July 11th, 2012
09:43 AM ET

Will higher taxes in France help or hurt its economy?

In his plans for helping France's economy turn around, new President Francois Hollande has pledged to increase the rate of income tax to 75% for those residents making more than 1 million euros a year.

The plan is back in the spotlight in Hollande's recent visit with UK Prime Minister David Cameron. Cameron has said the tax hike would drive businesses to Britian - which he joked he'd welcome with open arms - but the French leader denied such an effect.

How does a 75% top rate of tax compare with other leading economies?

• In Great Britain next year, tax on earnings over $230,000 will be cut from 50 to 45 percent in an effort for some stimulus there, according to the Chancellor of the Exchequer.

• In the United States, the top rate of federal income tax is 35%. Do remember, though, state income taxes could add up to 11% on top of that.

• In Germany, taxpayers have a top rate of 45%.

• In Japan, including local taxes, the top rate is 50%.

How will higher taxes in France help or hurt its economy? Peter Morici is a professor of international business at the University of Maryland, and previously, he served as Director of Economics at the U.S. International Trade Commission. He talked to CNN recently about what to expect in the following edited version:

CNN: Hollande is looking to cut about $10 billion off the budget deficit. There's only about 3,000 households who earn over a million euros in France. Does this really matter? Is this a bad thing or a good thing, do you think?

MORICI: If it drives those households to Britain, it is a bad thing for France, and it sends a terrible message abroad that France is not very hospitable to profits and to people who are entrepreneurs and so forth.

It won't have a positive effect. This is not, for example, Sweden, where there's a consensus for high taxes and where people have confidence the government is run well. In France, they're doing this because the government isn't run well.

CNN: Somebody has got to pay for these economies to get themselves out of the messes that they're in, and in France, Hollande says that should be those who are earning over a million dollars plus. If you go back to Economics 101 and the The Laffer Curve theory, isn't there a point at which it's just exiles looking to jump from the country? That there is a point at which theory tells us that you can tax people too much?

MORICI: Absolutely. In America, the taxes are much higher than you even describe, because we have an enormous estate tax. So, older Americans, like myself - I pay 50 cents on the dollar with estate tax on everything I earn, and then I put it in the bank. I'm not going to use it.

Now, I'll die in a few years, maybe 10, 15 years, and my son and daughter will inherit it, and they'll pay another 55 percent if the Bush tax cuts expire. So, for every dollar I earn, in the end, my heirs get 25 cents? It discourages a lot of older people from investing and taking risk, and they're the ones with the capital to do it.

CNN: Where do you see Europe headed going forward? Are we going to see a sort of tax-and-spend initiative? The sort of pump priming these economies in a sort of old-style Keynesian way? Or will we be looking for a much leaner way of doing this, do you think?

MORICI: In the near term, I think that France is going to be in the lead. There's a sense that austerity has gone too far. But I want to be careful not to put Europe all in one basket. Britain is not inside the eurozone and so forth.

However, the debt inside the eurozone is really burdensome. Long term, I don't see how the Mediterranean economies, the four big Mediterranean economies, can become viable without about a 50 percent write-down on their debt.

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Topics: Economy • Europe • France

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soundoff (133 Responses)
  1. Rustyrake

    I am a self employed Canadian. I make a good living that allows me to own a small home and take some holidays with my family. I am not rich by any means. I have no employees, but I support several small businesses and large businesses by using their services. I believe jobs are created by motivated business owners large or small. It's not a rich thing, middle class thing, or a poor thing. If you start a business and depend on it to feed your family you will do your very best to 'make it'. As a result, services and products are needed which is what creates jobs. Governments need to do a better job of supporting small business around the world. I don't know if it is tax breaks, but we certainly need programs to help motivated people succeed.

    July 12, 2012 at 12:30 pm | Reply
  2. ERH

    What kind of question is that? Who's money is it anyway? If the government in France takes all the money and allows each citizen a monthly allowance to live on, just imagine how simple their problems will be.

    July 12, 2012 at 12:37 pm | Reply
  3. nbdrews

    The estate tax argument in this article is based on some pretty tenuous and biased assumptions. Pretty bogus from a University Professor:
    1) Even "if" the Bush Tax cuts expire entirely the estate tax would still only affect estates greater than $1M – not including creative loopholes like combining incomes or gifting ahead of death. And even then, the tax is only on the dollars after that $1M plus amount.
    2) Most estates above $1M are only paying 25% in income taxes, according to the National Economic Council.

