France wants 75% tax on rich

[teflep]

:-|
PARIS — The call to Vincent Grandil’s Paris law firm began like many others that have rolled in recently. On the line was the well-paid chief executive of one of France’s most profitable companies, and he was feeling nervous.

President François Hollande is vowing to impose a 75 percent tax on the portion of anyone’s income above a million euros ($1.24 million) a year. “Should I be preparing to leave the country?” the executive asked Mr. Grandil.

The lawyer’s counsel: Wait and see. For now, at least.

“We’re getting a lot of calls from high earners who are asking whether they should get out of France,” said Mr. Grandil, a partner at Altexis, which specializes in tax matters for corporations and the wealthy. “Even young, dynamic people pulling in 200,000 euros are wondering whether to remain in a country where making money is not considered a good thing.”

A chill is wafting over France’s business class as Mr. Hollande, the country’s first Socialist president since François Mitterrand in the 1980s, presses a manifesto of patriotism to “pay extra tax to get the country back on its feet again.” The 75 percent tax proposal, which Parliament plans to take up in September, is ostensibly aimed at bolstering French finances as Europe’s long-running debt crisis intensifies.

But because there are relatively few people in France whose income would incur such a tax — perhaps no more than 30,000 in a country of 65 million — the gains might contribute but a small fraction of the 33 billion euros in new revenue the government wants to raise next year to help balance the budget.

The French finance ministry did not respond to requests for an estimate of the revenue the tax might raise. Though the amount would be low, some analysts note that a tax hit on the rich would provide political cover for painful cuts Mr. Hollande may need to make next year in social and welfare programs that are likely to be far less popular with the rank and file.

In that regard, the tax could have enormous symbolic value as a blow for egalité, coming from a new president who has proclaimed, “I don’t like the rich.”

“French people have an uncomfortable relationship with money,” Mr. Grandil said. “Here, someone who is a self-made man, creating jobs and ending up as a millionaire, is viewed with suspicion. This is big cultural difference between France and the United States.”

Many companies are studying contingency plans to move high-paid executives outside of France, according to consultants, lawyers, accountants and real estate agents — who are highly protective of their clients and decline to identify them by name. They say some executives and wealthy people have already packed up for destinations like Britain, Belgium, Switzerland and the United States, taking their taxable income with them.

They also know of companies — start-ups and multinationals alike — that are delaying plans to invest in France or to move employees or new hires here.

Whether many wealthy residents will actually leave and companies will change their plans, of course, remains to be seen. Some of the criticism could be political posturing, aimed at trying to dissuade the government from going through with the planned tax increase.

But some wealthy people left after Mr. Mitterrand raised taxes in the 1980s. And more recently, the former Victoria’s Secret model Laetetia Casta, the restaurateur Alain Ducasse and the singer Johnny Hallyday caused a stir by moving to countries just across the border to escape the French treasury’s heavy hand.

There is no question Mr. Hollande is under fiscal pressure. He has pledged to reduce France’s budget deficit, currently 4.5 percent of the nation’s gross domestic product, to 3 percent by next year, to meet euro zone rules.

The matter of how best to hit that target, though, is as much a political question as a fiscal one. Mr. Hollande was elected in May on a wave of resentment against “les riches” — company executives, bankers, sports stars and celebrities whose paychecks tend to be seen as scandalous in a country where the growing divide between rich and poor touches a cultural nerve whose roots predate Robespierre.

Half the nation’s households earn less than 19,000 euros a year; only about 10 percent of households earn more than 60,000 euros annually, according to the French statistics agency, Insee.

There is currently no plan to change the tax rates for most people, which is 14 percent for the poorest and 30 percent for the next rung. For higher earners — people with incomes above 70,830 euros a year — the tax rate will soon rise to 44 percent, up from 41, in a change that was already set before Mr. Hollande’s election.

A tax accountant in Paris with many wealthy clients, Steve Horton, has calculated that a two-parent, two-child household with taxable annual income of a bit more than 2.22 million euros ($2.75 million) now has after-tax take-home pay of about 1.1 million euros ($1.35 million) under France’s current tax system.

