We have been discussing the tax policies of President Francois Hollande’s Socialist government — a record that I have criticized as ruinous from an economic standpoint. A recent report indicates that for some high-earning families — more than 8,000 — the Hollande policies impose a 100% tax. It is the ultimate “eat the rich” policy. Even for those families facing a 75% rate, it is unclear why they would continue to work in the country. Many are not. France is experiencing a flight of both high earners and companies.
The bizarre 100% tax is the result of a one-off levy last year on 2011 incomes for households with assets of more than 1.3 million euros ($1.67 million). The surcharge was imposed shortly after Hollande took office on a promise to hit the rich with high taxes. The Hollande 75% direct tax was so unfair that the Constitutional Council struck it down. However, this report states that the one-off levy effectively pushed some families to a 100% tax.
The newspaper Les Echos found that nearly 12,000 households paid taxes last year worth more than 75 percent of their 2011 revenues due to the exceptional levy. ($1 = 0.7798 euros).
Putting aside how many families are impacted by taxes above 75%, it is in my view an insane, self-destructive economic policy for France. I just spent an evening with a friend and his parents discussing the situation in France. This is a moderate family politically that has long fished in French waters. My friend is now an American citizen but his parents and family remain in France. They recounted how they had to destroy half of their ships because of taxes. They are seeing other businesses doing the same or simply moving out of France. These a patriotic and proud French people but they are watching their government cannibalize off the economy. The government is getting instant revenue while killing revenue producing businesses. It is like eating the grapes and roots of the vineyards of Bordeaux for food and leaving the fields barren.
As someone who truly loves visiting France, it is disheartening to watch Hollande’s cultural war on the wealthy. I favor higher taxes as part of a comprehensive package of reforms in this country and other countries. However, Hollande’s expressed hatred of the rich resulted in a political success and now an economic disaster. It is also grossly unfair to wealth French who love their country and are not opposed to making sacrifices. Hollande played the class card and told the French that their problems were due to a sinister upper class rather than France’s high labor costs and burgeoning budgets. Even if one dismisses this study and the one-year levy, there are still many thousands of families and businesses who face a government demanding 75 percent tax rates.
These policies however will only lengthen the economic crisis. Indeed, France is already viewed as a hostile country for business and that is likely to continue under Hollande who is fighting the French judges to impose taxes higher than what is viewed as constitutional or fair by the courts.
Source: Reuters
TONY C:
making investment decisions based on tax implications is a bad idea.
Going w/ that analogy, one needs to know what they’re doing in prescribed burns. I coached a kid in baseball who now has his own landscape biz. This is prescribed burn season in Wi. This kid has told me stories of ham n’ eggers who have burned down the farmhouse doing prescribed burns. It’s a tough biz because farmers want proof you know what you’re doing. They don’t care about your educational experience. They want to hear about your talent via other clients. This kid worked w/ a well respected landscaper ready to retire. Farmers got to know him. Do we want politicians doing prescribed burns?
Dan: Correct me if I am wrong, but wasn’t the top US tax rate 85% during the 50′s and 60′s. You know, when we were at our peak of power and prestige?
You are not wrong. Eisenhower seriously proposed a 100% income tax on incomes over a certain (very high) level.
As Eisenhower understood, a high income tax can stimulate the economy. This is because businesses can avoid the income tax by reinvesting their revenue into their business, spending it on expansion, advertising, research, development of new products or new markets, buying or building or renovating real estate, and hiring more workers in the process. All of those are business expenses that stimulate the economy, and if profits over a certain level are subject to a very high tax, then it is better for the business to take the risks of growing their business (and thus the economy in general). That is the trick that most people fail to see, by reinvestment a company can be larger and worth more at the end of the year, without reporting ANY profit and without having paid any tax on the increase in value. For example, a restaurant chain can go from one location to a hundred without ever declaring a profit or paying any income tax, because they use all their excess revenue to grow their business. Tax free.