    Claiming that one's heirs only get 25% of the money their parents make is miles off from correct.

    July 12, 2012 at 12:52 pm | Reply
  4. k8br

    jay crandall
    Well said and I wish we could do that. Unfortunately, that would require the idiots we call Congress to make those decisions. I say we do that through an internet vote by the people!!

    July 12, 2012 at 12:57 pm | Reply
  5. binabik

    Either the writer of this article is ignorant or disingenuous. Nobody pays 35% Federal tax and then 11% State tax. First of all, State tax can be deducted on your Federal Tax form. Secondly there are so many deductions and loopholes that nobody pays the full 35%. Mitt Romney isn't the only rich person in America paying around 15%.

    The man interviewed vastly overstated his tax burden. First of all if he's making so much money that he has to worry about the Estate Tax, his real tax rate is probably about twenty cents for every dollar he makes, not fifty. That's just a flat out lie. Secondly, the Estate Tax is for inheritance that is over $5,000,000 and is at a 35% rate (again, not 50 like he tries to muddy things with), at least this year. it's scheduled to be lowered to 1,000,000 next year but there's a good chance the current rates will be extended.

    July 12, 2012 at 1:00 pm | Reply
    • pm Ohio

      You are correct...if you are rich and paying 46% of your wealth to the IRS, you aren't very smart and a fool and his money are soon parted. Not one of the .1% pay anywhere even close to 46%...That is the top possible rate, but no one pays it.

      July 12, 2012 at 2:14 pm | Reply
  6. Ketan

    Let me get this straight - 47% of the Americans who pay zero income tax are paying their fair share but the 1% who pay on average closer to 46% (35% federal plus up to 11% state/local) are not paying their fair share. Unbelievable!
    Well here is a solution - How about stopping emergency Medicaid to illegals? What am I missing; Illegal as in breaking the law and getting emergency Medicaid that amounts in the tens of billions of dollars!

    July 12, 2012 at 1:22 pm | Reply
  7. Lennard

    Dream the big American Dream then let the government crush it. That's the New American Way

    July 12, 2012 at 1:44 pm | Reply
  8. pm Ohio

    There are a lot of ways to make sure your fortune isn't taxed to death. One is insurance. The 1st $4M isn't taxable in the estate and that figure is rising, so it may be higher iin 2012. The 2nd way is setting up trusts, as long as they are set up over 8 years prioir to death, they aren't taxable in the estate. The 3rd is moving money ot off shore accounts, untaxable in the US. The 4th is to ex-patriate, which is shameful and cowardly, but is an option. I am no expert, but there are many ways to avoid the tax man.

    July 12, 2012 at 2:10 pm | Reply
  9. walkingfan

    Why not take your money & spend it, Morici? You'd be doing the economy some good right now. Your kids probably don't need it anyway and if they do, you didn't bring them up right.

    July 12, 2012 at 2:11 pm | Reply
  10. ZorakLives

    I am shocked. I agree that the wealthier should pay higher taxes, but there seems to be something inherently unethical in taking more than 50% of a person's lawful earnings, to say nothing of 75%. This is madness.

    July 12, 2012 at 2:12 pm | Reply
  11. xfiler93

    doomed to fail, just like all socialists and socialism has been throughout history.

    July 12, 2012 at 2:24 pm | Reply
    • timmahhyy

      it works just fine in the scandanavian countries.

      July 12, 2012 at 3:23 pm | Reply
  12. timmahhyy

    stop with all this job creators bs. people do not create jobs. noone is sitting there thinking "ohh i have an extra 50k sitting here i think i will create a job". Need creates jobs. demand creates jobs. the business owners will hire exactly the number of people it takes to run there business. no more. maybe a few less if they can find some dedicated people that will work free overtime. the point is cutting taxes to the wealthy will not create jobs. increased demand for products and services creates jobs.

    July 12, 2012 at 3:23 pm | Reply
    • R.Schultz

      Demand does create jobs, but what creates demand? Innovation and investment creates demand. There was absolutely no demand for an iPhone before Apple invested and created it, like all advances and technologies and great ideas and services, the product creates demand. So, to create demand, we should have a positive environment where people can invest and create. However, we don't do that here, it's become extremely difficult in many areas of the country to open a factory, add onto your business or bring overseas profits back home to be invested domestically.

