French Entrepreneurs Revolt

http://www.mondaynote.com/2012/10/07/french-entrepreneurs-revolt/

by Cbasedlifeform • 14 years ago

73 80 14 years ago

chrismealy• 14 years ago

Getting all the rich creeps to leave is a feature.

fusiongyro2• 14 years ago

That's a myopic view of economics. How could it improve things to have the group with all the money leave, taking it with them?

ucee0544• 14 years ago

They can be prevented from taking it with them.

Try renouncing US citizenship; you'll have to pay a big penalty to the IRS to do so...

Cbasedlifeform• 14 years ago

The problem is if they take the young gifted entrepreneurs with them. I heard anecdotally that they were already leaving e.g. for London and that was before this latest tax increase.

stfu• 14 years ago

I truly hope that this is going to be the result of the French "situation". It would be once and for all great to have some more substantial evidence on how growth, innovation and consumption dramatically goes down, when governments go on a tax-the-wealthy witch hunt .

Bernard Arnault should be hailed as an example, not a traitor, for leaving France and getting a Belgian citizenship.

Postulating a Unified Europe by pushing the ongoing de-nationalization of the EU member countries is absolutely antithetic to the expectation that tax payers should feel obliged to pay taxes to their home country, and not switch to the one most beneficiary for them.

irreverentbits2• 14 years ago

Yes, exactly. Disincentivizing innovation and the financial machine that backs it is an /excellent/ idea.

ucee0544• 14 years ago

First, find actual data to back the assertion that low capital gains taxes back innovation.

I think you'll find that it is in fact seed capital and small business loans that back innovation, and that these facilities are generally provided by government not the private sector.

I think you'll find that what low capital gains taxes do is allow hedge fund managers to get a lower tax rate by reclassifying their income.

paulhauggis4• 14 years ago

It's crazy how so many people in this generation believe that getting rich is evil and wrong..but being forced to give up 60-80% of your earnings to a government that will most likely squander it is not.

Don't worry though. When all of the rich leave, there will be nobody left to tax.

jaggederest• 14 years ago

Whatever you say, John Galt. Go it alone, you don't need those proles, and let us know how that treats you.

oelmekki• 14 years ago

Those numbers are totally wrong. First, "pigeon"s don't talk about 80% but 60%. And they're wrong about that too.

Here is an economical review from the law (translated from french) : http://goo.gl/70xwI

The tax is not 60%, but 40%, worst case scenario ; and can be as low as 20% if conditions are met (keeping the business a long time, reinvesting money in an other company).

Also, the purpose was not to blame rich ones, it was to tax transaction incomes at the same level as work income. Not more.

michaelochurch4• 14 years ago

France has universal healthcare, tougher environmental regulations, and 5 weeks of paid vacation for all working people. I hardly call that a "squandering" of resources.

Fighting an oil war in the desert is closer to that.

hnriot• 14 years ago

It's true that some people get rich by exploitation and other nefarious means, but there are also people that get rich by doing things, by inventing, by discovering, by building companies, by doing the very things that a country like France needs to compete. A country that already hampers any real chance of getting ahead in the world (for example maximum work hours and mandated holidays) needs as much help as it can get, so maybe keeping people that got rich inside of France is actually a good thing. Maybe that chip on your shoulder is holding you back in more ways than you know.

yardie2• 14 years ago

> for example maximum work hours and mandated holidays

Where are you getting this from? They have the same type of labor laws in the US and even in China (how it is enforced is up for debate). You agree to work a certain amount of hours (35-40), you go over the company pays more. And they can't make you agree to more than that.

