France’s 75% Income Tax on the Rich Overturned as Unconstitutional

Socialist President François Hollande's promise to create social "justice" by raising taxes on France's wealthy overturned on constitutional grounds--for now.

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Thibault Camus / AP

France's President Francois Hollande, center, gestures as he leaves the Europe 1 radio station after an interview, in Paris, Dec. 21, 2012.

Long-standing French clichés took a blow Dec. 29 from an unexpected decision by France’s constitutional watchdog. Not only did the Conseil Constitutionnel strike down the kind of new tax hikes that have made France infamous abroad. In doing so, the Conseil prohibited a pending 75% income-tax rise on France’s wealthiest people — another French fiscal move that has generated much negative attention around the world.

More uncharacteristic still, while the 75% boost was designed to finally make France’s underpaying wealthy class start contributing its full share to public finances, the Conseil rejected the measure in defense of French revolutionary ideals of égalité before the law. As a result, Socialist President François Hollande must now scramble to revise his soak-the-rich legislation — a largely symbolic initiative whose constitutional rejection represents a significant political embarrassment.

(MORE: François Hollande: France Needs a Return to Fairness)

The Conseil invalidated the 75% tax hike on people whose income exceed $1.28 million per year on the grounds it failed to respect constitutional promises of “equality before public burdens.” It also struck down several other elements in the same budget law it was part of, including creation of tougher rules and calculations on how accumulated wealth, capital gains and some stock options are taxed. Opposition conservatives who filed the successful objection to the Conseil on Dec. 20 — the same day the law was passed — rejoiced at Saturday’s decision.

“The decisions of the Conseil Constitutionnel rebuke the fiscal harassment and demagoguery of François Hollande,” tweeted former conservative Prime Minister François Fillon.

“François Hollande played the French people for fools when he told them he’d straighten France out by increasing taxes on our wealthiest citizens,” echoed conservative legislator Christian Jacob, leader of the formerly ruling Union for a Popular Movement party’s parliamentary caucus.

The Conseil’s announcement was a major political and perhaps personal setback for Hollande, whose approval ratings since his May election have plunged to a current 37%. Indeed, his campaign promise to raise the marginal rate of households earning more than $1.28 million to 75% (from France’s current top rate of 46.7%) was applauded by nearly three-quarters of public opinion — including many conservatives — polls showed. It was also among the main progressive measures analysts credited with helping Hollande beat conservative incumbent Nicolas Sarkozy.

(MORETax the Rich? French and British Leaders Spar over Plans to Make Wealthy Pay Up)

Since then, however, voters have soured on Hollande’s careful pace of changing and improving France’s flat-lining economy. Meantime, in the face of protest from France’s wealthiest people — reinforced by criticism abroad — Hollande even softened his 75% tax hike by limiting it to only a couple years. The “justice” of everyone pulling their full weight, French voters were told, would only be applied as long as the nation’s debt and economic crisis endured. The ruling by the Conseil means even those jolts to the rich won’t happen as of Jan. 1, 2013 as planned.

Yet that doesn’t deal a huge blow to the French budget — or doesn’t mean Hollande’s plans to pinch the rich are dead yet. The decision mainly faults wording of the law focusing on individual income, rather than tax households, as is usual. That detail appears to set an unconstitutionally discriminatory income marker for people who are supposed to be equal before the law, the Conseil suggested. It also creates potentially unfair situations under the law for individual earners — if one household is taxed at 75% when a single working member earns more than $1.28 million, for example, but another escapes that bracket even if both individuals earn $1.15 million.

Significantly, a new, higher tax bracket created in the same law for households earning more than $192,000 passed the Conseil’s muster. For that reason, ruling Socialists — led by Prime Minister Jean-Marc Ayrault — responded to Saturday’s news by pledging they’ll take the Conseil’s objections into account when they simply repass reworded legislation back into law.

