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Will France Go Down in Flames?



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Last night, the president of France, Francois Hollande, spoke to the French people (9 million of them tuned in) and announced an unprecedented effort to close the deficit by raising an additional €20 billion in taxes next year. With the French economy projected to grow 0.8 percent next year, it’s hard to imagine that this increase in taxes is a good idea.

The private-sector austerity measures will be split between individual- and corporate-tax hikes. The individual tax increases will target the rich (Mr. Hollande’s 2013 budget includes a 75 percent tax on earnings over €1 million a year), but will also hit the middle class.

Here is a good chart from the Wall Street Journal demonstrating what marginal tax rates are going to look like in Europe:

Hollande also announced some €10 billion in spending cuts but there aren’t any details about the “cuts” yet.

I am not sure how Hollande thinks that this plan will address his country’s sluggish economic growth, and huge deficit, and an onerous debt. Pro-growth austerity measures impose austerity on the public sector, not the private sector. That means lower government spending, reforming entitlements, reducing the rolls and salaries of government employees, and a smaller government footprint in the private sector. Unfortunately, France shows that once again, government officials would rather address their debt problems through more taxes and more government intervention in our lives, that is, through anti-growth austerity.

Take a seat, because this is going to be an interesting social experiment.



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