Holidays aren't mandatory, they are an entitlement. I may or may not work during Labor Day or Christmas. Most offices choose to shut down during holidays because, unless it is critical, with everyone else closed you it's almost impossible to get anything done.

ucee0544• 14 years ago

A country that already hampers any real chance of getting ahead in the world

This is perhaps accurate about North Korea or Congo. France, not so much.

jdangu• 14 years ago

> the new Socialist administration proposed to tax an entrepreneur’s capital gains as ordinary income

Actually, they plan to tax all capital gains as ordinary income, most of that comes from stock/financial investments. The article doesn't mention that this was not meant to impact entrepreneurs but is merely a side effect. As I understand it, there will most likely be an exemption for this case.

pandaassembly• 14 years ago

Thanks for this, the link posted is more of a rant than a careful analysis of the french environment for start ups.

ori_b• 14 years ago

The fact is that -- at least percentagewise -- the rich tend to be taxed far less than the middle class, precisely because capital gains tax tends to be so much lower. I'm not sure why this is considered a good thing, other than the assertion that it attracts rich people.

I'm no economist, so maybe there's another good reason to give the highest earners a lower effective tax rate, but I don't see it.

ojbyrne• 14 years ago

I'm left of center politically, but the argument is that they put money they already have (and have paid taxes on) at risk by investing. They don't have to do that, and by doing so, they help the economy overall. So the government provides incentives to risk money that they don't really need to.

Also middle class people can (and do) take advantage of the exact same mechanism.

eli_gottlieb6• 14 years ago

By that measure, isn't working putting your time at risk? After all, the company could collapse and go under any day, or, more likely, just lay you off any day!

(I realize that equity instruments are far riskier than working, but debt instruments really aren't. With a bond or loan, the company owes you the money either way, just as it does when working for salary.)

I see no reason that realized capital gains shouldn't just be treated as Yet Another Source of Income.

twoodfin2• 14 years ago

> The fact is that -- at least percentagewise -- the rich tend to be taxed far less than the middle class...

If you're talking about Federal income taxes, that isn't true. Marginal rates for the middle class can exceed 15% (a married couple would have to earn ~$80K jointly before that happened), but the effective income tax rate for the median household is much lower than, say, Mitt Romney's.[1]

Payroll taxes make this a closer run thing, but that's another story, and the trend since the Medicare reforms of the '90's (removing the FICA tax cap) and the ACA today (higher FICA tax on high income, new cap gains tax) has been to push the costs of broad social welfare programs onto high earners.

[1] http://www.cbpp.org/cms/index.cfm?fa=view&id=3151

jamesaguilar• 14 years ago

The other thing to observe is that very few people who are making a mid-lot of money ($200k-$1m) are paying as low of an effective rate as Romney is.

loup-vaillant2• 14 years ago

No, he's talking about total effective taxes in France. That includes things such as VAT.

Basically, the lower classes pay around 40% taxes (compared to their income). The middle class pay around 50%. Rich people pay around 30%, and the riches pay even much less (percentage wise). Apparently, wealthy people are better at exploiting loopholes in our tax system.

WildUtah3• 14 years ago

Capital gains income is usually taxed at a lower rate on the principle of double taxation.

I don't know how it's done in France, but in the USA corporate income is taxed at a theoretical rate of 35% and the gains from that stream of profits, whether dividends or capital gains, are taxed at 15% on the individual level. That 15% comes after excluding the taxes paid at the corporate level. If an individual had earned that money himself without forming a corporation, he would have paid a 35% maximum rate.

Real estate income is usually taxed like corporate income. Capital gains from non tax paying assets like art and collectables don't reflect double taxation and therefore don't get the lower capital gains tax.

Of course it's more complicated than that. Corporate taxes are filled with loopholes. The 15%+35% is often less in total than the simple 35% if your accountant is talented. That doesn't mean the system is wrong, just that the loopholes reflect corruption.

joshAg2• 14 years ago

But, isn't it two different people paying the corporate tax and the cap gains tax? Forgive me, but the way you explained the cap gains tax seems akin to me being taxed on my income, then taking part of the leftover money to pay for a mechanic and him having to pay income tax on what i paid him. Could you please explain where/how i'm misunderstanding you?

shin_lao2• 14 years ago

Capital is what remains after tax.