      Creating demand is possible, but innovators need to be able to innovate here, as long as that is more advantageous in China, India or Taiwan, that's where it will be done.

      July 12, 2012 at 3:40 pm | Reply
  13. solong

    If a country can't run itself on just taxing 20% of every working man woman LLC or Corporation...then something is definitely wrong. The GDP of America is north of $16 trillion dollars, but IRS only took in $1.7 trillion last year. It should have taken in $3.2 trillion if every man woman and corporation were taxed at 20% federal tax !!!! what is wrong with this pricture? 45% pay no federal tax after their standard deduction. I know I know – they still pay sales tax and whatever tax, but the wealthy pay many many times more than that in sales tax so what's your point?
    The tax code is 2,000 pages. WHY? i'm for a flat federal tax of 20% on every working man woman and corporation. $3.2 trillion in revenue would cut the annual deficit (borrrowing) from $1.6 trillion to $200 billion. That alone would solve many problems and think of the extra revenue for companies that create jobs! it would create many jobs. I'll bet that states will be able to lower than income tax rates to single digits when the economy improves and people are off welfare and medicaid and food stamps and housing assistance and social service programs and homeless shelters and unemployment benefits that the fed can reduce if a flat 20% tax is taken. You could even be nice and say it's a 10% flat tax if you make less than $50K (most of those 45%) but in 5 years everyone goes to the 20% flat tax.

    July 12, 2012 at 3:37 pm | Reply
  14. rohug

    Wish they would do a 50% write down on my debt!

    July 12, 2012 at 3:46 pm | Reply
  15. sman1234

    The rich don’t create jobs huh??? How many poor people have you worked for in your life?

    July 12, 2012 at 4:22 pm | Reply
    • bronxite10

      sman1234 You seem to get so caught up in conservative bilge that you forget the obvious: (1) The rich create jobs when they have no other choice; (2) the tax rate does not affect their creation of business jobs negatively. In fact, since these are deductible expenses, taxes are just as likely to promote more hiring.(3) taxes that are collected are paid out to create jobs. You simple minded conservatives never learn that aristocracies take care of aristocracies. If you had to rely on the wealthy creating jobs, then why haven't the super rich in third world countries created a vibrent middle class? You haven't a clue as to what created a middle class in this country.

      July 12, 2012 at 7:37 pm | Reply
  16. Butchie67

    Your comments are the purest form of penis envy. Get over that and you start to be happy with your earnings instead of trying to drag down those that worked hard and produced something of value.

    July 12, 2012 at 7:37 pm | Reply
    • Butchie67

      The above comment was intended for StevenR's comment at the top of this thread.

      July 12, 2012 at 8:11 pm | Reply
  17. Drew

    If anyone thinks that increasing taxes EVER puts money in the pockets those less fortunate, you need to have you head examined.

    July 12, 2012 at 8:41 pm | Reply
  18. nopenotbuyingit

    when the "rich" are no longer around to tax the daylights out of .. where do you think those "bleeding heart" politicians will come to next for their dose of tax revenue ?? LOL.. keep electing these dumb@#$ and you'll find out. Don't come whine on my shoulder..

    July 12, 2012 at 11:00 pm | Reply
  19. JerseyJoe

    Sure the rich should pay more. Just because they achieve a certain level of financial success, doesn't exempt them from paying on those earnings as a individual in the same way that everyone else does.

    Look at it this way:

    The members of the local football team are handpicked by their charismatic team captain. At each game he leads them onto the field and they play hard, game after game. By the end of the season, they find themselves in the championships. They win the championship and as a reward they win the cup, a 1 million dollar prize, and a bunch of guest appearances on TV. Because he is the team captain, part of his job is to split the winnings with the rest of his team mates.

    But the captain is greedy. He decides to put the cup in his rec room, to keep $900,000 for himself, and split the remaining $100,000 with the other ten players on the team. They each get $10,000. The captain treats himself to a new car and a world cruise. He then goes on TV and tells the world that it is because of his talents that the team won the championship.

    The other team members complain about their unfair cut of the winnings, and that they played just as hard as the captain, but their accomplishments were never mentioned in the TV spots. They believe that they are just as responsible for the success of the team and should share in the profits and accolades. With the meager amount they made, they can barely feed their families, while the captain is driving around in his new car and jetsetting around the globe. The captain tells those players that they should be happy with what they got and he subsequently fires them and hires replacements that are so broke that they will settle for the lopsided payscale just to have a job.