That household would end up with 780,000 euros, or $966,000, if the Hollande tax took effect, Mr. Horton says. (The same family, with comparable income in Manhattan, would take home $1.55 million, the dollar equivalent of 1.25 million euros, after paying federal, state and city income taxes, he calculated.)

Taxes are high in France for a reason: they pay for one of Europe’s most generous social welfare systems and a large government. As Mr. Hollande has described it, the tax plan is about “justice,” and “sending out a signal, a message of social cohesion.”

That struck a chord with voters angry about the wealth divide. And it is supported by some economists, including Thomas Piketty, a professor at the Paris School of Economics, who has conducted studies indicating that high earners will not work less hard if taxed more. But some say France could send out the wrong signal.

“People have an acceptable amount of taxes they are willing to pay,” said Mr. Horton, the accountant, “and if it goes above that, they will move somewhere that’s more reasonable.”

“The thing French politicians don’t seem to understand or care about is that when you tax away two-thirds of someone’s earnings to appeal to voters, productive people who can enrich businesses and the economy won’t come — or they will just leave,” said Diane Segalen, a corporate headhunter.

She said she had been close to sealing a deal for a seasoned executive in London to join one of France’s biggest companies earlier this year, when Mr. Hollande made his 75 percent vow.

“When the guy heard that, he said, ‘I’m not coming,’ and withdrew from the process,” said Mrs. Segalen, the head of the Segalen et Associés, a consulting firm.

For Mrs. Segalen, the proposal is the latest red flag in a country that has long labored under the image of being a difficult place to do business. France has a 33 percent corporate tax rate — the euro zone’s second-highest, after Malta’s 35 percent. That contrasts with the 12.5 percent rate in Ireland, which has deliberately kept a lid on corporate taxes as a lure to businesses.

“It is a ridiculous proposal, but it’s great for us,” said Jean Dekerchove, the manager of Immobilièr Le Lion, a high-end real estate agency based in Brussels. Calls to his office have picked up in recent months, he said, as wealthy French citizens look to invest or simply move across the border amid worries about the latest tax.

“It’s a huge loss for France because people and businesses come to Belgium and bring their wealth with them,” Mr. Dekerchove said. “But we’re thrilled because they create jobs, they buy houses and spend money — and it’s our economy that profits.”
www.nytimes.com/2012/08/08/business/global/frances-les-riches-vow-to-leave-if-75-tax-rate-is-passed.html?_r=2&hpw&pagewanted=print

[druidp]

Aug 7, 2012 20:47:07 GMT -5 teflep said:

“French people have an uncomfortable relationship with money,” Mr. Grandil said. “Here, someone who is a self-made man, creating jobs and ending up as a millionaire, is viewed with suspicion. This is big cultural difference between France and the United States.”

Yeah, I'm gonna go ahead and disagree with this statement, just based on trends of posts on this very board.

[teflep]

Why are there not more of our fiscal liberals (?) in here commending this? I am shocked! I figured this is the best decision evah!

[cookiemdough]

Maybe they should call romney's accountants!

[teflep]

Eh , like md residents, seems like they'll just move. But I know the richd pay a lot to.help all the little people. Solves all

[cookiemdough]

Eh I am not moving out of Maryland to any of the neighboring states. Taxes here irritate me but the beltway and a commute from va would make my life a living he'll.

[msmerymac]

The US has done it before.

Granted, with the world market the way it is now and telecommunications being what they are, it's a lot more enticing and easier to set up shop in the Cayman Islands or something rather than pay that income tax. Am I wrong in thinking that the US is one of the only countries that forces expats to pay income taxes, and therefore a French citizen who moved and worked in another country would not be subject to this taxation?

[ttt]

There are rich people in France??? I thought it wasn't possible to get rich in societies with universal healthcare and maternity leave.

[ttt]

Also, it wasn't that long ago that the top tax bracket in the United States was higher than 75% (it was 90%+ for a good chunk of the 20th century), so I don't actually find this all that shocking.

taxfoundation.org/article/us-federal-individual-income-tax-rates-history-1913-2011-nominal-and-inflation-adjusted-brackets

[JLN]

It's on top of their first million. So no, doesn't bother me at all.