During the life of the company the structure paid social and income tax. Strongly taxing what remains (wealth) is not only unfair (What, how did you manage to produce wealth? Let's tax it!) but results in, in fact, a double tax.

jandrewrogers• 14 years ago

Long-term capital gains taxes are lower than income taxes for a number of sound financial reasons. Who earns them really does not play into it.

While the double taxation argument seems to be popular, it is relatively weak. Some of the important reasons that are often overlooked:

- Long-term capital gains are not indexed for inflation. For investments held multiple years, this compounds into a very substantial loss that cannot be deducted from the nominal paper gain. You can pay significant capital taxes for a real loss. For short-term investments and income, this loss is nominal and can easily be accounted for in other ways. The lower tax rate on long-term capital returns is a simple way to approximately account for that loss without complicated math.

- Long-term capital taxes are not efficient relative to other taxes. Taxes adversely impact the economy from which tax revenue is derived, so preference is given to taxes that have the least negative impact for every dollar collected. In this regard, capital taxes are among the least efficient of the common taxes. By comparison, both income and consumption taxes do much less damage to economic growth for the amount of revenue generated. From the standpoint of maximizing tax revenue, taxing long-term capital investments is not a good way of going about it.

In short, long-term capital gains are taxed at a lower rate because (1) you can't deduct the substantial inflation losses which make long-term investments otherwise unattractive and (2) even if you could, it is a lousy way for governments to generate tax revenue over the long term relative to other tax sources. While they are associated with high earners, that is mostly incidental. Governments generally have a vested interest in balancing growing the tax base and maximizing revenue, arbitrary notions of fairness aside.

Locke1689• 14 years ago

This is fine in theory, but the data doesn't seem to back up the idea that capital gains tax has to be extremely low for substantial investment to occur. At least, according to US historical capital gains tax rates.

GuiA• 14 years ago

In the past 5 years, I haven't regretted leaving France once. I am thankful for having grown up there, but as an entrepreneur/engineer adult it would make no logical sense for me to stay there.

The government complains about "la fuite des cerveaux" (brain drain), but they're not doing much to prevent it (whether it is for entrepreneurs or researchers— I've been in both camps).

l0nk• 14 years ago

Please stop whining.

I'm a French "entrepreneur/engineer adult" and I have no reason to leave France.

lloeki• 14 years ago

The startup scene in France is glacial. During the presidential elections, the only political figure who seem to get it and bound to fix this mess was François Bayrou, while the remainder were focusing on saving what remains of our heavy industries.

I randomly watch news/docs about some French "startup", and the spread mean size seems to be 20 to 100 employees. That's enough to make you think what "bootstrapping" means here.

Even without talking about that side of things, it's extremely hard to find anyone technically truly competent to sidekick with, let alone in technologies compatible with startup rhythms (even Rails and Django are a rarity, the huge flock only knows C# and Java at a very, ahem, academic level). Not exactly helpful if you want to build your MVP quickly.

I'm not even talking about the legal paperworks that would sink a founder's time like your nearby blackhole. I'm contemplating doing this myself since a few years and the amount of crap you have to wade through is astounding. The sanest solution is moving to the UK (but my personal situation prevents that, for now).

The whole ecosystem is heavyweight and not nimble at all.

subsystem3• 14 years ago

I don't see how that's different from everywhere else.

anovikov2• 14 years ago

If only London was such a physically comfortable place to be and live in as Paris!

subsystem3• 14 years ago

Seems like a pretty hefty generalization.

http://en.wikipedia.org/wiki/Anchoring

StefanKarpinski• 14 years ago

Title would have been much better link bait as "Revolting French Entrepreneurs".

mmariani• 14 years ago

I sincerely hope that other EU members don't follow suit on this outrageously stupid idea. Because if so, it'll be the beginning of the end for Europe.

mathieuh• 14 years ago

This is why neo-liberalism and social democracy do not work. You can reform capitalism all you like, right up until the upper class decides they'd quite like to go back to being many times richer than the working class.

eli_gottlieb6• 14 years ago

Social democracy should never work, in theory. It works fairly well, in practice.

