France’s Hollande Gets Court Approval for 75% Millionaire Tax

http://www.bloomberg.com/news/2013-12-29/france-s-hollande-gets-court-approval-for-75-millionaire-tax.html

by acak • 13 years ago

58 87 13 years ago

hkmurakami• 13 years ago

Wasn't the head of Louis Vuitton threatening to leave France if this passes? Will be interesting to see if he follows through.

skrebbel• 13 years ago

The really interesting thing will be to see if indeed as a result, the economy will collapse. (people really were making that argument: big-shot CEOs will leave the country and take the businesses with them).

While I think this tax is ridiculous, I think those kinds of counter-arguments are even more ridiculous.

WalterBright3• 13 years ago

Tax increases historically have brought in far less revenue than predicted, as people change their behaviors to compensate. For example, when I was in England, people drove around company cars rather than owning them personally. It was explained to me that this was the result of tax rates - the high personal tax rates caused businesses to offer perqs which were not counted as income subject to tax. Hence the company cars.

mcbaby• 13 years ago

I disagree that those "counter-arguments are even more ridiculous." Of course, I don't think every CEO will flee the country——they are bogged down by inertia. Some will, but when you have a family, a home, etc, it's a lot harder to do that, even if you want to. I think what these counter-arguments importantly point to is that soon-to-be CEOs, the leaders of up-and-coming successful, young companies—-the future of the French economy--will leave.

While it's a gross simplification, it is still interesting to think that 200-300 million is the price tag that the French government is willing to put on it's future generations of CEOs and successful companies, which is disappointing to say the least.

And like many others have stated, this may just be for political points. I would bet a large group of this demographic has no problem deferring salary for the next two years (thought it will be interesting to see if the tax is extended).

ahomescu1• 13 years ago

Actually, many cities/regions/countries are suffering because large corporations are shutting down factories/offices in one area/country and moving somewhere else cheaper (for profit reasons, not because of taxes). For examples, look at how many companies have moved their production to Africa/Asia. This tax move only encourages them even more, when governments should move the other way (they should cut taxes and bureaucracy, not increase them). The economy IS collapsing, and companies ARE moving to friendlier countries.

smsm426• 13 years ago

The economy wouldn't collapse, but the tax income could probably suffer. They don't expect to collect very much out of it even now - see the link above in the comments - it's largely a populist gesture. But the tax-avoiding measures that high-earners would take to avoid it will stay even after the tax will be lowered back (provided it would be as promised), so the next effect may turn out to be even negative. But it would hardly lead economy as large as France's to collapse. As for if it would make the appetite for electing politicians prone to useless populist gestures instead of solving real economic problems - that is harder to predict if it would increase or decrease.

ThomPete• 13 years ago

Actor Gerard Depardieu already did.

"...He has been an official resident of Néchin, Belgium since 7 December 2012.[13] French prime minister Jean-Marc Ayrault criticised his move.[14] On 15 December 2012, Depardieu publicly stated he was handing back his French passport.[15][16] On 3 January 2013, Russian President Vladimir Putin signed an Executive Order granting Russian citizenship to Depardieu.[17] Depardieu soon returned the favor by attacking Putin's critics.[18]..."

http://en.wikipedia.org/wiki/G%C3%A9rard_Depardieu

w1ntermute• 13 years ago

It's just sad - they're taking an already bad situation and making it even worse.

djur5• 13 years ago

France is doing pretty well as far as Europe goes post-2007. They're recovering faster than the UK, for example.

NicoJuicy• 13 years ago

Lol, you don't live nearby i suppose? :)

Silhouette• 13 years ago

They're recovering faster than the UK, for example.

By what metric(s)? If you're talking about GDP, Britain is now managing significantly better growth than France and expert predictions seem universally agreed that it will continue to do so next year.

As point of curiosity, though not necessarily claiming any causal relationship, the top personal tax rate here in England came down from 50% to 45% earlier this year, after the new 50% rate introduced just before the end of the previous government turned out not to raise as much extra money as predicted. Meanwhile, French GDP growth has stagnated or reversed since mid-2011.

fragsworth2• 13 years ago

Maybe I'm being too cynical, but it says the tax only applies to this year and the next. It seems like there is an easy workaround - don't take your salary until afterwards, and/or pay yourself in advance now. It's just lip service, really, to keep the public happy.

The massively wealthy can afford to wait a couple years for tax laws to revert. And they don't mind waiting - the general public, unaware of reality, believes that the rich are paying more than their fair share of taxes.

Meanwhile, new tax incentives and loopholes are created all the time, in every country. You won't know about them, but you can be damn sure that the expensive CPAs do.

testrun2• 13 years ago

The problem is there is no guarantee that it will be only for these two years. It can easily be extended.

