The Corner

France to Beef Up Its Exit Tax

The French government seems committed to taxing itself beyond the point of no recovery. You’ve heard me talk about how over the years, and in particular over the last four years, France has relied heavily on tax increases in trying to contain its huge deficits. Everyone knows about how President Hollande campaigned for and then proposed a 75 percent tax rate on personal income above €1 million. (Will Smith’s reaction on French TV to learning the extent of the tax hike was very funny and worth watching if you haven’t seen it.) However, Hollande’s aspirations were crushed by the Constitutional Council, which declared the tax unconstitutional. That has not dissuaded the president, who plans to revive the 75 percent tax rate next year.

One aspect of France’s confiscatory taxes that’s often overlooked by Americans is that previous President Nicolas Sarkozy was almost as bad as Hollande when it came to raising taxes. In fact, data compiled by taxpayers’ watch groups and newspapers show that between 2007 and the end of 2012, taxpayers were subjected to 205 separate increases in their tax burden, from excise levees on televisions, tobacco, and diet sodas to multiple increases in the capital taxes and a wealth-tax hike. Sarkozy is also responsible for increasing the top marginal income tax rate from 40 to 41 percent in 2010, and again, to 45 percent, in 2012.

Le Monde published a special report in September 2013 in which the liberal newspaper used data from the Ministre des Finances to show that, since 2009, under both Presidents Sarkozy and Hollande, 84 new taxes have been instated. The article also notes that Sarkozy increased tax revenue by €16.2 billion in 2011 and €11.7 billion in 2012, while Hollande added another €7.6 billion on top of that as soon as he was elected. He’s planning to raise an additional €20 billion in 2013. That’s  €55.5 billion in new tax revenue in four years, with more than half of the total collected from businesses.

And sadly for French taxpayers, taxes are set to go up even further in 2014. As The Economist recently explained:

The French were fully prepared for François Hollande, the president, to squeeze the rich with taxes. When he campaigned for office last year, he denounced the “arrogant and grasping” super-rich. And he made waves with a promise of a 75% top tax rate for millionaires, which will be applied in 2014, though paid by firms not employees. Today, however, the middle too is feeling the pinch, and it will do so again in 2014 thanks to new measures such as lower family tax credits and higher social contributions. So is business, which faces an extra 1% levy on gross profit. “A painful budget for everybody” read the front page of Le Monde, a left-leaning newspaper, on budget day.

And there’s more: The French government has also anounced that it will beef up the exit tax, a tax first implemented by Sarkozy in 2012 intended to slow the pace of people leaving the country for tax reasons. The exit penalty taxes capital gains at the rate of 19 percent and adds a 15.5 percent payroll-tax-like penalty. The tax isn’t paid as taxpayers exit the country, but they have to pay it if they sell their assets within eight years after their exit. Hollande that limitation to be expanded up to 15 years after the taxpayers leave the country. 

Now, no one can explain what it is like to be French under this regime better than the French themselves, so everyone should read this piece by Anne Elizabeth Moutet in the British Telegraph last weekend. Seriously, read up and feel sorry for the French.


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