We have often discussed tax policy on this blog. I am in the minority here on tax policies, particularly the high rate imposed in various countries for top earners. I am admittedly more inclined to a Chicago-school view of such high tax rates than many on this blog. This story caught my eye for obvious reasons. The French government is reporting a 20 percent increase in one year of high earners in leaving the country. We have previously discussed how such taxes produce emigration by rational actors from markets. French President Francois Hollande ran on a pledge to soak the rich in tax increases, a popular political platform but a disastrous economic plan. The result has been predictable. The French economy is in terrible condition and thousands of French families are leaving the country for England, the United States, and other countries. Now, Hollande’s government has announced that it will rescind the tax increase. Hollande and his socialist allies refused to accept the obvious impact of such a tax and now, a few years later, it will remove the tax after losing a huge amount of high earner tax dollars.
The tax applied to all families with assets of more than €800,000 (£630,000). I have French friends who have told me about the devastating impact of the Hollande tax plans. One friend’s family decided to sell off most of their fishing boats because they could not handle the tax burden and make any profit. They let go most of their workers who joined the unemployment lines — adding another cost to such short-sighted policies. Another friend wanted to take his family back to France but decided that he could not because he could not start a business in the country. The business had customers and a market niche but the taxes would not allow him to make any serious profit.
Their stories are reflected in the new reports. Almost half a million French nationals now live in London alone — more than France’s sixth largest city. The number of expats leaving France has been increasing by two percent a year. The 20 percent of high-earners however is particularly harmful for the country, which is chasing away the very earners needed to invest in new businesses, hire new people, and pay most of the taxes.
Manuel Carlos Valls Galfetti, the Prime Minister of France, said that the tax will be rescinded in January. In the meantime, an amazing 85 percent of French voters now oppose Hollande serving a second term.
Source: Independent
It is unfortunate that there are so many people who cannot conceive of human behavior in response to changes in policy and circumstances. There are many who understand how their own choices change under financial pressure. They seek out the highest paying jobs, find a local tax preparer who promises they won’t pay a dime more than they owe, maximize their tax refund. They bargain shop, and compare prices.
But they inexplicably seem to believe that these behavior just suddenly cease after a certain arbitrary dollar amount is earned. All of a sudden, they believe that they can raise taxes all they want, 95% is not too much as France actually believed, and that the taxed will make no changes whatsoever. They will just keep on dutifully filling the coffers, employ the same people, and keep their business locations unchanged.
According to the Congressional Budget Office, the rich pay the freight that keeps America running, while the poor get tax refunds equal to more than what they would have paid.
Although some will debate what exact percentage the rich pay, there is no denying the fact that the country runs on their taxes.
I dislike class warfare. It’s divisive and marks people as an enemy for no other reason than being successful. When a wealthy individual or corporation acts wrongly, by all means criticize. But on this blog, and elsewhere, I see the rich being sneered at and derided merely for being successful.
That used to be something to be proud of.
http://www.cnbc.com/id/101264757#.
Karen, It used to be in the USA under President Eisenhower that the top tax rate was 93%. How do you explain that being done and not having the top earners leave the USA?
randyjet, you have to consider all the deductions allowed under Eisenhower.
“… cynics even charged that the “only possible purpose” of the gap between paper and real tax rates “is to trick the American public” into believing that the progressivity that it preferred had actually been achieved. During the Eisenhower years, such complaints were common. As a longtime economic critic of the tax system, Professor Harold Groves, informed Congress: ‘“the impression is widely shared that the Congress deliberately throws a high-rate scale to the public as a demagogic bone and then as deliberately allows escapes from taxes that make these rates specious.”
