As Americans we are constantly reminded how fortunate we are that we're allowed to keep most of the money we earn. After all, in many nations the public toils all year long and the greedy government takes the fruit of their labor to pay for wasteful social programs.
The reality of course is a bit less extreme. The United States is near the middle of the pack when it comes to taxation as measured as a percentage of GDP (26%). Many Middle Eastern and Asian countries tax far less (Saudi Arabia 5%, Hong Kong China 13%) while many European nations tax more (Sweden 46%, Italy 43%). Thus in terms of keeping the results of our efforts we're neither terribly fortunate nor victimized.
The upper crust of France however will be finding their baguettes quite a bit smaller for the near future. Last Sunday the French high court upheld a 75% marginal tax on salaries over one million Euros ($1.3 million). The tax is largely symbolic as it is planned to last only two years and generate a relatively meager amount of revenue. However, it certainly sends a powerful message to the public, "There is no limit to what the government can take from you." Much like the Cyprus deposit confiscations this move can only terrify the wealthy while solving precious little.
I do not mean to give the impression that I believe taxes or governments are evil. Nothing could be further from the truth. Taxes are a necessary component of modern society. Further, this new French tax is hardly going to cause any millionaires to starve or even prevent them from upgrading their yacht next year (their first million euros are taxed normally). But, this move is a classic example of political machinations that will have real detrimental economic impact.
French president Francois Hollande himself has said that the tax is symbolic and unlikely to substantially impact France's problematic revenue shortfalls. Why then institute a tax which will undoubtedly drive many wealthy French from the country, thus removing their tax revenue from the system entirely? In the long term it's likely that tax revenue will decrease as once the tax expires two years hence those that emigrate now will still be gone. Not to mention the extra reluctance of any wealthy considering moving into France.
What is gained by such a symbolic maneuver? Hollande claims it's about economic fairness. However, I doubt many people would claim that confiscating 75% of anyone's wages is particularly fair, especially if they receive nothing more than those who are taxed far less. More likely this act of political theater will simply increase tensions between the haves and the have-nots while doing nothing to solve France's fiscal issues.
It makes sense that the wealthy should bear more of the burden of taxation. Thus the logic of a progressive tax system such as we enjoy in the United States. But to tax any person for three quarters of their wage, even if it is only for Euros earned over one million, is ridiculous. To do so when it does nothing to solve revenue shortfalls is bordering on criminal.
That's all for this week. Until next time stay safe and rationale (and probably out of France).
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