[wise_rita]

Aug 7, 2012 20:47:07 GMT -5 teflep said:

Half the nation’s households earn less than 19,000 euros a year; only about 10 percent of households earn more than 60,000 euros annually, according to the French statistics agency, Insee.

That is shockingly low.

[KateAggie]

I cannot even fathom thinking it's "fair" to take 750,000 of every million made after the first. If nothing else, I would think it would be pretty obvious that those high income earners are going to get the hell outta dodge.

[aMrsin09]

Aug 8, 2012 1:03:31 GMT -5 wise_rita said:

Aug 7, 2012 20:47:07 GMT -5 teflep said:

Half the nation’s households earn less than 19,000 euros a year; only about 10 percent of households earn more than 60,000 euros annually, according to the French statistics agency, Insee.

That is shockingly low.

I told that to H and got raised eyebrows.
The 10% over 60,000 seems plausible, but the 50% less than 19,000 ...
If it was per person, maybe OK, but given that a large percentage of households are multi-generational (so possibly 3+ wage earners), that stat seems just not quite right.

[summer]

Aug 7, 2012 20:47:07 GMT -5 teflep said:

Mr. Hollande was elected in May on a wave of resentment against “les riches” — company executives, bankers, sports stars and celebrities whose paychecks tend to be seen as scandalous in a country where the growing divide between rich and poor touches a cultural nerve whose roots predate Robespierre.

Half the nation’s households earn less than 19,000 euros a year; only about 10 percent of households earn more than 60,000 euros annually, according to the French statistics agency, Insee.

He's doing what the majority of people who voted elected him to do. If it's a bad idea, then those same people will suffer the consequences and learn from it for the future. And if it works out, then so be it.

[teflep]

Aug 7, 2012 22:08:45 GMT -5 cookiemdough said:

Eh I am not moving out of Maryland to any of the neighboring states. Taxes here irritate me but the beltway and a commute from va would make my life a living he'll.

I am guessing that for them portability is easier.

75%...I wonder how much it will generate and solve problems? Millionaire taxes usually, imo, aren't cure-alls.

[dulcemariamar]

Aug 8, 2012 1:03:31 GMT -5 wise_rita said:

Aug 7, 2012 20:47:07 GMT -5 teflep said:

Half the nation’s households earn less than 19,000 euros a year; only about 10 percent of households earn more than 60,000 euros annually, according to the French statistics agency, Insee.

That is shockingly low.

I think that is about right. In Spain, 6 out of 10 people make 1,000 euros or less a month.

[IIOY]

France has to pay for its bloated government bureaucracy and union wages somehow.

True story: when this tax rate was floated during the presidential campaign, one of the biggest critics was the French football league, which fretted that its players would leave for other teams.

[IIOY]

Aug 7, 2012 23:24:52 GMT -5 ttt said:

There are rich people in France??? I thought it wasn't possible to get rich in societies with universal healthcare and maternity leave.

The tax would likely impact about 3000 people total.

[Waffles]

Rich French people have been buying property in Brussels for decades already in order to avoid the tax on fortune, I guess this would only bring more. Problem is, this has seriously inflated proprty prices in some areas as estate agents like the one quoted in the article apply Paris prices to Brussels properties.

[Michelle]

What is the incentive to invest in new companies and ventures if you are only going to keep a fraction of the profits? Why would anyone work hard if they can keep more in their pockets and their families' pockets if they just "make do?"

Bonjour les hommes francais. Je m'appele Michele. Bienvenue en les etats unis. Nous avons beaucoups des opportunities pour vous. Especialement en L'Houston. Et Nouvelle-Orleans est dans les environs - vous pouvez y aller pour les vacances et retourner chez nous ou vous pouvez depensez votre l'argent ici!

[2vermont]

Aug 8, 2012 1:44:25 GMT -5 KateAggie said:

I cannot even fathom thinking it's "fair" to take 750,000 of every million made after the first. If nothing else, I would think it would be pretty obvious that those high income earners are going to get the hell outta dodge.

