The French Constitutional Council approved President Francois Hollande’s plan to tax salaries above one million euros ($1.4 million). The Council had sidelined the proposal earlier this year because it applied to individuals and not households. But Hollande fixed that by making employers pay the tax.
It was originally designed as a 75 percent tax to be paid by high earners on the portion of annual income exceeding 1 million euros, but the council rejected it last year, saying it was unfair. France’s top administrative court later said that 66 percent was the legal maximum for individuals.
The Socialist government has since reworked the tax to levy it on companies instead, raising the ire of entrepreneurs.
Under its new design, which the council found constitutional, the tax will be a 50 percent levy on the portion of wages above 1 million euros in 2013 and 2014.
Including social contributions, the rate will effectively remain about 75 percent, though the tax will be capped at 5 percent of a company’s turnover.
The tax is expected to affect about 470 companies and a dozen soccer clubs, and is forecast to raise approximately 210 million euros a year.
The Constitutional Council, a court comprising judges and former French presidents, has the power to annul laws if they are deemed to violate the constitution.
Tax increases designed to reduce France’s budget deficit have fuelled rising discontent in the country, with recent polls giving Hollande the lowest approval rating of any French president on record.
His 2012 supertax election pledge infuriated high earners in France and prompted actor Gerard Depardieu to flee the country. It has also alienated entrepreneurs and foreign investors, who have accused Hollande of being anti-business.
Hollande has said that the wealthy should contribute more to help to repair the country’s finances, arguing that the supertax should also encourage companies to curb excessive executive pay.
In Sunday’s ruling, the Constitutional Council rejected planned wealth tax measures that it said imposed levies on potential gains – such as those on life insurance policies – and thus risked overestimating a taxpayer’s actual resources.
It also quashed several measures designed to crack down on tax avoidance schemes through which individuals and companies use legal loopholes to minimize their tax bills.
The tax is confiscatory regardless of who pays it. Nor does it matter that “the rich can afford it” or that the tax will affect relatively few people. There is an important principle of limiting government’s power that even socialists must acknowledge as vital to maintain liberty. A government that can tax your earnings at 75% can do just about anything.
You have to guess that President Obama and the Democrats are gazing with longing on Hollande’s “supertax.” They’ve probably got the cash from an American version of the tax already spent in their heads. Thankfully, there’s little consensus in Congress to be that punitive.
But 5 years from now, who’s to say?