It will very interesting to see how much extra tax it will bring in and how it effects the decision making of the big French companies in regards to salary incentives.

fragsworth2• 13 years ago

There is a pretty good guarantee - if it lasts longer than two years (which seems unlikely), general corporate profit will pile up until the wealthy stakeholders and top employees get extremely frustrated. Then they can collectively apply pressure to politicians to eventually create a loophole that lets them take their money out tax-free.

Ergomane• 13 years ago

It can easily be extended.

Indeed. Just like the Netherlands where 2013 saw the introduction of the "one time crisis tax" (eenmalige crisisheffing) which constitutes a 16% tax on wages, including bonus, over EUR 150K.

Now, for 2014, the "one time crisis tax" regulation has been prolonged. One time, promise! ("Eenmalige crisisheffing eenmalig verlengd")

pyalot22• 13 years ago

This new tax is paid by the company, and capped to 5% of the companies earnings. It's already a loophole. Now a company can just funnel earnings straight to salary and have tax be capped at 5%...

kamaal2• 13 years ago

>It seems like there is an easy workaround - don't take your salary until afterwards, and/or pay yourself in advance now.

Or, get your salary reduced to just under the insane tax limit. Take the difference in some other way(Stocks, Real estate, Gold, vacation funded by the company etc etc).

Except the difference that should be paid to you won't be paid in a technical definition of a salary. It can be paid as a reward, bonus or some new incentive system.

Works like a charm.

throwaway_yy2Di• 13 years ago

The amazing thing is that for all the globe-spanning political vitriol this has provoked, the amount of revenue involved according to the proponents is only €200-€300 million/year, out of €1.3 trillion/year in tax revenue total:

"Hollande says the 75 percent tax he plans to impose would hit about 3,000-3,500 people and raise around 200-300 million euros a year."

http://www.reuters.com/article/2012/04/10/us-france-election...

https://en.wikipedia.org/wiki/Economy_of_France

testrun2• 13 years ago

You are right, the amount is negligible in relation to total tax receipts. It seems to be more about political point scoring than to fix the economy.

hudibras3• 13 years ago

It was one of Hollande's campaign promises, so of course he's going to try to get it passed into law. That's what politicians do.

smsm426• 13 years ago

The actual revenue probably would be less than that, since politicians tend to underestimate creativity and the lengths the people would go to avoid taxes.

flexie3• 13 years ago

Yes. The tax is only on income exceeding EUR 1 million (USD 1.4 million). This means that the people usually associated with high income, such as medical doctors, lawyers, accountants, business owners, CEO's of small and medium sized companies etc. are not affected at all or only for a small part of their income.

The tax is going to hurt a few super high earners such as a few soccer stars, a few pop stars, some investment bankers etc. The figures I have seen are more at 1,000 than 3,000.

So, it will be harder for PSG to attract the best soccer players of the world, and some CEOs, investment bankers etc. will take wage cuts or move, but apart from that I doubt it's going to have any noticeable effects. It's certainly not going to lead to mass exodus of talents from France.

yitchelle• 13 years ago

Don't most sport stars live at (or at least have their residence at) Monaco or (insert low income tax country here) where the taxes are close to 0%?

chatmasta2• 13 years ago

A lack of an exodus does not indicate a lack of new interest. Now instead of investing in France, for example, some investors may invest elsewhere. Football stars may play for other teams, and celebrities may decline French endorsement deals. Corporations in France pay all of those people high salaries because of their value on the international labor market for their respective positions. By effectively reducing that rate, France forces those corporations to either increase salary significantly or lose some future prospects. Football teams, large corporations, and brands may all decline to raise salaries, and thereby France may see a reduction in culture (brands, football) and FDI (loss of foreign interest in investment).

smsm426• 13 years ago

One can remember as when introducing American AMT[1], it was about 155 richest families only. Now about 4 million households are paying it. It's much easier for the government to take money than to stop doing so.

[1] https://en.wikipedia.org/wiki/Alternative_minimum_tax

f_salmon• 13 years ago

There was a very similar vote in Switzerland, recently: http://www.theguardian.com/world/2013/nov/24/switzerland-vot...

But the Swiss rejected it, probably because the government told them to vote against it (the gov always hands out brochures "recommending" how to vote). I suppose they got manipulated by the classic manipulation-by-fear strategy: "If you don't let our CEO's rip you off, we'll destroy your economy by going elsewhere." Of course they found their way of communicating this only between the lines (and not explicitely), which makes it very powerful b/c you can't call their bullsh#t.

We need more education.

chatmasta2• 13 years ago

You're missing the forest for the trees. The important metric to him is now many votes this "vitriol" garnered him. Answer: a lot.

