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."
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.
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.
I agree that governments tend to increase taxes more than they lower them. And yet, in 1958 the US had a tax rate of 81% that kicked in at 140,000 dollars (which in today's money is lower than France's 1 million euro threshold). And couples earning more than 400,000 dollars had a 91% marginal tax.
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).
This is personal income tax, for physical people living in the country. Investors don't need to take actual residence in France to invest in this or that company, so that's not really going to change anything. Any celebrity worth that money is already living in Monaco (or similar tax haven). The only people affected by this are millionaires who, for some specific reason, are forced to live in France: footballers and very few others. Hence why revenue projections are actually quite low.
No. That's only doable if you do individual sports such as boxing, tennis, golf, where you are free to take residence anywhere, or if you play for Monaco FC ;-)
Fascinating place, Point Roberts. I've read a number of people from surrounding localities go there for cheap goods (Canada has 12% VAT, US does not). Also, I heard, popular with witness protection since you have to cross the border control to drive in there (which could be a problem for somebody who is a felon).
Many Tennis or Formula 1 stars do.
Money earned abroad and individual sports.
Soccer players have to live where they play and their teams have to be located somewhere too.
So taxes are paid based on that location.
HOWEVER:
Most soccer players negotiate post-tax income.
So rather than them earning less, their employers will end up paying them a lot more to garantee that income.
If they work for a French soccer team, that just makes them cross-border commuters, which typically means you're responsible for taxes in both countries (unless a tax treaty between the countries harmonizes them). A Monaco resident working in France still has to pay French income tax on his or her French salary & bonuses. Living in Monaco may be a way to dodge taxes on advertising income if they do endorsement deals, though.
Also things are more complicated for French citizens in particular, because Monaco and France have a tax treaty (dating to the 1960s) aimed at making it harder for French citizens and companies to use Monaco as a tax haven. Essentially Monaco agrees to tax French people/entities at the current French tax rates, rather than the usual Monaco rates, in a range of situations that fit the heuristic of using Monaco as an address of convenience (vs. bona-fide living / doing business there).
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.
How is that vote similar??
What was proposed in Switzerland was a salary cap, not a tax. There is not such a cap in France, nor anywhere that I heard of.
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.
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.
What happens to the wealthy when revolution comes?
Can you illustrate us?
I am from Spain, in 1936 we had a civil war and a million people dead. The country got devastated for decades. And the wealthy, which was much better prepared and organized, won.
What you call plutocrats are only a very small part of the population. I also have family from eastern European countries, and communism was the worst thing that happened to them. There they had plutocrats of the public with more power than any capitalism could give(they could ruin your life or your families in an instant as everything was controlled by a selected few).
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.
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?
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.
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.
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?
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.
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.
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")
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.
>>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.
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%...
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.
>>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.
"Evasion" has a fairly specific meaning in this context, so you're right on that. However, the processes that create and maintain many tax shelters, at least in USA, is hideous and corrupt, so I think it really ought to be considered "cheating".
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.
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.
The bigger problem is the US tax code is a byzantine mess, and duct tape fixes further obscure the greater larceny of the unaware.
A simple solution is fair* "flat" (graduated) tax every year on both balance sheet (assets and holdings) and income sheet. An inheritance tax would be unnecessary, because balance sheet reporting would handle it. One page form, no special amendment shit for megafarms, special credits and other edge-case crap. Also to make things fair across-the-board, tax companies and trusts in a similar manner. And yes, people would continue trying gambits. It would never happen of course unless people get organized and insist on it.
No more hideouts for the ultrawealthy while everyone else subsidizes services they use.
* Poor pay less down to 0% for 2X minimum wage, % levels out at some upper-middle class level and stays constant.
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.
> 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.
Nah, just social democracy. The "Law of Jante" is a parody of conservative small-town Denmark of ~1900 (a rough American analogue is Main Street by Sinclair Lewis), while social democracy is roughly the opposite, managing the rapidly urbanizing Denmark of 1930s-1980s and using the increasing economic strength to build a well-working, prosperous country. The kinds of people the Law of Jante parodies don't vote for the left-wing parties; they're more like American small-town conservatives who're suspicious of book-larnin' and PhDs and big-city lawyers and instead extol small-town and rural values. They would definitely not vote for raising taxes to pay for a metro system or a university, or anything of that sort. Church taxes though, they'd support. Social democracy is sort of the opposite, being generally pro-technology, pro-education, pro-urban-planning, and pro-infrastructure (some of the main things they put taxes towards).
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...
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.
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.
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.
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...
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.
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.
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.
...or a terrible example of unintended consequences. Employer-provided health insurance obliterated the individual market which has arguably brought less liquidity and less dependability to insurance, and with it less innovation to the economy as a whole...
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).
"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."
You are not talking about CEOs. You are talking about normal people.
Normal people can't leave the home when the loan is not paid. People who earn millions dollars a year can leave the country and live in Brazil in Winter while taking his private jet like normal people take a car.
It is Europe we are talking about. You could live in the UK, Switzerland, Germany, Italy, Spain, Portugal, Turkey or Greece without problems.
What work does a CEO do that's worth over 1.4 million dollars a year? How many of the French earning that much do you think would prefer to leave France rather than accept a merely enormous salary in lieu of an astronomical one?
The wager that Hollande is making is that the value of living and doing business in France is worth the cost being assessed (in the form of tax). I don't think it's apparent yet whether or not he's right.
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.
This is a personal tax on individual wealthy people. It should have little to no impact on the economics of where to locate a factory, which is driven by things like environmental regulations, cost of inputs, labor costs, location of suppliers and customers, tax applicable to the factory (or its holding entities), etc. Where the CEO or major stockholders choose to domicile is already quite decoupled from those decisions (as can be seen by the fact when U.S. companies move a factory to Mexico, typically the CEO and major shareholders do not also move to Mexico).
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.
"...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]..."
>Having produced everything people want should be the goal.
In socialism, if that thing existed, maybe.
In capitalism you don't produce what "people want".
You produce what you can SELL.
When you cannot sell what you have produced (e.g because people cannot afford to buy it anymore), and you have tons of investments in factories, production capacity and materials being underutilized, you have "overproduction".
It's not really overproduction so much as wrongly predicting what future demand would be.
What sells and what people want are highly correlated, which is what capitalism relies on. Yes it's not perfectly correlated and maybe there is a better system, for the most part it works.
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.
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.
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.
No, you misunderstand. It's not enough to satisfy the "form" required of tax law--you must also satisfy a test of "substance." France would pierce through the transaction and treat the "management fee" as a French salary (which, in substance, it is) and haul the taxpayer off to jail for evading taxes.
What was described isn't tax avoidance, it's tax evasion. The form of the substance may appear kosher, but the nature of the transaction is evasion, since it ultimately has the effect of a salary and not a management fee.
Tax is one of those areas of law where the "spirit of the law" actually has meaning. For example, in nearly all of the convictions for the loss-harvesting tax shelters, the form of the underlying structures was legally sound under tax law--but the nature of the transactions was not and resembled tax evasion schemes. SCOTUS upheld these convictions. The same is generally true of various other similar tax shelter convictions in England and France.
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.
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.
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.
"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