http://ir.uiowa.edu/cgi/viewcontent.cgi?article=1006&context=law_pubs
Under Eisenhower, nobody paid 91% taxes, so that’s why they didn’t leave. Following are the effective individual income tax rates of the 3 very high income AGI groups:
$200,000-$500,000 group: Tax as Share of Amended AGI (%)
1953 = 45.9
1954 = 39.3
1955 = 36.8
1956 = 37.4
1957 = 38.6
1958 = 36.9
1959 = 33.8
1960 = 33.1
1961 = 31.5
$500,000-$1,000,000 group: Tax as Share of Amended AGI (%)
1953 = 46.3
1954 = 38.7
1955 = 35.6
1956 = 36.7
1957 = 36.6
1958 = 36.0
1959 = 32.1
1960 = 30.8
1961 = 29.1
Over $1,000,000 group: Tax as Share of Amended AGI (%)
1953 = 49.3
1954 = 38.8
1955 = 35.8
1956 = 36.1
1957 = 40.0
1958 = 33.1
1959 = 30.6
1960 = 31.3
1961 = 27.2
SOURCE: William Williams, The Changing Progressivity of the Federal Income Tax, National Tax Journal (1964)
Randyjet,
There are those who advocate going back to landowners only being allowed to vote. Amazing that one can serve in the military and risk one’s life but wouldn’t be allowed a vote.
Does anybody here read Dan Mitchell? He has a wonderful blog called International Liberty. It is economics based. If you are shocked by this outcome in France, take a look!
http://danieljmitchell.wordpress.com/2014/05/28/france-wipes-out-on-the-laffer-curve/
http://danieljmitchell.wordpress.com/2014/08/25/it-doesnt-seem-possible-but-france-is-going-from-bad-to-worse/
He also has many wonderful videos explaining basic economic ideas.
I also hold him in high regard as an example of what a real life libertarian thinks like.
My last two cents on economic philosophy- There is only one system which relies on voluntary (peaceful!) exchange (Capitalism). Everything else has the promise of violence at the bitter end (coercion).
We’ll never see a flat tax–the ginormous paper-moving industry (moves it from one side of the desk to the other) has a big lobby to try to keep things complicated so you have to keep buying their services and software. Imagine what would happen if everyone could do their taxes in 1/2 hour. That would put a tremendous amount of very well paid people (for moving paper around) out of work. Just sayin’….
Why don’t we just tax people’s income and stuff, and just not tax corporations? Seems to me if you tax people already, why do you need to tax corporations (I know… infrastructure for one…)? I bet if that went away, a whole bamboozle of companies would come back to the states. At least I think so. ????? But, that is a woefully uneducated question and I pre-wince for the shower of oncoming commentary…
What if, instead of the Pres and Congress approving a budget, the public could determine what their taxes paid for? Maybe the wealthy would be willing to pay more if they knew all of their taxes would go for killing people around the world, taking control or other people’s valuable resources, forcing predatory capitalism on everyone around the world. The rest of us could assign ours to universal education, universal health care, housing, and healthy food in our own country and around the world.
Answer me this? If the poor, sad, picked-on, wealthy feel so abused,is it because they don’t pay the 7.5-15% Social Security tax after $117k? Is it because they pay so much less in capital gains taxes than the working person pays for tax on his labor? Is it because of the tax havens, tax subsidies, tax write-offs they receive that aren’t available to the vast majority? Please, you bore me. Income injustice is at historical levels and the wealthy need more. Is it possible to satiate that need for more and more without eventually harming the host that fights your wars, cleans your house and streets, harvests and cooks your food,overly protects your gated communities, opens your doors, cleans your hotels, manufactures your goods (that you haven’t already off-shored for tax purposes)? The wealthy get wealthier and the poor and middle class get poorer, since the wealthy can’t extract from their own kind, they extract only from those lower in the food chain.
Lloyd – I take every damn deduction I can and I am proud off. As far as I am concerned, the government does not need one dime more of my money than it is due.
And really? Haven’t the middle-class and poor gotten richer under Obama? Mr. Hope and Change?
Karen The DC joke is, “Don’t tax you, don’t tax me, tax the man behind that tree.”
It is inevitable that, even faced with this kind of evidence, there are STILL those who defend a 95% tax rate on the rich. I’m even reading that the rest of the world does not tax enough, that it should all be this high.
