France: Francois Hollande: Fairly Blind

Last Updated: 4 August 2012
Article by Adriaan Struijk

Is it a coincidence that it was the French economist Frédéric Bastiat who wrote:

 "L'Etat c'est la grande fiction par laquelle tout le monde s'efforce de vivre aux dépens de tous les autres." (The state is the big illusion on which everybody tries to live at everybody else's expense.)

The illusion lies in the fact that government does not create anything and can at best only distribute wealth (minus administration costs). Usually the wealthy win at the expense of the poor: while the rich might pay higher income tax rates, they receive corporate subsidies, protective legislations and have more means to avoid taxes too. Yet the masses only see what is directly visible, thinking that taxing the rich can solve their problems. Such blindness inspired Bastiat to write his famous broken window parable.

When a window is broken, it creates job opportunities for a window repairman, who'll have more income to spend on the baker and so on. But had the window not been broken, money that would otherwise be needed to repair a window would now be spent and create job opportunities elsewhere. The economy just lost a window. But those are unseen economic effects. It is the economic blindness of the average voter that leads to destructive government programs such as cash for clunkers (governments destroying second hand cars), but also to self destructive tax policies.

Tax money can stimulate the economy, but it would stimulate it more if it were left in the hands of the businessmen and the consumers. Trying to stimulate with tax money is like Baron Von Münchhausen dragging himself out of the swamp by his hair: it cannot be done.

In the United States, president Obama wants to raise taxes, because he believes it would be a more fair system. The new French president Francois Hollande seeks to increase the highest income tax rate to 75%, but his justification is more extreme: during his election campaign he told the public: "Above 1 million euros, the tax rate should be 75% because it's not possible to have that level of income."

Really he said it: "I will not accept such indecent riches"

First lets analyse Obama's claim that taxing the rich higher is fairer. The average French worker earns €30,000 per year. France income tax rates are as followed:

  • Up to €5,963 0%
  • Between €5,964 – €11,896 5.5%
  • Between €11,897 – €26,420 14%
  • Between €26,421 – €70,830 30%
  • Between €70,830 – €250,000 41%
  • Between €250,000 – €500,000 44%
  • Between €500,000 – €1,000,000 45%
  • Above €1,000,000 75%

The average French worker, assuming he does not use any deductions available to him, pays €3433 income tax per year. A French top earner making €250,000 per year pays €89,142 income tax, almost 26 times as much. A wealthy Frenchman making €1.5 million per year would pay €799,142, more than 232 times as much tax as the average French worker. By what standard can that be called fair?

Hollande's intend, however, is to tax everybody making over €1 million one hunderd percent. But even with 75% he will soon have his way: No self respecting rich person will allow such exploitation.

We invite you to share your opinion in our comment section.

Also see in this context this interview with actor Will Smith on French television. Smith is a strong supporter of (the tax policies of) president Obama. But what does he think of 75% tax?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Adriaan Struijk
 
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