I can't either. In my mind, a 75% tax rate is inexcusable regardless of financial means.

[ttt]

Aug 8, 2012 6:34:22 GMT -5 Michelle said:

What is the incentive to invest in new companies and ventures if you are only going to keep a fraction of the profits? Why would anyone work hard if they can keep more in their pockets and their families' pockets if they just "make do?"

For most of the 1900s, in fact up til the 1980s, the top tax bracket in the United States was greater than 50 % and often greater than 75%- even up to 91%. Somehow people still started companies and invested and the country didn't wither away into economic oblivion.

[2vermont]

Aug 8, 2012 7:18:02 GMT -5 ttt said:

Aug 8, 2012 6:34:22 GMT -5 Michelle said:

What is the incentive to invest in new companies and ventures if you are only going to keep a fraction of the profits? Why would anyone work hard if they can keep more in their pockets and their families' pockets if they just "make do?"

For most of the 1900s, in fact up til the 1980s, the top tax bracket in the United States was greater than 50 % and often greater than 75%- even up to 91%. Somehow people still started companies and invested and the country didn't wither away into economic oblivion.

Are you suggesting that we should have kept those tax rates?

[ttt]

Aug 8, 2012 7:25:35 GMT -5 2vermont said:

Aug 8, 2012 7:18:02 GMT -5 ttt said:

For most of the 1900s, in fact up til the 1980s, the top tax bracket in the United States was greater than 50 % and often greater than 75%- even up to 91%. Somehow people still started companies and invested and the country didn't wither away into economic oblivion.

Are you suggesting that we should have kept those tax rates?

Not necessarily, only that they clearly didn't bring business and investing to a complete halt. And in fact the years we had those tax rates were pretty prosperous years for the country. I'm not saying it was *because* of those rates (maybe it was,but I have no evidence to support this so I am not making the claim) but its clear that they didn't make economic prosperity impossible.

[Deleted]

So this is why Johnny Depp is having a midlife crisis and foisting shitty movie after shitty movie on us.

[Deleted]

Wow. I'm not sure what's more shocking - how many people earn so little or how few people earn so much.
Only 3000 people earn more than 1m?

[ttt]

From the article:
But because there are relatively few people in France whose income would incur such a tax — an estimated 7,000 to 30,000 in a country of 65 million — the gains might contribute but a small fraction of the 33 billion euros in new revenue the government wants to raise next year to help balance the budget.

[IIOY]

Aug 8, 2012 7:48:44 GMT -5 ttt said:

From the article:
But because there are relatively few people in France whose income would incur such a tax — an estimated 7,000 to 30,000 in a country of 65 million — the gains might contribute but a small fraction of the 33 billion euros in new revenue the government wants to raise next year to help balance the budget.

I wonder what the basis for this estimate is because 3000 was the number widely cited during the presidential debate on this.

"According to a 2009 French Senate study, the 0.01% richest French taxpayers, or 3,523 households, had an average yearly revenue of €1.22 million."

online.wsj.com/article/SB10001424052970204520204577251051439665674.html

Also, I'm highly amused that googling this issue in my phone pulls up many articles in which Will Smith's shocked reaction appears to be the primary point of interest.

[mominatrix]

Aug 8, 2012 7:31:51 GMT -5 ttt said:

Aug 8, 2012 7:25:35 GMT -5 2vermont said:

Are you suggesting that we should have kept those tax rates?

Not necessarily, only that they clearly didn't bring business and investing to a complete halt. And in fact the years we had those tax rates were pretty prosperous years for the country. I'm not saying it was *because* of those rates (maybe it was,but I have no evidence to support this so I am not making the claim) but its clear that they didn't make economic prosperity impossible.

Some of the most prosperous times in this country where when the top rates were that high...

What happens is that if the tax rates are high, there is a huge incentive to re-invest $ into businesses, growing them, creating more jobs, paying people who then go on, buy products, and pour money into the company.

Low top tax rates incentivize taking money out of companies and paying CEO's etc the big big big bucks, decimating the middle class, and putting us in the mess we're in now.

...just a theory.

...via mobile.

[heyjude]

I have a hard time getting upset over this.