Socialist politicians prey on the wealthy with support of the majority. It's a dangerous game to be playing. Class wars are coming. When the wealthy must defend themselves, they will shield behind corporations, the overlords of the populace.

You can see it. Human nature is causing societal drifts, leading to political shifts. Democracy is battling oligarchy, and oligarchy is winning.

A revolution is coming.

djur5• 13 years ago

I don't think the French need to be reminded what happens to the wealthy when the revolution comes. The plutocrats have forgotten what tumbrels sound like after several generations of relatively stable late capitalism.

foolrush• 13 years ago

It is a simple fact that the burden of funding many cultures has fallen upon the individual as opposed to the corporate sector since the great depression[1].

It doesn't require much of a cognitive leap to understand that a healthy, educated, and stable populace comes at a price. Is it possible that such inflammatory tax gestures are more a statement against the perceived predatory corporate vampirism than practical income generation means?

[1] http://m.huffpost.com/us/entry/3321737/

repsilat• 13 years ago

Taxes on companies are just indirect taxes on individuals anyway -- they're inevitably passed on to employees, shareholders or customers, though it's not obvious who ends up paying what proportion of the cost. Taxes on individuals are easier to target and easier to enforce, corporate taxes are a comparatively blunt instrument of questionable fairness. Wouldn't you say that the rich directors and executives will find a way to pay less than their share?

Treating companies them as autonomous, indivisible entities just plays into an "us vs. them" narrative, complete demagoguery. We should remember that everyone involved here is a person, and most of them aren't rich. When we take that into account it becomes clear why targeted taxes on salaries, on consumption and on capital gains might be a better option.

dangero• 13 years ago

The US has had higher tax rates than that at times. It's more of a recent thing that the numbers have been well below 50%

Historical US upper bracket tax rate: http://s158.photobucket.com/user/OnlyObvious/media/Tax_Rates...

WalterBright3• 13 years ago

Those tax rate charts paint an incomplete picture. Along with those higher tax rates were quite a few tax shelter mechanisms, meaning the effective tax rate was much lower.

Reagan traded eliminating the tax shelters for the lower tax rates.

kamaal2• 13 years ago

>eliminating the tax shelters for the lower tax rates.

I think the something is better than nothing argument already shows a sign of defeat.

Cheating and evasion of taxes is the same as over taxing, because please note when X set of people don't pay taxes, you have to recover the loss from Y set of people by taxing them a little extra. If the X had payed at the first place, the original tax rate would have been lower, and every one would have to pay less.

midas0072• 13 years ago

Warren Buffet paid nearly nothing because of retained earnings. But his family apparently lives modestly, so it doesn't make sense to pay oneself more than necessary.

spikels2• 13 years ago

If Warren Buffet never sells his shares he will never pay capital gains on those earnings because of the "free stepup in basis" that occurs when you die. You will hear him say income taxes should be higher but I am waiting for him to say that the free stepup in basis is unfair and should be eliminated.

Of course if he ever needs money he can borrow as much as he wants and spend it tax-free! The salary he pays himself is completely irrelevant to his ability to spend.

smsm426• 13 years ago

There were also different tax brackets and different number of people in these brackets...

clyfe• 13 years ago

https://www.youtube.com/watch?v=Wi-D24oCa10

https://www.youtube.com/watch?v=MRpEV2tmYz4

https://www.youtube.com/watch?v=91mLpMqjZsE

epa2• 13 years ago

So the owner/CEO's lawyers form a holding company in Switzerland which gets paid management fees from the French company to hide it from 'salaries'. The owner pays the personal taxes on the income at lower Swiss rates and transfers it back to France. Taxing it at the corporation level is the wrong move unfortunately. Hopefully they have a better definition of what 'remuneration' means.

gamblor9563• 13 years ago

You've just described a textbook tax evasion scheme. For it to work (and not be an illegal tax evasion scheme), at a minimum, the money would have to stay out of France. Consequently, the most common scenario is simply for the individual to relocate to another country.

spikels2• 13 years ago

It just needs to stay out for two years... :)

Those who play these games call it "tax avoidance" or simply "tax planning" when it is done legally.

epa2• 13 years ago

Unfortunately because it is not taxed at the personal level, it does not need to stay out of the country and makes it very easy to bring back in the country. This may also depend on the financial institutions and regulation over reporting of large wires, but there are still ways around it. My point was that they can get around these laws so easily due to it being taxed at the corp level and still argue its not avoidance.

forgingahead• 13 years ago

Will Smith weighs in: http://www.youtube.com/watch?v=8TwwEGjoRMo

smsm426• 13 years ago

I think it is an interesting thing. I think it would do no good for France, but for the rest of us it would provide an interesting test regarding the question of if "soaking the rich" is going to make anything better. With rates like 75% one hardly can argue they didn't go far enough. And even if it says it's two years, in two years either the fallacy of it would be obvious and would allow them to quietly roll it back and claim the victory, or it could be claimed a huge success and continued further, so limited term is not a big problem if we see it as an experiment.

mjn4• 13 years ago

With rates like 75% one hardly can argue they didn't go far enough.