(MORE: France’s Colonial Hangover: Apologizing Abroad, Ignoring Injustice at Home)

Despite the time and vexation that will involve, it won’t necessarily be the end of the world for Hollande — or his dig at deep pockets. The right’s understandable jubilation over the Conseil’s rebuke notwithstanding, conservatives saw several of their own disputed acts returned as legally flawed when they held legislative power. Most of those — including ones that sparked global controversy like the measure recognizing Turkish genocide of Armenians and the 2010 law banning full-body and face veils like the burqa and niqab — were also reworded and revoted into law.

Meantime, the setback won’t seriously worsen France’s growth-sapped, debt-swamped public finances. Only around 15,000 to 25,000 people in France are estimated to earn enough to qualify for the 75% tax bracket — and many of them had already found legal accounting ruses to bring their reported income under $1.28 million. Even Hollande has never hidden the fact that pinching the affluent was far more significant as a gesture than it could ever be as a revenue generator.

Despite that, controversy has continued to rage over the 75% measure. French media has been rife with reports of millionaires fleeing France to take up foreign homes with lower tax structures — an exodus impossible to prove, given the dearth of righteously infuriated French expats willing to actually identify themselves as victims of abusive French wealth confiscation. The most notable exception to that anonymous rule has been actor Gérard Depardieu, who is seeking official Belgian residence to avoid what he calls outrageously high taxes in France. It’s still unknown whether the Conseil’s cliché-challenging decision Saturday will suffice to lure home the actor most of the world views as iconic of France itself.

MORE: C’est It Ain’t So Gégé: French Actor Depardieu Reportedly Seeks Tax Refuge in Belgium

67 comments
AlexCPhila
AlexCPhila

okay im a liberal and those taxes are way too high. Thats just unfair. 

YAlhouli
YAlhouli

@Hamoudk اها...تعليقي كان بناء على خبر سكاي نيوز

KodiacCutler
KodiacCutler

well i think wealth should be spread evenly amungst people, not those who struggle working back breaking hard everyday. be while alot of rich folk sit around counting stacks. If all the rich broke down there money and spread it all over this country (and world), in my opinion, the world could rebuild it's functional circle, Imagine us all eating the pie, instead of just one person, we'd all be content and full. Compared to starving and stressed, i like that.

KitBet
KitBet

who wrote the constitution and who interpreted it  ? the rich ! 

WarrenTenney
WarrenTenney

Dang. I wanted them to go through with this so people could see how it doesn't work. Then people would stop talking about doing something similar here in the US.

claudehodieux
claudehodieux

@TIME @TIMEWorld 2014 0,03€ DE PLUS SUR SALAIRE QUI VEUX PLUS HONTEUX POUR LES SALAIRE MER POUR LA TAX 75% C NUL COMME LE PRÉSIDENT

Janho_E
Janho_E

@TIME Socialists got them into trouble with all the grants in the 80's and now the same Socialists want to tax the drivers of the economy?

timeimp
timeimp

@soragon Welcome to Socialism. Please enjoy your state-ordered stay.

ukemaxharraj
ukemaxharraj

@TIME @timeworld And how right is to earn 1 Million and more as a salary? Indeed, these managers are thieves and to pay 75% taxes is right.

doc_shepard
doc_shepard

@TIME what they have to remember is that equality will only be achieved via taxing the rich to make them financially equal to the poor.

k_a_s_h_ii
k_a_s_h_ii

@TIME @TIMEWorld i think good job done by constitutional watchdog but at the same time 75% is bit too much.

wingchungirl73
wingchungirl73

@TIME @TIMEWorld Damn! No incentive to make money with those taxes!

pretavoyager
pretavoyager

I'm no millionaire, but relieved to see that France's 75% tax was overturned as unconstitutional http://t.co/RR0I7E0o / via @martamota @TIME

stickler800
stickler800

@TIME @TIMEWorld, i suppose this measure wil be implemented eventually, socialist dogma at its worst.

justmeblue5ft3
justmeblue5ft3

@TIME @TIMEWorld And our 1% think they have it rough!

ezequiasrocha
ezequiasrocha

@TIME liberty and socialism don't walk together.

