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Manuel Carlos Valls Galfetti, the Prime Minister of France, said that the tax will be rescinded in January.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
One can not be a Frog with the last name Hollande. He quacks like a dork.
The rich and wannabe rich alike are leaving New York, California, and many blue cities because those governments have become rapacious like France.
A lifetime native New Yorker, I too want to move out, and go to New Hampshire.
It is sad to be forced out of the land you were born in.
Lefties assume that if a 1% tax collects $1 million, then a 2% tax would collect $2 million, and a 50% tax would collect $50 million.
But increasing tax rates has a negative effect on work, output, and employment. By penalizing people for being economically active, there is a disincentive to increase these activities.
France discovered the Laffer curve, as their tax increases not only reduced taxed activity and raised less revenue, some its wealthy citizens paid nothing at all (and never will pay taxes to France again) because they have moved out.
The one thing governments cannot figure out is to make people work as hard for the State as they do for themselves. Slaves are simply not as productive as freemen, and productivity declines with each additional State tether on the free.
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Federal Individual Income Tax Rates History
Nominal Dollars Income Years 1913-2013
http://taxfoundation.org/sites/taxfoundation.org/files/docs/fed_individual_rate_history_nominal.pdf
How strange that small business persons don’t get upset over the fact that they pay more taxes than the super rich who take advantage of tax loopholes and tax havens. Why do small business owners carry water for the ultra rich who probably hold these piddly little small business owners in the same disdain as they do the average worker? The self deception as to their own level of ‘success’ is amusing. How interesting that the average conservative wage earner holds union employees in disdain, they revile them for the better wages and benefits they earn because the nion workers are intelligent enough to work for companies have have unions. The ultra rich probably laugh their a$$es off at the the fact that they have divided and conquered the peons, have the peons at each others throats over a piddly sum of money. I always am amazed when people of average or slightly above average income see themselves as somehow closer to the rich than they are to the poor or average earners.The ultra rich wouldn’t have their plumber over for dinner, that I am quite sure of.
On top of a flat tax, I believe we should also have to right the check to the govt say every quarter instead of it being taken out through an employer. By doing this, you would have a better feel for how much the property the govt. is stealing from you every quarter. This would hopefully make us demand more for our money. I know it will never happen since keeping us dumb is what it is all about.
@ Bill
The problems with a “wealth” tax are several.
First: what are we going to consider as wealth? Second: what about UNrealized gains.
Money saved in the bank or CDs. Who would save money in those if your efforts are going to be taxed. Might as well put it under the proverbial mattress.
Stocks that you own but haven’t yet sold? Unrealized Capital Gains. Why would you invest in companies that if the do well, you get punished for their success and for money that you can’t spend until you sell it. (BTW: this is part of the answer to why capital gains taxes are lower than income taxes. I could write a lengthy post on this if anyone is interested….in actually thinking that is)
Property that you bought. House?. Farm land? Unrealized gains again and completely unfair to the aspiring middle class. For example: you bought a house or land 35 years ago for $50,000 and have made payments all these years. Through no effort of your own other than perhaps buying in the right location and the right time, your house is now worth 2+ million dollars. If you think this is a made up scenario, I assure you this is actual. My stepmother is in this position. Lucky her. HOWEVER….this wealth is unusable as income unless she sells, which she has no intention of doing. Should she be punished with high taxes because of this lucky investment. WHO would want to buy property?
Personal possessions: Is the government going to go through my jewelry box, rifle through my china cabinet, check out my furniture to see if I have anything worth taxing? Are we going to have to make an inventory of our possessions to give to the IRS so they can tax us if we have actually gotten something of value from Grandma?
People would stop trying to gain wealth. Stop investing in companies. Stop growing businesses. People would become even MORE creative in hiding their assets or just not accumulate assets. What is the point if you own wealth or expensive things if you get taxed just because they have grown in value?
The Velocity of Money would slow incredibly as people are discouraged from buying, investing or saving.
http://www.businessweek.com/articles/2014-01-17/the-recovery-and-the-speed-of-money
People need to “think” these proposals through to the human nature consequences and as to the economic consequences. What sounds like a cool idea to punish the wealthy, would really punish the entire economy.
A completely casual review of this thread will reveal a real disdain for the rich. There is no qualifier about which subset of the rich people dislike, and if there were, that would be foolish, as well.