    So who is in the right? The rich captain who only had his own interests in mind, and found success on the backs of others, or the rest of the team who thought that they were just as integral to the team's success and should receive equal compensation.

    Here's a hint. Put the captain out on the field by himself against the opposing team, and what do you get? Roadkill.

    July 13, 2012 at 12:40 am | Reply
  20. RVT1K

    I don't care how rich a person is, it takes a special kind of ah@le to think you deserve 75% of his money.

    July 13, 2012 at 6:13 am | Reply
  21. Mark Kulacz

    The scandal continues.
    People who have a high income are not rich. They could be, given enough time and if they save, but they arent rich.
    Super rich people dont need an income, and dont work in a traditional sense.
    So France will tax the snot out of productive people trying to work hard and get rich.
    And super rich old-wealth people will pay no extra tax since they dont need to work.
    Specifically, this should be called "Tax the productive high-value worker, and dont tax the rich or those on welfare".

    July 13, 2012 at 6:25 am | Reply
  22. Dan

    I own a successful roofing business. I'm considered a small business with 110 or so employees depending on who shows up for work today. These guys work like animals but are well paid. I started the business 20 years ago with a tool belt and a used pickup truck. Believe me, I have not been on top of a roof in 10 years and live the good life now as a 1%'er. If we had a top tax rate like the 75% they are proposing in France I would shut that business down in a heartbeat and put those 110 out of work while I decide which golf course to play. Heck, I think I'll fire 20 guys when the Bush tax cuts expire and then fire everyone if the rates go any higher than that.

    July 13, 2012 at 6:31 am | Reply
  23. chena

    ...mostly BS here....Congress makes the rules that business has to play by....if it benefits a business to off-shore jobs, that is what they will do....especially a publicly-owned corporation, who has to answer to their share-holders....if a competing business shows better profits by off-shoring jobs, I have to off-shore as well, or face the wrath of my share-holders, and possible law suits for not running my business well enough...

    July 13, 2012 at 9:46 am | Reply
  24. next thought

    I'd love to see the numbers on US taxes INCLUDING payroll taxes

    July 13, 2012 at 10:18 am | Reply
  25. pod

    interesting conversation going on. the people who think we will go the way of greece, don't understand the workings of either govt. greece CANNOT print its own money because it is part of the euro. the US CAN print its own money - lead to inflation, but what the heck.

    yes, bush cut taxes twice in hopes of boosting the economy (and make it easier for business to hire) - he totally forgot about the two wars he got us into and having to pay for those. his tax cuts didn't work either because by the time he left office there were 8 million people unemployed. seems like those businesses are not so much interesting in hiring people as they are saving their profits for the top guns (salaries, bonuses, separation packages). this, to me, is evil. businesses go offshore because it is cheaper to have indians, pakistanis or other underdeveloped societies do the work cheaper (it is called BUSINESS after all). americans tend to want more salary and more benefits.
    re France: Hollande is a socialist, and he lives in a socialilst country and the french expect to receive benefits for the taxes they pay (clean streets, ability to get healthcare when needed - by the way, recent studies show that the french health care system ranks above the US - and it is cheaper even for foreigners who have to use it; but more bureacracy as well). anyway, do you honestly believe that any government in the US would be able to get away with a 75% tax rate? scary if you do.
    someone mentioned including state taxes - uh, there are states that do not have state taxes, if you don't want to pay state taxes, then move to one of those states which does not have it.

    July 13, 2012 at 12:22 pm | Reply
  26. Aaron Chaney

    Romney vs. Frankenstein (Obama)

    Put simply, better the devil you don't know. Vote Romney.

    July 13, 2012 at 12:32 pm | Reply
  27. JrCCBC

    We see frequently these days’ people getting upset with high tax rates, but it is need to help the country grow. We have seen a common trend, when tax rates are high, countries seem to prosper. I think it’s fair to tax someone, who is making millions, because they have more money than they know what to do with. In this day and age, people seem to care less about helping out, then increasing their bank account. The people being taxed are also running large companies that lay off thousands of people a year, but then think it’s unfair that they have to pay more money to the government to take care of the people the company just laid off. The more and more time people spend arguing over who should pay down the deficit, the more and more the deficit is going to increase. It’s only fair that the ultra-rich pay a high tax, so that countries can start to prosper again.

    February 28, 2013 at 9:02 pm | Reply
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