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.

  • Share
  • Read Later
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