Personally, I don’t dislike anyone for being successful. I judge someone for doing wrong, not for how much money they earn. What a strange idea, to dislike someone because they are rich, medium rich, or too rich.
randyjet:
Capital gains were huge under Eisenhower. You are right, that it was not only capital gains.
My point was that there is always an effect when we raise taxes. Eisenhower had 3 recessions, which proves my point. As does France. As does Greece.
Randyjet:
What was the cost of Eisenhower’s high taxes? There were 3 recessions during his administration, and Kennedy was able to win the next election by promising growth.
Why were taxes so high? Why would a Republican have high taxes? Taxes increased with WWI. And, as is always the case, once government raises taxes temporarily, they become permanent. However, when Herbert Hoover increased taxes, the deficit actually increased from $462 million to $2.7 billion. The more he increased taxes, the less revenue he took in. Because people changed their behavior. In fact, modern economists blame these high taxes for prolonging the Great Depression.
When Eisenhower was elected, he refused to reduce those lingering wartime taxes, claiming, “We cannot afford to reduce taxes, reduce income,” he said, “until we have in sight a program of expenditure that shows that the factors of income and outgo will be balanced.” Sound familiar? He thought he was being a fiscal conservative, but he failed to take into account cause and effect. His economy was a disaster, and paved the way for Kennedy to take office, on a platform of economic growth.
It was Kennedy who actually lowered taxes.
http://www.cato.org/pubs/pas/pa-192.html
Karen, It was not the high taxes that caused the Depression or prolonged it. Hoover raised taxes to try and balance the budget, and in fact FDR ran on balancing the budget. Of course, when he took office, he did the opposite and the US came out of the Depression with the massive increase in social spending the Federal government did in his first term. After FDR lost his support in Congress for those programs in 1937, the US went back into the Depression. While I am not a big fan of Henry Ford, he did have the wit to understand that his workers would have to be paid enough of a wage to afford to buy the cars he was making. The same holds true for getting out of a Depression. As any person knows, you have to have DEMAND and a market to have a business. Thus massive deficit financing is the only way to stimulate an economy in an economic downturn. When times are good, then one raises taxes and decreases social spending for the reason that there is no longer a need for such things.
randyjet – studies have shown that FDR never got us out of the Depression, even with WWII. It was the post-war spending of 1946 that started to dig us out. FDR and his socialist programs were a waste of money. A best a band-aid for some people.
randyjet:
The top earners did effectively leave economic America, and buried their income into foundations, trusts, holding companies, non-profits, etc.
It was very few people who actually paid even more than fifty percent of their gross income in taxes back then – and if they did they had another major reason for doing so – like making themselves electable so they could change the laws they didn’t like or impose the ones they did.
We don’t hear about it, because such things were done without fanfare. Who wants to tip off those who would seek to close such avenues.
Gary, that is true as to how the old money folks got around paying taxes back then. As one example, when Eisenhower wrote his first book, President Truman by executive order granted him a tax exemption so he would avoid the 93% tax he on the money he got from his publisher. Of course, when Truman wrote his memoirs, Eisenhower would not return the favor so Truman had his royalties taxed at 93%, and this was before former Presidents got a pension, so Truman actually needed the money unlike Eisenhower.
Dust Bunny Queen, slohrss29:
Similar situation here with me too. I cannot understand what the advantages of hiring employees are under what the laws of employment have become.
Employees are just a bunch of liabilities waiting to happen — if not the mandate for contributions to their unemployment insurance, then the mandate for contributions to their health insurance, or to act as an agent for the state in enforcing their child support at my company’s own risk if I don’t properly police the employee’s salary, or my commandeered agent status as a tax collector for the state for the employee, or the risk of civil lawsuit from employees for a hostile work environment if someone puts up a calendar with a lady in a bikini, or violation of some random OSHA violation du jour — the list goes on and on.
Government bureaucrats have seen an easy target in the interloping between an employer and employee, and have layered on the BS until it is obviously so top-heavy, no thinking small business owner would want to have employees.
It is much easier, safer and transactionally cleaner to engage independent contractors instead. They are their own companies, not my employees.
Well, randyjet, that was capital gains, not all taxes, and it did have an effect on the behavior it taxed.
How would you change your behavior if you were taxed 93% next year? Would you still go about your business exactly the same? Does it make any amount of sense to you to assume other people would?