In Scandinavia, we tried top marginal rates ~100% for a decade or two. :) Actually didn't work too badly, but the political mood changed, and rates were gradually lowered, now to a mere 60%. Some good effects of the cuts, some bad effects.

gaius2• 13 years ago

Jante tax, eh?

chrismealy• 13 years ago

Rich creeps leaving is a feature, not a bug.

wyager• 13 years ago

Yeah, those rich people are inherently so creepy!

Crito• 13 years ago

"Creepy" lost all meaning quite some time ago. It is now a generic contentless insult, like "butthead" or "tool".

mindcrime2• 13 years ago

It would serve the French right if every single man, woman or child with an ounce of creativity and/or any entrepreneurial ambition at all, just got up and left. Of course, the idea of a bunch of Frenchmen going all "Galt's Gulch" is a bit amusing, but hey...

djur5• 13 years ago

And yet they don't. It's as if perhaps there is some value to the people, culture, and values of France that justifies the cost of doing business there rather than in the fetid, lawless gulches of objectivist fantasy.

gfodor• 13 years ago

Or perhaps when one lives in the country of their friends and family, one needs to be pushed quite far by the state before abandoning the people they love in order to keep majority of what they earn.

mindcrime2• 13 years ago

It's a bit soon to say that, eh? This law just passed. And, as the other commentator says, connections to friends and family also weigh into the decision. And since people are not actually totally rational, utility-maximizing, spock-like agents, sometimes they choose things based on those "soft" factors. Which is totally fine.

But if the State pushes far enough, and hard enough, people will eventually lash out and strike back in one form or another. I think the historical record shows that quite clearly. No "objectivist fantasy" (whatever that is) needed.

superuser• 13 years ago

Obama must be jealous.

bmmayer12• 13 years ago

"The problem with Socialism is that you eventually run out of other people's money" - Margaret Thatcher.

I wonder who the French will tax next...

coldtea2• 13 years ago

As if Thatcher should be quoted on economic matters.

Not to mention that exactly the same is the problem with capitalism -- you run out of "other people's money" and you get an overproduction crisis.

Houshalter2• 13 years ago

There is no such thing as "overproduction". Having produced everything people want should be the goal.

hudibras3• 13 years ago

The "tell" for this article is that there's no comparison with the current tax policy in France. The top tax bracket in France is 41% right now. Hollande's proposal raises this to 50%--an extra 9 euros out of every 100 earned over a million.

Also, I certainly hope that people here understand how marginal tax rates work...

djur5• 13 years ago

In my experience, even very intelligent people frequently don't know how marginal tax rates work. It's astonishing. American political discourse is generally based on the implied assumption that tax rates are not marginal.

tn13• 13 years ago

Tax should be the harvest of economic growth and not other way round. If government has to earn more through taxes it should ideally achieve it by increasing overall income of the people rather than screwing those who are earning more. This move for example would make total sense had France done something significant to increase the total number of millionaires in the country or helped several people to get into that millionaire bracket.

spullara• 13 years ago

One of the interesting things never pointed out in these threads is that though the income tax in the US was very high in the mid-20th century, capital gains taxes were low — which affect the rich much more heavily than income taxes. The "robber barons" made all their money on the increasing value of the stock in their companies, not an income they drew from them.

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

Even this France law apparently only affects "wages" — not sure what that means in France but in the US it wouldn't cover long-term capital gains. BTW, when did millionaire start to mean someone that makes over a million dollars a year rather than has that in assets?

hudibras3• 13 years ago

BTW, when did millionaire start to mean someone that makes over a million dollars a year rather than has that in assets?

Around 2010. I remember this coming up when a new tax bracket was briefly proposed in the U.S.

http://themonkeycage.org/2010/12/05/the_shifting_meaning_of_...

bitops• 13 years ago

It's interesting to consider that tax rates historically have been all over the place. In the United States, for example, the tax rate has been as high as 91% for the top bracket.

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

gaius2• 13 years ago

On behalf of London, merci m'sieur!

pyalot22• 13 years ago

Here's the new tax: Income above EUR 1 million, tax is paid by the company, amount is capped to 5% of the companies earnings.

Congratulations Mr. Hollande, you just created a fabulous tax loophole to get corporate tax down to 5%. Keep up the good work.

France’s Hollande Gets Court Approval for 75% Millionaire Tax

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