How big a tax increase? How about a 75% tax rate on income of more than 1 million euros a year?
France’s socialist government announced a big one-off increase in wealth taxes on Wednesday, by far the biggest single element in a €7.2bn package of new levies aimed at meeting this year’s budget deficit target that also included surcharges on banks and energy companies.
The supplementary 2012 budget, required to ensure the government hits its deficit target of 4.5 per cent of gross domestic product this year, was weighted overwhelmingly towards taxes on the rich and big companies as ministers said planned spending cuts would mainly take effect from next year.
An extra €2.3bn will be raised by an exceptional tax charge on all those with net wealth of more than €1.3m.
Citing an “an extremely difficult financial and economic situation”, Pierre Moscovici, the finance minister, said: “The wealthiest households and the big companies will be asked to contribute. In 2012 and 2013, the effort will be particularly large.”
Further tax increases for next year, when the government is expected to have to find €33bn in savings to bring the deficit down to 3 per cent of GDP, will be spelt out in the autumn. They will include President Francois Hollande’s election pledge of a 75 per cent marginal rate on annual incomes of more than €1m – and permanent increases in wealth taxes.
This year, including the wealth tax and a smaller increase in inheritance and gift taxes, the better-off will carry a comfortable majority of the additional €3.4bn to be raised from households.
Taxes on business will raise €2.9bn, including a €550m surcharge each on petroleum stocks held by energy companies and on banks. Other hits included an expected 3 per cent tax on company dividends and an increase in the taxation of bonuses and stock options.
Predictably, the rich aren’t going to take the massive increases lying down. In fact, many of them are going to walk:
“I’m very happy in Paris. My wife and I love Paris. We came here by choice. But I’m reconsidering our situation given the changes in the pipeline,” says Roger, who declined to be identified by his real name.
More than the 75 per cent rate, it is a move to higher wealth and inheritance taxes that worries him – and what he perceives as a cultural hostility to the rich. “The anti-wealth rhetoric is just not encouraging. I’d rather be in a country where I don’t have to deal with that,” he says.
It is not just expatriates who are concerned. Henri de Castries, head of Axa, the insurer, is one of France’s most respected business leaders. “I’ve listened to Mr Hollande. He wants to see more growth and lower employment. He wants to see business prospering. We want to see that, too,” he says. “The question is how to achieve these goals? There is no example, in modern economic history, of a country that has succeeded in reducing its deficits by bringing taxes to a confiscatory level. On the contrary, it leads to a decline in activity, and an increase in the deficits.”
Expecting a socialist to listen to economic logic is a waste of time. The expected revenue will not be realized as people either find a way to avoid the tax, or leave. The increase in taxes will also stifle business activity as companies see no upside to increasing revenue when so much of it is going to be confiscated by the government.
A second Obama term will probably look a lot like this; socking it to the wealthy, or near wealthy to pay for Obamacare’s expected massive increase in spending, as well as other social welfare redistributionist schemes. It’s not going to work in France. It’s not going to work here. And we will probably end up with larger deficits and more debt — the legacy of liberal Democratic policies that demonize the successful and create a culture of dependence for the rest of us.