France has learned its lesson. Do you think they are wrong? That this 20% increase in emigration of the rich did not happen? Was an amazing coincidence?
Karen That was NOT on cap gains by the way. It was on income. The people it hit hardest were actors, writers, and those who had a big payday one year. I suggest you learn some history and economics.
Oh baloney no one dislikes average or slightly above average wage earners or even moderately wealthy people. Why do people who are not truly wealthy place themselves in the same category of the ultra rich? How silly. They are not even near the level of the ultra rich and no one reviles them. It’s that idea that they too are part of the upper crust, the upper percent, no you are not, you are merely a “peon” in the eyes of the one percent, just like the rest of us. Don’t flatter yourselves, LOL. Good grief.
DBQ – you are so lucky you don’t have employees at this time. We haven’t been able to hire any more people, with increasing taxes and now Obamacare costs. Now with the enormous minimum wage hike, we evil small business owners are trying to decide how to cope with a basically doubling labor cost. Because, if you’ve just given unskilled workers a huge raise so they make as much as skilled workers, the skilled workers need a raise or now they’re making entry level wages.
So, let’s see, there’s firing everyone and downsizing, cutting hours and downsizing, or passing on the higher cost to the consumer, which now squeezes even more out of everyone’s wallet. And, believe me, we’re all going to take the hit. The price of EVERYTHING is going to go up to cover this. The cost of our materials is going up because of this, so there’s now more materials cost, too. That, or people on the edge will just fold up and close.
So, thank you so much, Liberals, for helping us! So much . . .
slohrss – I love the idea of a flat tax. As it stands, if your CPA makes a mistake, you can be held criminally liable. Even though there is no way a non-CPA can make any sense out of the tax code. How could anyone tell if their CPA had prepared their taxes correctly? Plus, with a flat tax, there would be no more raising taxes on “the other guy.” We’d all be in the same boat. Raise assistance levels so that it’s a net zero for the poor, who will have exactly the same government income as before. Make it simple. Everyone does their own taxes as long as they can fill in a couple of blanks. Or, another possibility is make a very simple, tiered system.
Laboratory tests show that people are much more willing, and sometimes shockingly eager, to inflict pain on someone else than they are on themselves. The tax code is an example of this. Measures that tax the rich usually pass, while measures that raise everyone’s taxes fail more often.
Tax policy suggestions.
1. Replace income taxes with a wealth tax.
2. Enact a high tax rate on all immigrants who’ve lived here 10 years or less. Based on the claims about rich French leaving there, we would have far less of a problem with the costs due to illegal immigrants here. Mexico and Central America would have to find a better solution to their exploding population growth… and I say let the Pope put THAT in his pipe – and smoke it.
I hear what you are saying DBQ. Same boat. Sometimes more comfortable than others. When you have a business, there are no guarantees. I think everyone should be cut loose from the system and have to make their own way sometime so they can argue the tax points honestly.
We are not extremely wealthy. We are comfortable. We are not making a huge amount of income. [There is a difference between wealth and income you do know? ] But we make enough to be comfortable. We are among the reviled and spit upon. We are small business owners. Evil people who create work for others and keep the economy moving. (Note: I don’t say that WE create jobs, because we do not have employees due to the ridiculous costs and liabilities associated. We create work for other independent contractors)
I, like Paul also take every single deduction that I can and use all the tax strategies at my disposal to maximize our income and minimize our taxes. You would be stupid not to do so.
Here is what makes me bemused about the so called smart people who want to central plan our lives. They act like there are never going to be any consequences or reactions to their best laid plans. They act like people have no free will or the ability to reason around their laws. Tax the high income earners….and they WILL find a way to reduce their taxes….even if it means moving away. OMG How dare you! Move!?! Try to do better for yourself! You were supposed to just stay put and take the punches and not complain or try to avoid the punches.
IF the central planners COULD, they would like to make us all serfs who can’t get away from their clutches. Keep us chained in harness.
The economic ignorance on display here and in our lawmakers would be laughable if it weren’t so dangerous.
I will wager that come spring, the very same people who criticize the rich for utilizing legal tax deductions, etc will go to their local tax preparer who promises to maximize their own refund, and ensure they don’t pay a dime more than they owe.
But, you know, it’s OK if THEY do it. They’re not rich. How dare the rich want to use every legal means possible to save money! I know we all do it come tax season, but it’s somehow so tacky when the rich do.