BabySteps12345
BabySteps12345

@brucepknight Hey, I'm all for taxing the rich but 75% is absurd.

JohnBailo
JohnBailo

Come on...a tax that both solves the deficit problem AND makes Gerald Depardieu leave your country?

How much better does it get?!

simeon7777
simeon7777

Tax the rich till there ain't no rich no more... Glad to see they overturned such a crazy law!

BobJan
BobJan

when politicians of any country try to undo the corruption or unfairness of the tax system that their predecessors have put into practice because of prior campaign contributions, they can't undo it all at once and think no one will be ticked off.  Politicians by nature are exaggerators of both truth and lies and when they try to rectify prior mistakes they just make it worse. Talk about incompetence, Congress is very competent at that.

Disinterested
Disinterested

When a political system gives lazy-ass, havenots a vote, Socialism always follows.

KenzoRamaite
KenzoRamaite

@tkmaloka Just now uncle Jacob gets ideas....to build 6th phase of Nkandla

congressive
congressive

Strange journalism.  Hollande is elected by a clear majority to get the wealthy's tax bracket where it belongs, and a defeat by conservative bureaucrats is supposed to be "embarrassing?" Why? Conservatives found a glitch.  Big deal.  Hollande is doing the electorate's bidding, and will eventually succeed if indeed France is a democracy and not a plutocracy like the U.S.A.

NathanielEssex
NathanielEssex

@KodiacCutler You don't make very much money do you? If you did, you wouldn't be asking for someone else s. Here's an idea go get and education, get a real job or better yet create one like most of these entrepreneurs did and stop your whining about how much more someone else has than you do.

 

@y2016chrlan, Brilliant retort mate!!!! LOL 

Dellengwyn
Dellengwyn

@WarrenTenney  The key thing to remember is that the US, like France, has a "progressive" tax code.  So, if you make $1 million under a 91% top tax rate, that does NOT mean you pay 91% of your million buckaroos in taxes.  In other words, you don't have to cough up 910,000 of your million.  Tax rates get progressively higher only on incomes over certain amounts.  In Obama's proposed tax increases, for example, which are supported by a majority of Americans, tax rates would go up only on
income above $250k (or, in the compromise, $400k).One thing this means is that it would be idiotic to try and "strategically" lower your income to just $249,999.   Because the rates on your income tax up to $249,999 *will not change*.  Only the number of dollars above that amount of income will be taxed a higher rate. 

So let's run the numbers.

- Let's say my income is $350k.  That's $100k over the new limit.  So, how does that affect me?

- The previous tax rate of 35% would still apply, as it did before, to your income up to $250k.  No change there.

- On that extra $100k, at the new Obama rate of 39.6, I pay $39,600 in taxes instead of the $35,000 I paid last year.  That's a net increase in taxes of $4,600 over last year--or a whopping 1.3% of my total income of $350k.  It also happens to be an enormous 3.7% increase in the amount of taxes I paid last year on my 350k.  A tax hike of 3.7%.  These are sorts of figures we're talking about in the US.The US is not France.  The US is not a socialist state, nor is its president a socialist.  What is being proposed here is a very minor tax rate adjustment as part of a larger fiscal package to reduce deficit spending.  I don't make 350k a year, but if I did, I bet I could afford to kick in another 1.3% of my income to help out.  And BTW, earning that $350k puts you in the top 2% of income earners in the country.  An income of over $383k would put you in the top 1%. That means you have benefited extraordinarily well from the market freedoms we have here.  If you can't afford to kick in an extra couple of percent of that kind of income, you are managing your wealth poorly.

- If you run the numbers on incomes of $1 million, the net tax hike for Americans making that much amounts to about 13%--not insignificant, but again, nowhere close to the 66% increase proposed by the French president (and which was, predictably, rejected). 

