The Corner

Consequences of High Taxes: French Edition

It is official: France is about to become a tax hell. Here is a list of what French people can expect.

Phase One involves what the government calls contribution exceptionnelle sur la fortune:

  • An exceptional tax charge on all those with a net worth of more than €1.3 million, raising an extra €2.3 billion

  • An increase of the estate tax

  • “Social taxes” on non-residents’ real-estate incomes and profits 

Then, there is this:

  • An increase in tax on stock options for both the employer and the beneficiaries

  • The creation of a 3 percent tax on dividends paid by employers (on top of other dividend taxes)

  • Doubling of the financial-transaction tax from 0.1 to 0.2 percent

  • An increase to 20 percent of the tax on employees’ savings

If you read French, there is a more extensive list here. Some of these taxes are implemented started on July 1. Others will be retroactive to January 1, 2012. These are “emergency increases.” However, there is no talking about “emergency spending cuts.” I assume that’s because it doesn’t fit in the French theory that the best way to promote growth is to increase taxes.

But then, in the fall, comes Phase Two:

  • An increase in capital-gains taxes to align with the labor tax (no details yet on what that means, except hiking capital-gains tax rates)

  • Creation of a new 45 percent tax bracket for the income tax

  • A marginal tax rate of 75 percent for income above €1 million

  • Closing of various tax loopholes

  • Reform of the tax on wealth (ISF)

#more#Not surprisingly, Britain’s prime minister, David Cameron, has announced that he would welcome French citizens and companies who wanted to flee its punitive taxes. There are already many French citizens living in the U.K. right now — to the point that some are calling London the sixth-biggest city in France — and it will only get worse.

These days, most business newspapers are running articles about the tough choices facing investors. Take this story in Les Echos (a leading French business journal), which look at the cost of these measures for savers and investors and what the return on investments will be after the reforms are in place. The answer to the question of what to do about it seems to be: “Leave.”

Le Figaro also just published a story about how top executives in French companies are already moving to other countries or returning to their countries of origin while keeping their jobs in France, in anticipation of the 75 percent income-tax rate. It also means that French companies won’t be able to attract foreign executives to work for them in France. This may sound like heaven for protectionists, but it has real negative consequences, especially in countries that do not have the supply of skilled labor necessary for some jobs.

In the end, there is a lesson in France for us. It will unfold before our eyes over the coming months, and I doubt it will be one that the French people will enjoy.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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