Europe French taxation
A bas les riches!
Francois Hollande remains intent on introducing a punishing top income-tax
As Socialist candidate for the French presidency, Francois Hollande promised a 75% top income-tax rate in order to boost his left-wing credentials and see off a threat from a Communist-backed rival. As president, Mr Hollande made the tax a centrepiece of his 2013 budget. On December 29th, however, the Constitutional Council struck down this flagship measure just days before it was due to take effect, ruling it anti-constitutional.
Mr Hollande has tried to shrug off the council’s judgment. The top tax rate would be “restructured…without changing its objective”, he said in a televised address on New Year’s Eve. “We will always ask more from those who have the most.” The prime minister, Jean-Marc Ayrault, added that the 75% tax rate would be delayed by only a year, after a revised version of the controversial measure is sent to parliament.
Yet the council’s ruling hints at either technical incompetence or political stealth. It rejected the measure for breaching the principle of fiscal equality between households, a cornerstone of France’s tax code. The 75% tax would have applied to individuals who earned over 1m euros ($1.3m) , rather than households. So a family in which two earners each took home 900,000 euro would not be touched, while another in which a single earner pocketed just over 1m euros would be, even if his partner earned nothing.
The technocrats ought to have foreseen this obstacle, but several commentators have argued that there remains a bigger potential constitutional problem with the 75% tax rate. In its ruling, the council said that its rejection was made without examining “other grievances” against the tax, such as its possible “confiscatory character”. Under the 1789 declaration of rights, taxes must be levied on citizens “in proportion to their means”; in this latest ruling, on other tax matters, the council judged that an excessive tax rate breaches this principle.
Mr Hollande never pretended that the 75% tax rate would raise much cash, but hailed it as a “symbolic” measure. Such symbols may help to win elections, but they can bring lasting trouble.
The council’s ruling has prompted cries of betrayal from those on the left who fear that the rich could now be let off, whereas taxes on cigarettes, beer and other basic items rise. They need not worry. Whatever the fate of the 75% tax rate, new and heavier taxes on companies, capital gains, wealth and income have not gone away. It is their combined impact that has prompted figures such as Gerard Depardieu, a French film star, to quit the country and entrepreneurs to denounce the government as hostile to wealth creation. Mr Hollande’s 75% rate may have been struck down for now, but the “symbolic” damage has been done.