But frankly, saying that social democracy can't ever work because neoliberalism murdered it is not exactly a good theory.

Hey, though, I'm as in favor of smashing capitalism once-and-for-all as you are.

guelo• 14 years ago

The problem in all of Europe is that the ECB has insanely decided to maintain tight money during a recession. This is slowing down economies across the continent and forcing governments into austerity budgeting which acts as a pro-cyclical intensifier of the recessions.

So being forced into an austerity budget you have two levers, cutting spending or increasing taxes. Both will hurt the economy, the question is which is worse. France being richer than, for example, Spain has a little more room to maneuver. Entrepreneurs like to look at the so-called supply-side arguments but the mirror demand-side argument is frequently ignored, if people don't have money to spend they're not going to buy what you're selling. Economics being the joke science that it is these issues are argued endlessly without resolution, though there is some evidence that tax policy does not have that big of an effect on economic growth. But what we can say for sure about cutting social services is that lower and middle class people will suffer more from these cuts than the entrepreneurs will suffer from tax hikes since normally the entrepreneur will have more personal money to absorb the hit.

Again, this could be avoided if ECB would adopt more pro-growth monetary policy.

fauigerzigerk• 14 years ago

When you say "entrepreneurs" you must be thinking of the L'Oreal or Hilton heirs. I see lots of heavily indebted entrepreneurs in Europe taking on big personal risk, both financially and in terms of career risk. European entrepreneurs rely on bank loans much more than the typical U.S business. There's very little equity in many small businesses.

Enrepreneurs who are now wealthy often had to struggle for many years in poverty without much social security before they achieved that kind of success. Many fail as well. I think you're mixing up entrepreneurs and big corporations. Big corporations can absorb or avoid paying taxes in any particular country, but entrepreneurs often can't.

I do agree with you that monetary policy should be counter cyclical and it is. The ECB has tripled its balance sheet since 2007 and it has lowered interest rates to 0.75%, which is way below CPI. I agree that they should have been even more aggressive but there's a political reality as well.

Monetary policy is not the issue here. The problem is counter cyclical fiscal policy. It has to stand on both legs. If you don't run a surplus in boom times you're not going to be able to spend enough during downturns.

But our political systems seem to be structually pro cyclical. During boom times, the right wants to cut taxes or fund wars and the left wants to extend benefits. Nobody wants to run a surplus and pay down debt.

anovikov2• 14 years ago

Stupid move in an economy so (internally) open as EU. Companies will just move somewhere nearby, and the commies will suffer.

ucee0544• 14 years ago

"Commies"?

Really?

You don't understand the difference between putting up taxes and running the Gulag Archipelago?

gadders6• 14 years ago

Fortunately, there is a free [1] enterprise zone just a few hundred miles from Paris where many French entrepreneurs and businessmen can locate to. It's called London [2]

[1] Relatively speaking

[2] http://www.dailymail.co.uk/news/article-2174704/Wealthy-Fren...

rmc2• 14 years ago

I would not trust the Daily Mail when it comes to how great the UK is and how terrible other EU countries are.

gadders6• 14 years ago

First link I could find. Have a similar one from the BBC:

http://www.bbc.co.uk/news/magazine-18234930

DanielBMarkham• 14 years ago

From what I understand, when it comes to policy, many on the left seem focused on the person first, the money second. Is a rich person unfairly profiting from our great country? Couldn't we take that money and do something better with it? After all, aren't the needs of many people greater than the needs of just one? Let's look at people, decide how fair they are treated, then make the money do that.

