Saturday, December 29, 2012

Hollande's 75% Tax Isn't Dead--Not Even Sick

More laissez-faire readers are likely to be pretty excited skimming the headlines and learning that the 75% tax on the wealthiest Frenchmen has been struck down by the Constitutional Committee.

Having read this myself, I paused: "how does a constitution possibly bar some arbitrarily high tax rate?" The only reasonable possibility of this in my mind would be if the Committee made a pretty long stretch of one's liberty from unreasonable seizure.

Reading more deeply revealed that the Committee repealed the law due to what are ultimately minor structural details (targeting individuals rather than households, primarily), and Hollande has already declared that a re-structured law will come right back in 2013 with full force.

The first observation here is that the headlines of some very reputable news organizations are simply deceptive in their oversimplification--the casual reader would clearly interpret the headlines below to say that the law is dead. It's very much not--it's in fact going to be quite fine.


What this means for France is that its flow of super-rich citizens to London and Bern won't end any time soon. French national debt is nearing 90% of its GDP (which compares to a staggering 110% for the US) and climbing quickly--obviously losing this income stream will hurt, though France is likely to generate more income from increases on those who stay than it loses by those who leave. Geopolitically this tax wash may not be massively significant, but French unemployment is at 10.7% and--unlike the US, UK, or Germany--has been climbing for 19 months in a row.  France's biggest risk is that it loses those well-suited to launch or fund new companies or projects that will push its economy forward and hire its labor force. French labor & consumer laws aren't exactly business-friendly, but the fact that starting companies is difficult in France makes it even more critical to have individuals that can muster lots of money/resources at once.

And, just for chuckles, Monty Python brings us a timely analogy for the tax law.
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