So, the socialist president of France tried to "go big" with his rather outlandish attempt at what was actually a 66% tax hike on incomes over $1.3 million.  The 3-4% tax hike we are discussing in the US is nothing like that at all, and yet the Republicans in the House were willing to throw us into fiscal crisis over it.  The US is not France. The proposals here in the US are not similar to those of France.  Let's keep that in mind.

soragon
soragon

@timeimp It's disgusting. You're nothing short of a slave for the state. Then you have people calling it being "kind" and "generous".

ecinparis
ecinparis

@pretavoyager Don't hold your breath. Ayrault is reworking and will make it retroactive. Hopefully, they'll be stopped, but they be scheming

RedScareBot
RedScareBot

Word from the bird RT @stickler800: @TIME @TIMEWorld, i suppose this measure wil be implemented eventually, socialist dogma at its worst.

Dellengwyn
Dellengwyn

@BabySteps12345 Of course, we had tax rates much higher than that here in the US, during a time of unprecedented economic growth:  the "post-war boom."  Marginal tax rates on top incomes were 91% under Eisenhower. 

The key thing to remember is that the US, like France, has a "progressive" tax code.  So, if you make $1 million under a 91% top tax rate, that does NOT mean you pay 91% of your million buckaroos in taxes.  In other words, you don't have to cough up 910,000 of your million.  Tax rates get progressively higher only on incomes over certain amounts. 

In Obama's proposed tax increases, for example, which are supported by a majority of Americans, tax rates would go up only on income above $250k (or, in the compromise, $400k).

One thing this means is that it would be idiotic to try and "strategically" lower your income to just $249,999.   Because the rates on your income tax up to $249,999 *will not change*.  Only the number of dollars above that amount of income will be taxed a higher rate.  

So let's run the numbers.

- Let's say my income is $350k.  That's $100k over the new limit.  So, how does that affect me?

- The previous tax rate of 35% would still apply, as it did before, to your income up to $250k.  No change there.

- On that extra $100k, at the new Obama rate of 39.6, I pay $39,600 in taxes instead of the $35,000 I paid last year.  That's a net increase in taxes of $4,600 over last year--or a whopping 1.3% of my total income of $350k.  It also happens to be an enormous 3.7% increase in the amount of taxes I paid last year on my 350k.  A tax hike of 3.7%.  These are sorts of figures we're talking about in the US.

The US is not France.  The US is not a socialist state, nor is its president a socialist.  What is being proposed here is a very minor tax rate adjustment as part of a larger fiscal package to reduce deficit spending.  I don't make 350k a year, but if I did, I bet I could afford to kick in another 1.3% of my income to help out.  

And BTW, earning that $350k puts you in the top 2% of income earners in the country.  An income of over $383k would put you in the top 1%. That means you have benefited extraordinarily well from the market freedoms we have here.  If you can't afford to kick in an extra couple of percent of that kind of income, you are managing your wealth poorly.

So, the socialist president of France tried to "go big" with his rather outlandish attempt at what was actually a 66% tax hike on incomes over $1.3 million.  The 3-4% tax hike we are discussing in the US is nothing like that at all.  The US is not France.

brucepknight
brucepknight

@BabySteps12345 Maybe, but the plutocracy is trying to step on everybody under them. By the way, i may steal your background. It's great! :)

Oz13msx
Oz13msx

@Disinterested  Let me know how that goes when you become a serf again. I'm sure being a mud farmer is just what you always wanted to be.

sawfish666
sawfish666

@congressive  

I don't know how others will see it, but I think you've done a pretty good job of explaining why France is now on its Fifth Republic...

fffeisty
fffeisty

@congressive HI there, I would not say that Hollande was elected with a clear majority....314 seats out of 577 looks like a clear majority but that is only with a mixed party congregation (in France there are several parties to the left, several in the middle and probably even more to the right).  So some of those 314 seats deemed to be left - Socialist seats - do in fact belong to other groups who will not always vote the same as Hollande's party.  The proof is already showing with this Tax law. If he did in fact have total majority it could have gone straight through and did not.  Even reworded, it might still not pass.  What people want is for the more fortunate who pay Tax Consultants to avoid paying any tax at all, to cough up and contribute. That is why some celebrities have elected to live out of France to no longer be Taxable in France, but that does not always work, because law in France says that any gains earned in France are still taxable in France - resident or not. Thr right and the left have tried for years to make the rich pay more....... but like every country in the world, there are tax loopholes, tax deductions etc. which make it difficult to collect on those who have far too much to spend.  Once your future and that of your off-spring is assured, what do you do with all your money when you are that rich?  Even all those expensive holidays and clothes will  never exhaust those bank accounts!!