Others (including myself) focus on the money. Is the money being used efficiently for things the population wants? How can people more efficiently allocate money so that we all benefit. After all, if the money is being used to its maximum effectiveness, shouldn't all the people benefit? Let's look at the money, decide how efficiently we can get that to move around, then the people will follow along behind that.

Capital gains is where this difference in philosophy hits hardest. Do we want rich folks paying the same as wage earners? Or do we want people who are better at allocating money to things that advance the species in general to have more ability to do more of that?

There's no right or wrong answer. People on both sides take the arguments too far. But when you have no entrepreneurial community and the few that you have are publicly screaming at you to slack off, perhaps you've gone a little too far in one direction.

My question is "How do governments learn what is a happy medium?" I think the answer is regularly changing up who is in charge, because there is no exact and unchanging answer. Here's hoping the French will have a chance to adjust before they destroy what little is left of their startup economy.

I'd also note that laws and policy many times are made based on the public's caricatured idea of something instead of the thing that actually exists. In the U.S., it's common to hear politicians rail against "big corporations" while proposing policies that would sack the local stock broker or web startup guy. Meanwhile the truly large corporations have lawyered up and done enough regulatory capture that they skate through. There can be a huge difference between what's advertised and what the public actually gets.

pingou• 14 years ago

"Or do we want people who are better at allocating money to things that advance the species in general to have more ability to do more of that"

I disagree, I don't think most entrepreneurs invest to advance the species in general, from my point of view they invest in things that have a potential to make money, while the government has a better incentive to fund something useful but with less direct financial benefits. But of course you can give a lot of counter-examples.

shin_lao2• 14 years ago

You're right to bounce on the "advance the species" part, however I think one way to see it is to keep in mind that governments generally act in the interests of pressure groups, are inefficient and take decisions based on ideology more than merit.

All western governments, with some rare exceptions, are highly indebted. Those debts were just created to keep the machine running, not to make investments.

One could therefore say that governments destroyed wealth and contributed to an excessive growth of a financial economy through loans.

An individual taking the same course of action would end up being bankrupt and would not take millions of persons with him in the process.

Taxes are not just a question of rich vs poor.

subsystem3• 14 years ago

"But when you have no entrepreneurial community and the few that you have are publicly screaming at you to slack off"

Please stop furthering the myth that Europe has no startup scene.

"Here's hoping the French will have a chance to adjust before they destroy what little is left of their startup economy."

I'm not sure anyone knows how this will be implemented yet. Just like US startups are incorporated in Delaware, European startups can, and some are, be incorporated in countries like Luxembourg or the UK. That's just one example how things could work in practice. I think (at least part of) the French startup community is doing themselves a huge disservice at the moment. Drawing premature conclusions and throwing in gripes for good measure.

gadders6• 14 years ago

I think a lot of people confuse corporatism with capitalism.

Big businesses get subsidies, tax breaks, bank bailouts etc: Corporatism

Corporatism is good for businesses, capitalism is good for consumers.

sageikosa2• 14 years ago

Corporations provide predefined guidance on how multiple business partners share risks, rewards, liabilities and profits, allowing larger enterprises than individuals alone might be able to afford or risk.

What you describe is closer to an oligarchy or plutocracy, with corporate indirection acting as a shield to scrutiny, rather than a shield from unfettered associative liability.

But yes, capitalism is good for consumers (and capitalists and entrepreneurs).

eli_gottlieb6• 14 years ago

Capitalism is a series of property and financial laws, not a set of values or a position about the role of government in society.

iterationx• 14 years ago

Socialism for the rich! Capitalism for everyone else.

viggity• 14 years ago

the thing most people don't realize about capital gains is that the same profit was also subject to a 35% corporate income tax rate. Recently the top capital gains rate on dividends went from 15% to 44.6% (nearly a 300% increase!). That means that of every hundred dollars a company makes in profit, the government can take 35 + 44.6 = $79.60. Am I the only one that this that this is crazy?

French Entrepreneurs Revolt

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