If income taxes are very low, then in their self-interest, the most probably maximum net return is to just keep their money in relatively safe growth investments (bonds, money-market accounts, etc).
Although internationalism has thrown a monkey wrench into the picture, in the 50’s and 60’s higher tax rates could stimulate the economy. I think they could again with some regulatory changes to close the internationalist escape routes.
yesssssssss! Let them come here….I will move to France!!!!! <3
“We had to burn the village to save it.”
Actually, no.
“We had to burn off the old growth that was choking out the village from the inside” is a more accurate simplistic summary of what Tony said. More analogous to burning a field in agriculture than burning down a house.
What Tony said so well.
I can’t imagine those paying the high taxes are going hungry or living in the streets in cardboard boxes.
A very interesting take, indeed. “We had to burn the village to save it.”
Interesting take, Tony.
Bron, Be patient..be patient, those rates will soon come down to 90%.
tony c:
$1.6 million is small business not big corporation. The upper middle class will be leaving france along with their business acumen and jobs. From my understanding most of the jobs in this country are created by small business.
This is Viagra for some of the folks here who love the “tax man.” They will next want the first male child of the wealthy. France was a tax haven in the 60’s, from the tax hell of the UK. Everything is relative.
Prof:
“The government is getting instant revenue while killing revenue producing businesses. It is like eating the grapes and roots of the vineyards of Bordeaux for food and leaving the fields barren.
As someone who truly loves visiting France, it is disheartening to watch Hollande’s cultural war on the wealthy. I favor higher taxes as part of a comprehensive package of reforms in this country and other countries.”
So you are in favor of eating the grapes and roots slowly?
Taxes are money not used to expand and maintain capital assets. It also ends up being a calculation between hiring and buying more acreage and plants.
“… …Putting aside how many families are impacted by taxes above 75%, it is in my view an insane, self-destructive economic policy for France. … …”
“Source: Reuters”
How pecular that Reuters would put the above comment in a news story. Perhaps there is some additional information that is missing about how this is being presented here. I would hate to think that a respected news source such as Reuters would withold relevant facts to slant their reporting.
I adopt more of a wait and see attitude; many things that look bad only look bad because they upset the familiar and are actually blessings in disguise. (Not all things.)
In my twenties I lost a job (fired for insubordination) and that forced change turned out to be the best thing that ever happened to me.
These French policies may cause the flight of the rich, and they may discourage other rich from engaging in business in France. Why is that an automatically terrible thing?
Isn’t it possible the French be better off if their economy was built on smaller businesses, with more competition, and less corruptive influence?
Might that be a stronger democracy with a government more focused on the will of the people instead of the will of the mega-wealthy?
Many of us here complain constantly about the giant corporations using their millions to buy political influence. Wouldn’t a natural limit (due to taxation) on the size of corporations be at least one way of reducing that kind of influence, decreasing monopolistic pricing and employment practices, and increasing the power of the people to regulate exploitive and corrupt corporate practices?
I think antagonism toward LARGE business is at least worth an experiment; not all benefits can be measured in dollars.
I always enjoy your insights on the law, but I think you should leave the economic commentary to the economists. Your analysis is reactionary, anecdotal and lacks depth.
Correct me if I am wrong, but wasn’t the top US tax rate 85% during the 50’s and 60’s. You know, when we were at our peak of power and prestige?
In other words, high tax is not a problem facing any developed nation. Increasing and accelerating concentration of wealth in the top 0.001% is a problem facing many nations. Why denounce an effort to reduce an actual problem?
On the other hand France used to be a tax haven. If you remember most of the Rolling Stones moved there to avoid British taxes in the early 70’s. The pendulum swings, but never too much to really affect the wealthy.
In other news:
Obamacare reaches a new low: Employers Eye Bare Bones Health Plan Under New Law (See http://finance.yahoo.com/news/employers-eye-bare-bones-health-030600026.html).
Once again proving a zealot and their ability for long range forecasting are often soon parted.
Good maybe they will set up shop or live here… And help pay the debt down…