France leads the tax debate

The December 28 decision by the French constitutional court, the Conseil Constitutionnel, that President François Hollande’s showpiece 75 per cent income tax for high earners is unfair and therefore unconstitutional may look like a severe political setback, but when examined more closely turns out not to be quite that. The court rejected the tax, which would have affected all with an annual income above €one million, because French income tax is levied on households and not individuals, so it would not apply, for example, to a couple each of whom earns €900,000 but would apply to any individual earning a million euros or more. Only about 1,500 people would have had to pay the new rate, which was due to take effect today and was expected to raise €500 million in a crucial contribution to Mr. Hollande’s plans to reduce the budget deficit to 3 per cent of GDP by 2014. One high-profile opponent is actor Gérard Depardieu, who says he now plans to move to Belgium, apparently for tax reasons, and has responded to Prime Minister Jean-Marc Ayrault’s criticism of his move as “shabby” with an angry open letter claiming that the Socialist government is punishing success and talent.

Mr. Depardieu’s position has, however, been criticised by, for example, the award-winning actor Philippe Torreton, who says that the move amounts to leaving the French boat in the middle of a storm. Unemployment, at 3 million, is at a 15-year high and has crossed 10 per cent after rising for 16 months in succession; the French central bank estimates an economic shrinkage of 0.1 per cent in the third quarter of 2012. Much of the public argument among artists and other celebrities is focused on the division between those who see paying the higher rate as a patriotic duty and those who consider it an unfair imposition, but the court decision itself has been made by a largely conservative-appointed court, which also includes three former presidents ex officio, all of whom are also conservatives. That fact will add fuel to the political flames, not least because in August 2011, 16 of France’s wealthiest people, including the L’Oréal heiress Liliane Bettencourt and several major chief executives, published an open letter in the magazine Le Nouvel Observateur calling for higher taxes on the rich as a matter of national solidarity in a time of economic crisis. Mr. Hollande and his government plan to revise the tax proposal and reintroduce it, but whatever the outcome, France is leading the way by showing that tax rates are about the nature of society and not just about technical issues.