**Written by Doug Powers
President Francois Hollande’s Socialist government unveiled sharp tax hikes on business and the rich on Friday in a 2013 budget aimed at showing France has the fiscal rigor to remain at the core of the euro zone.
The package will recoup 30 billion euros ($39 billion) for the public purse with a goal of narrowing the deficit to 3.0 percent of national output next year from 4.5 percent this year – France’s toughest single belt-tightening in 30 years.
But with record unemployment and a barrage of data pointing to economic stagnation, there are fears the deficit target will slip as France falls short of the modest 0.8 percent economic growth rate on which it is banking for next year.
To the dismay of business leaders who fear an exodus of top talent, the government confirmed a temporary 75 percent super-tax rate for earnings over one million euros and a new 45 percent band for revenues over 150,000 euros.
Together, those two measures are predicted to bring in around half a billion euros. Higher tax rates on dividends and other investments, plus cuts to existing tax breaks are seen bringing in several billion more.
They’re counting their chickens before they’ve crossed the road into other countries. Those tax haul estimates are provided the “super rich” and businesses don’t flee to more welcoming tax climes — which won’t be difficult:
If you have a US passport then you are subject to US taxation (you might not have to pay any because of a low income, but you’re still subject to those tax laws). It doesn’t matter where you live in the world you still cough up to Uncle Sam. The only way out of this, the only way to “avoid” such US taxation is to give up your US citizenship. At which point the Feds will charge you all of the tax you would ever have paid anyway. So avoiding US taxation by leaving the country isn’t really an option: there is no “exit” possibility as the economists like to say. This will clearly and obviously lower that e2 value, the amount of avoidance that anyone can do in the face of higher tax rates.
However, the French tax system is, indeed all of the EU tax systems individually are, based upon residence. If today you live in Lille then you pay French tax. If tomorrow you move to London then you are subject to UK tax laws, not those of France. You do not have to change citizenship, do not require a permit or permission to do this, you just buy a train ticket and 90 minutes or so later there you are. Free of the French tax system. The value of e2 is going to be rather different in such circumstances. When there is an easy and simple exit from the entire system available at the cost of perhaps 90 euros.
France is already losing its richest person over this, and more will follow.
Hollande has said the 75 percent upper tax rate would last “around two years.” The vague, open-ended expiration date isn’t likely to convince the wealthy who are on the verge of moving to stick it out and “take one for the team” for an unspecified amount of time.
**Written by Doug Powers
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