Do away with the upper class completely! People will just start businesses, losing money, out of the kindness of their hearts. Or maybe governments should be the only employer. Let everyone be equal in situation, equally poor and miserable, that is, and completely helpless to improve their lot in life. Work hard, have a great idea, it doesn’t matter.
This reminds me of my friend from the former USSR whose family ate well because the father had his own business. This was illegal, so the family had to hide it, and lived in fear they would be found out. But in the meantime, they had warmer clothes and better food than the rest of the equally starving people.
It is, indeed, a race to the bottom.
Thank you for writing this article, Professor Turley. Some of us have tried to explain this cause and effect of high taxes on the rich, and businesses, but it’s been impossible to get through to the Tax-and-Spend set.
It is SO EASY to raise taxes on OTHER PEOPLE.
We should eliminate all barriers to voting. If you are a citizen then you should be able to vote. A family of 7 gets 7 votes and so on. It’s either that or we start down that slippery slope of determining the conditions under which the franchise is available. What does an age qualification imply about those under that age? Does it mean they don’t have the necessary experience, awareness, knowledge, maturity, literacy, income, etc. to be considered capable of making an informed decision?
Pogo, LOL. Economic literacy test would eliminate 80% of the electorate.
It’s just like the left’s repeated raising of the minimum wage, despite repeated studies showing each raise gets people fired, replaced by robots, or never hired in the first place because the business can’t make any money.
I don’t think people should be able to vote unless they can pass an economic literacy test.
Doglover,
Are progressive tax brackets determined by the amount of criminal activity utilized to acquire the wealth/income? Is there a magical formula to determine what wealth wasn’t legally earned that would justify taking it without due process? How do you determine who deserves to keep the property (income/wealth/possessions) they have?
The Soviet Union and Communist China had 100% taxes on wealth, and confiscated the savings, houses, and personl property of anyone that was not a high-ranking official.
Both countries found out that progressive tax rates eventually make everyone poor.
And not equally poor, because some Soviets and Maoists were more equal than others.
But US democrats and French socialists refuse to learn that you can only kill the golden goose once. They want the golden eggs, but hate the goose.
How about a progressive Life structure? The intellectuals could determine what families should be able to reproduce so they aren’t an unfair burden on society. And then, determine the age or conditions where one’s usefulness is exhausted and then terminate life. It would be the height of patriotism to remove any life that would be unfair to society, right?
Folks, there was a time not long ago, and Davidm remembers it well, when the views expressed by doglover dominated this blog. David and I have lived through the darkness and enjoy the sunlight of diverse opinion.
Jim 22- The question is where did the richest guy get his money? From scamming everyone else? From murder and plunder? From Usury? From bribing politicians? Capitalists need to understand that sooner or later they will run out of other people’s money.
The problem are the evil rich people leaving the country. They need to stay and pay their fair share. What’s wrong with them?
david, I hope that you are as understanding about the young men who went to Canada to avoid the draft, when the government was taking something more important than your money, your LIFE!
randyjet, those draft dodgers sound like smart dudes. They certainly were not lemmings running over the cliff. We’ve proven since the draft that a voluntary force is enough.
david – we would have never fought Vietnam with a volunteer force.
Paul Schulte wrote: “we would have never fought Vietnam with a volunteer force.”
Exactly! We should have never fought over there.
david – we should have never let the French back in to Vietnam.
david, At the time when I was younger, we needed the draft since the military was huge. The same was true in WWI, and WWII and the Korean War. A voluntary military is only possible when there is no war or a smaller conflict that does not need a massive manpower base.
Nick and Olly, Common sense is an enjoyable read.
Gary T, I had a previous employer of a private business who had the attitude that it was an honor to work for the company. A few of us would talk about this at lunch and although we enjoyed what we did there, we only did it because they paid us. I left after my last review when I was told that I had plateaued and I wouldn’t be seeing any significant raises (The year before I only got a cost of living increase so I stopped putting in any extra hours). They lost 50% of their engineering shortly after. I went to a new place that paid me a 20K raise. How unpatriotic of me.