NathanielEssex
NathanielEssex

@Dellengwyn First, I don't care how much you make I'm against raising someone's taxes 13%! That is ridiculous. Why? Because the US gov't continues to increase it's budget every year by almost $1Trillion dollars. They can't handle the money we pay them as it is! Why try and solve the gov't spending problem by making anyone pay for it? Whatever revenues you brought in the previous year should be the legal limit. There is no other largest kind of waste than gov't bureaucracy. Second, why is it that Obama promised to balance the budget, end large corporate loopholes and eliminate programs that don't work but has yet to do so and no one could care less. I'm no Democrat but at least Al Gore cut White House budget waste while Vice Prez. $18 Trillion in debt and counting. No one cares...

sawfish666
sawfish666

@Dellengwyn @WarrenTenney 

You've made some nice points about *how* a person making > 250K might use some of his/her personal income to pay more into the public fund ( US Treasury), but I see no such arguments as to *why* they should. That is to say: when one pays, one reasonably expects something in return. What additional consideration might this person, who is paying the additional tax, expect?

Another way to look at the situation you've described is that when a person gets his/her "take home" income (after taxes), s/he will put this income in various "pocket" of his/her own choosing: retirement, food/shelter; education, savings, investment, health care,  dependent support, leisure. Your putative additional contribution should come out of which of these "pockets"? Before answering, please consider that if you feel that you have the moral/ethical standing to select what another person does with his/her own after-tax money, the same authority you so cavalierly use to claim others' personal income/property can then justifiably be used against you, and not just your assets, but any other such freedoms (religion, assembly, speech) you believe you have.

 The slope you so casually suggest is indeed a very slippery one...

WarrenTenney
WarrenTenney

@Dellengwyn @WarrenTenney

Dellengwyn,

I'm aware of how a progressive tax system works, but I still hold that France's 75% rate would not work. I'm also aware that their proposals are nothing like what Obama's administration has been pushing for, but there are plenty in the liberal platform that want to get there eventually. I was just pointing out that this is a flawed mentality.

timeimp
timeimp

@soragon For the state, comrade ;)

pretavoyager
pretavoyager

@ecinparis well, I'm no where near that salary, so ok for now. Cannot be good for international image.

Oz13msx
Oz13msx

@Dellengwyn @BabySteps12345 People prefer to blow it completely out of proportion and make it sounds nuts. It's amazing how many people try to keep the status quo for a group they don't belong to and will never belong to. If you make more, you pay more. It's a simple concept that helps everyone. Why do people think anyone needs a few million a year? 

pretavoyager
pretavoyager

@ecinparis you're so right. I blame it on men + egos. So dumb.

ecinparis
ecinparis

@pretavoyager I'm afraid now it is a pissing contest. They don't wanna be wrong, so they'll push something thru rather than admit defeat

pretavoyager
pretavoyager

@ecinparis ha! I totally believe that. Wish France would start to learn to think differently - for better current event talk if nothing else

ecinparis
ecinparis

@pretavoyager God no. For once, when I went back for work in the USA, ALL the pro peeps knew something about French current events.

sawfish666
sawfish666

@Oz13msx @Dellengwyn @BabySteps12345  

Would you be comfortable having someone tell you what you do or do not need, in terms of education? How about religious observance? How about square footage of your dwelling? How about the temperature to which you heat it? Interior capacity of your car (or, indeed, whether you *need* one)? Number of children? Pets?

I am asking seriously and not sarcastically. Do you see any connection? Personally, I do--but hey, that's just me.