Analysis

France: Disastrous 75 Percent Tax Hits a Brick Wall
French President Francois Hollande pauses during a press conference on March 26, 2013 in Paris, France. (Antoine Antoniol/Getty Images)
March 28, 2013
| Economics
| Europe
Summary

Francois Hollande’s socialist government apparently has never heard of the economist Arthur Laffer, who proved that high tax rates actually reduce tax revenue because they cause economic activity to slow down, which in turn erodes the tax base. Hollande is now proposing a 66 percent tax on high earners to replace the old 75 percent tax, which was declared unconstitutional by France’s highest court, but LIGNET believes its effects will still do more harm than good for the country’s beleaguered economy.

A large number of high earning individuals and businesses are already shifting their operations out of France to neighboring countries to avoid the 75 percent tax and a reduction to the 66 percent level is unlikely to be enough relief to make them change their minds. Hollande’s new tax proposal is currently being processed by France’s courts and is more likely to gain approval than its harsher predecessor.
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