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Stefan Karlsson

French court strikes down tax on rich, but it won't save France

France's court rules against the new 75 percent tax rate on incomes above €1 million, but not because of the rate, only because of the way it's applied. French Socialists can easily meet the objections with a new onerous tax on the rich. 

By Guest blogger / December 31, 2012

French actor Gerard Depardieu, seen here entering his home in Paris earlier this month, says he is leaving France because 'success' is being punished with a 75 percent income tax on the rich. A French court has struck down the tax, but the ruling suggests it's only temporary.

Benoit Tessier/Reuters/File

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Apparently, a French court has struck down Socialist President Francois Hollande's new 75% tax rate on income above €1 million, something that some think means that there won't be punitive taxation of the richest in France. However, what the court actually objects to isn't the high tax rate, but that it will be applied to individuals, instead of households as has been the rule in France. By applying it to individuals while continuing to otherwise tax households, two households with the same total income could end up paying different rates depending on how incomes are divided among members of those households, something that the court finds violates the equal treatment rule in the French constitution.

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Stefan is an economist currently working in Sweden.

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This means that the Socialists are free to come up with a new tax proposal that applies a 75% tax on household income above €1 million, and the government has indeed already that it plans to quickly introduce a new proposal that doesn't violate the equal treatment rule.

It is a shame for France that the court in fact didn't strike down the punitive taxation, and only objected to some technical details in the enacted proposal. Even using unrealistic static analysis, where behavior isn't affected, the tax would have only brought in €210 million, a neglible sum (about 0.01% of GDP) in France's €2 trillion economy And considering how it has driven away hundreds of rich Frenchman, including famous actor Gerard Depardieu to Belgium and other countries, and created negative PR for the French business climate, the tax is in fact a lot more likely to lower tax revenue rather than increase it.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on stefanmikarlsson.blogspot.com.

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