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Tuesday, October 9, 2012

NY Times: French Elite Who Called for Higher Taxes on Themselves Oppose Proposed 75% Rate

NY Times DealBookNew York Times DealBook:  Welcoming Higher Taxes, but Not That High, by Andrew Ross Sorkin:

A little over a year ago, some of the most prominent and wealthy executives in France signed a petition seeking higher taxes on themselves. Yes, higher taxes. ...

You may know what happened next: François Hollande, the country’s socialist president, proposed a 75% marginal tax rate on all income over $1.3 million. ... Marginal tax rates on capital gains would rise to as much as about 60%.

Now many of the nation’s wealthiest executives -- including some who signed the original petition -- and entrepreneurs, private equity managers and others who are millionaires, or want to become millionaires, are crying foul. In a sign that executives are moving, or threatening to move, to lower-taxed countries, high-end real estate in Paris is being thrown on the market. ...

[A]ll the anger and angst appears to be pushing Mr. Hollande and his administration to back down, at least slightly. The 75% tax will now be effective for only the next two years. And last week, a budget minister, Jérôme Cahuzac, perhaps bowing to pressure from Les Pigeons, said the capital gains treatment on start-ups was “a mistake” and said the government would seek a remedy.

The purpose of the tax is more populist than mathematical: the marginal income tax increase is estimated to raise only about $300 million. ...

The debate in France raises an important question amid the election campaign in the United States about whether the wealthy should pay more -- and by how much. The American billionaire Warren E. Buffett, like some of the French, called for higher taxes on the rich, but he never sought rates at the levels being discussed here in France. Under President Obama’s proposed Buffett Rule, the wealthiest Americans would have paid no less than 30% of all income. ...

So where is the line?

The reality in Europe is that moving from Paris to London may not be that big of a deal, so extreme tax rates could be a deciding factor in where a person or business decides to locate. But Thomas Piketty and Emmanuel Saez, two French economists who influenced Mr. Hollande, have said that the country’s economic growth won’t be hurt unless the marginal rates on the highest incomes exceed 83%.

The idea of soaking the rich is often a popular one. But if there is lesson in the French experience, despite the economic models, it is that there are limits.

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Comments

Piketty and Saez will be surprised to learn that they are French.

Posted by: jmike | Oct 9, 2012 11:03:06 AM

The purpose of the tax is more populist than mathematical: the marginal income tax increase is estimated to raise only about $300 million.

This is nothing new with socialists in the wealth-envy business. Remember this?

Even if it means less tax revenue for the government, Obama said that he will raise capital gains taxes because it is "fair".

Posted by: Woody | Oct 9, 2012 11:48:11 AM

Or, to put it in academic terms, "duh".

Posted by: cas127 | Oct 9, 2012 12:13:23 PM

I thought the original bill exempted sports players?

Posted by: Sandy P. | Oct 9, 2012 12:56:10 PM

As an American (and a tax lawyer at that!) livin gin London, I am convinced that this movement to London is not fantasy. It is a two hour train ride to Paris. After sever years of modest rental increases, after the French election, my landlord wanted to raise my rent 25% (I talked him down to about 11%).

When considering moving, a real estate agent told me that the French are moving into London. Taxes are still high (45% next year, down from 50%), but the feeling is that it is worth it.

Posted by: Anthony | Oct 9, 2012 1:37:26 PM

(IMO) The problem with wealthy people calling for higher taxes on themselves is that they expect the higher taxes to be set at a "reasonable" level. What they don't seem to consider is that they think is "reasonable" and what Socialists or, in any case, third parties who may not consider that the wealthy are people too, and have their own agendas, think is "reasonable" can be quite different.

Posted by: Russell | Oct 9, 2012 1:55:15 PM