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Le Squeeze

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Le Squeeze

High taxes on the affluent threaten France’s prosperity. Summer 2010
Cities
Economy, finance, and budgets

Facing growing budget deficits and an aging population, the French government recently announced a plan to finance its citizens’ golden years: the retirement age will rise from 60 to 62 by 2018, and taxes on high incomes and investment interest will go up. While raising the retirement age makes sense, burdening the rich with additional taxes does not. In fact, doing so will threaten France’s long-term prosperity.

France’s top earners already pay the most burdensome taxes in the world—the Solidarity Wealth Tax, the General Social Contribution, the Contribution to the Repayment of the Social Debt, the higher brackets of France’s progressive income tax, the value-added tax on consumption, taxes on inheritances and gifts, capital-gains taxes, corporate taxes, and more besides—along with their own social-security contributions. Why, then, should France tax this group even more heavily?

For socialists, the answer is simple: the rich must cough up the money because the very fact of being rich constitutes an injustice. But for many politicians in the majority that favors the proposed super-taxation, the logic is different. In times of crisis, they argue, when the non-rich must tighten their belts, public opinion expects the rich to pay a price, too. This reasoning imagines itself sophisticated: we’ll pillory a few affluent victims, and people will enjoy the spectacle so much that they won’t notice when soon we raise their taxes as well.

This is small-time Machiavellianism, dangerous and shortsighted. The French are not fools, and we can see well enough that still more taxes lead to a dead end. Economic dynamism is exhausted in France because we have the highest rate of mandatory withholding in the world. The answer is not to increase withholding once again but to decrease public spending and the fiscal burden of government. We must allow economic actors to produce wealth through creativity and investment.

The rich in France are generally those who have proved themselves capable of starting a business and making it work or who have an exceptional talent in some field. They have thus contributed to productivity and innovation and have been among the main engines of progress. History shows that the wealthiest countries are those that let entrepreneurs get rich and live in peace with their riches—provided, of course, that they’ve earned their money honestly, without fraud or monopoly.

If in France we stigmatize the rich, make their lives unbearable, treat them as delinquents, and deprive them of the protection of the rule of law, then one of two things must result. Either they will leave the country, preferring the misfortune of an unjust exile to the humiliation of losing their economic freedom; or they will stay but live differently, starting a kind of countdown—keeping in mind how many years they have left to live, as well as the taxation that gradually strips them of their wealth, they will refrain from initiative and investment beyond what they require to maintain their standard of living. This course would strip capital from the next generation’s start-ups. Deprived of leavening, the French economic landscape would remain flat and sterile.

Thus the government’s attempt to unite “the people” at the expense of a few scapegoats will wind up harming the vital interests of “the people.” France still boasts many energetic and disciplined artisans and merchants, as well as entrepreneurs of small and midsize firms who instill their employees with drive and dynamism. They constitute the main future asset of our economy. But we will foster new Apples and Microsofts—as in the past we fostered Michelins and Dassaults—only if we allow these smaller businesses to grow.

Those great industrial firms, the source of our present prosperity, were made by people who worked hard to earn their first million. If the government had confiscated that first million, as it is proposing to do to today’s entrepreneurs, France would not have become the great economic power that it has been and may be again. If we overtax and discourage the rich, the future will bring neither economic dynamism nor growth. Our country will then know real and irremediable poverty—and incidentally, there will be no one to pay for retirement benefits.

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