Since the French presidential election campaign, Francois Hollande has captured the news worldwide after it was reported that part of his platform is to impose a 75 percent tax on those making more than one million euros ($1.28 million).
Over the weekend, the French President, whose popularity has been on the decline, appeared on live television and defended his plan. Throughout the 25-minute appearance, he disclosed his plans for tax increases on wealthy households, savings and businesses. He also reiterated his 75 percent tax rate, but noted that it could be dropped after two years if the economy recovers.
The revenues, argued the Socialist leader, will be used for public services, including thousands of new civil servant jobs. In his first term, he has already announced during a television interview public spending cuts of approximately 10 billion euros ($12.85 billion) next year to tackle the budget deficit
Although the cuts to public spending is a step in the right direction, especially for a country that has lived beyond its means for so long and having the government in most aspects of daily life (the nation’s debt is 85.8 percent of its GDP, the deficit was 7.1 percent of the GDP in 2010 and public spending accounted for 56 percent a year ago), the 75 percent tax rate for the wealthy could be a horrible route to economic growth.
Of course, the general mantra among the middle and lower classes in Western society has been to “tax the rich” and for them to “pay their fair share.” A tax rate that high could send some of the wealthiest producers in the country elsewhere and ship jobs from France to a nation with a lower tax rate.
Bernard Arnault, France’s richest man, who is the CEO of LVMH Moet Hennessy Louis Vuitton SA (MC), the world’s biggest luxury-goods company, made headlines across the globe this week when he announced he was seeking Belgian citizenship, but he denied it was over the 75 percent tax proposal or a political message.
Still, that didn’t stop from France’s newspapers, including Liberation, to send Arnault and other rich individuals a memo. The newspaper’s front-page headline said, “Get lost, rich bastard.” Hollande even noted in a weekend interview that it was patriotic to pay taxes.
If Arnault’s actions were any indication then the country could anticipate many other affluent individuals, families and businesses to seek refuge from the taxation of France, which would be the unintended consequences of Hollande’s initiative. Prior to the spring election, there were talks among the business community that more would head to Belgium if the president’s tax was implemented.
Other nations and states within the United States have attempted to adopt the notion of higher tax rates on the wealthy.
Connecticut Governor Dannel Malloy thought he could balance the state’s books by introducing the largest tax increase in the state’s history. Upon tax collection, The Nutmeg State’s governor received heavy criticism after it was revealed that the increase only raised $95 million.
The state of Maryland came up with a millionaire’s tax that legislators projected would bring in $106 million. However, the Free State lost $257 million because the rich just packed up and left.
Recent studies have shown that if the Internal Revenue Service taxed 100 percent of all the millionaires’ income, it would only generate $616 billion and hardly put a dent on the $1.5 trillion budget deficit or the $16 trillion national debt.
Can anyone blame them? If these proposals were instituted, why would these millionaires want to work?
It seems Hollande is following the socialist mantra: it works until you run out of other people’s money. This could also backfire on the French government’s plan to reduce the deficit.
Latest polls suggest that Hollande isn’t generating the support he once had when he first started. The Daily Mail reported Monday that a Le Parisien newspaper survey showed that the president’s approval rating has dropped by 22 points within just four months down to 40 percent.
Maybe the French are realizing that you can’t steal your way to fiscal sanity.