I have been a critic of the tax policies of French President Francois Hollande, including his disastrous 75% tax on the rich. The tax, as expected, has resulted in an exodus from the country of many top earners and a reluctance of others to move to France. However, with his poll numbers at a historic low, Hollande is continuing his “eat the rich” campaign. Last week, he announced a desire to impose a 75% tax on companies for salaries above 1 million euros. It is yet another blow to the French economy and will further deter new business for the struggling nation.
Hollande announced that when companies pay the large salaries to top executives “the company will have a contribution to pay that will reach 75%. During these difficult times, can’t those that are at the top make an effort for 2 years? The company will thus become responsible”.
I know how unpopular such salaries are, particularly at a time of economic hardship. However, the salaries are part of a global market for top executives. Imposing such a tax once again makes France a hostile environmental for such businesses, which are badly needed to boost a failing economy. This is imposed on top of other deterrents to new business such as mandatory labor rules making it difficult to fire French workers, guaranteed long vacations, and an array of other taxes. Investors have complained that they do not want to take over failing French businesses due to this environment, including the recent flap over comments by an American businessman.
I happen to think corporate salaries are too high, but I do not believe that government should regulate this part of the market. Moreover, the tax has no connection to social costs or public benefits. It is merely a punitive measure targeting the wealthy.
Politicians always garner support for socking it to the rich through taxes. However, it is an extremely shortsighted strategy. In the U.S., we have seen clear moves out of high tax areas like New York and California. The result is a reduction in tax bases. The fact is that tope earners pay the vast majority of taxes so the loss of such earners has a significant impact on tax revenue. These jurisdictions make themselves economic islands of high tax zones as more and more business is pulled into areas with average or lower tax rates. France is the most extreme example. The earlier 75 percent tax rate is viewed widely as a colossal failure for precisely the reasons raised earlier. Yet, Hollande is still offering up the rich as a popular target even though such taxes will generate little significant revenue. What it will do, however, is magnify the image of France as entirely hostile to high earners and new businesses.