both have some arrogance in us. Ever think of that? However, I am ALWAYS able to laugh and my humor includes self deprecation.

  14. Of the 1%, by the 1%, for the 1%
    Americans have been watching protests against oppressive regimes that concentrate massive wealth in the hands of an elite few. Yet in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret.
    By Joseph E. Stiglitz
    May 2011
    http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105

    Excerpt:
    It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. One response might be to celebrate the ingenuity and drive that brought good fortune to these people, and to contend that a rising tide lifts all boats. That response would be misguided. While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone. All the growth in recent decades—and more—has gone to those at the top. In terms of income equality, America lags behind any country in the old, ossified Europe that President George W. Bush used to deride. Among our closest counterparts are Russia with its oligarchs and Iran. While many of the old centers of inequality in Latin America, such as Brazil, have been striving in recent years, rather successfully, to improve the plight of the poor and reduce gaps in income, America has allowed inequality to grow.

    Economists long ago tried to justify the vast inequalities that seemed so troubling in the mid-19th century—inequalities that are but a pale shadow of what we are seeing in America today. The justification they came up with was called “marginal-productivity theory.” In a nutshell, this theory associated higher incomes with higher productivity and a greater contribution to society. It is a theory that has always been cherished by the rich. Evidence for its validity, however, remains thin. The corporate executives who helped bring on the recession of the past three years—whose contribution to our society, and to their own companies, has been massively negative—went on to receive large bonuses. In some cases, companies were so embarrassed about calling such rewards “performance bonuses” that they felt compelled to change the name to “retention bonuses” (even if the only thing being retained was bad performance). Those who have contributed great positive innovations to our society, from the pioneers of genetic understanding to the pioneers of the Information Age, have received a pittance compared with those responsible for the financial innovations that brought our global economy to the brink of ruin.

    Some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie. That argument is fundamentally wrong. An economy in which most citizens are doing worse year after year—an economy like America’s—is not likely to do well over the long haul. There are several reasons for this.

    First, growing inequality is the flip side of something else: shrinking opportunity. Whenever we diminish equality of opportunity, it means that we are not using some of our most valuable assets—our people—in the most productive way possible. Second, many of the distortions that lead to inequality—such as those associated with monopoly power and preferential tax treatment for special interests—undermine the efficiency of the economy. This new inequality goes on to create new distortions, undermining efficiency even further. To give just one example, far too many of our most talented young people, seeing the astronomical rewards, have gone into finance rather than into fields that would lead to a more productive and healthy economy.

    Third, and perhaps most important, a modern economy requires “collective action”—it needs government to invest in infrastructure, education, and technology. The United States and the world have benefited greatly from government-sponsored research that led to the Internet, to advances in public health, and so on. But America has long suffered from an under-investment in infrastructure (look at the condition of our highways and bridges, our railroads and airports), in basic research, and in education at all levels. Further cutbacks in these areas lie ahead.

    None of this should come as a surprise—it is simply what happens when a society’s wealth distribution becomes lopsided. The more divided a society becomes in terms of wealth, the more reluctant the wealthy become to spend money on common needs. The rich don’t need to rely on government for parks or education or medical care or personal security—they can buy all these things for themselves. In the process, they become more distant from ordinary people, losing whatever empathy they may once have had. They also worry about strong government—one that could use its powers to adjust the balance, take some of their wealth, and invest it for the common good. The top 1 percent may complain about the kind of government we have in America, but in truth they like it just fine: too gridlocked to re-distribute, too divided to do anything but lower taxes.

    Economists are not sure how to fully explain the growing inequality in America. The ordinary dynamics of supply and demand have certainly played a role: laborsaving technologies have reduced the demand for many “good” middle-class, blue-collar jobs. Globalization has created a worldwide marketplace, pitting expensive unskilled workers in America against cheap unskilled workers overseas. Social changes have also played a role—for instance, the decline of unions, which once represented a third of American workers and now represent about 12 percent.

    But one big part of the reason we have so much inequality is that the top 1 percent want it that way. The most obvious example involves tax policy. Lowering tax rates on capital gains, which is how the rich receive a large portion of their income, has given the wealthiest Americans close to a free ride. Monopolies and near monopolies have always been a source of economic power—from John D. Rockefeller at the beginning of the last century to Bill Gates at the end. Lax enforcement of anti-trust laws, especially during Republican administrations, has been a godsend to the top 1 percent. Much of today’s inequality is due to manipulation of the financial system, enabled by changes in the rules that have been bought and paid for by the financial industry itself—one of its best investments ever. The government lent money to financial institutions at close to 0 percent interest and provided generous bailouts on favorable terms when all else failed. Regulators turned a blind eye to a lack of transparency and to conflicts of interest.

  15. Wow, Blouise, Gene and I form a very unholy trinity. Certainly not a menage a’ trois. Blouise, I said the same a day or two ago to SWM vis a’ vis 500k being ok, but 750k being preferrable.

  16. Very good point Gene.

    My gripe, or one of them, is that even the “comfortable”, who wish to remain fiscally conservative but realistic, don’t have access to investments that will fill that bill over time. Not with interest rates running the way they are. Unless you just want to maintain current level of assets in an essentially non-producing vehicle you must take risks that are not particularly wise for those in or approaching retirement.

    And yet ‘they’ want to peck away at benefits which pushes one towards risk from another angle.

  17. When banks & corporations are sitting on over $3 Trillion, I say, Drain the Swamp and Tax the Rich (CEOs, Stockholders, Board of Directors & the Corporations they sit on). It’s time to Unclog the Plumbing. Their access into our Democracy doesn’t make me feel any Pity on how Unfair Taxes would be. My disgust of the Capitalist class is very Justified.

    During the Eisenhower administration, the upper tax rate was over 70%. The economy was growing and the Rich were still Rich. The Middle Class grew, salaries increased, and communities thrived.

    Tolls are like Usury, it’s a Tax on the Economy. I would outlaw all tolls, tax the Suckers who can afford it. You know, the 2nd & 3rd House Crowd near the Ocean in Sunny States.

    Tax the Rich or we all become Serfs. Capitalism without restraints (Taxes & Regulations) plunges our society into Neo-Feudalism.

  18. bettykath,

    I’ve been waiting a long time to find the right time to play the Uncle Paco card. 😀

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