France Seeks Other Ways To Impose Top Income-Tax Rate Of 75%


French Constitutional Court Strikes Down 75% Millionaire Tax, Finds It ‘Unfair’

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France Seeks New Path to High Tax (Wall Street Journal, Dec 31, 2012):

PARIS—The government of Socialist President François Hollande on Sunday said it would consider other ways of imposing a top income-tax rate of 75% on high-wealth individuals after the country’s top constitutional authority scrapped the plan.

The Constitutional Council’s decision is a political blow to Mr. Hollande, who had vowed to shift to the rich the burden of efforts to improve the country’s finances.

“Humiliating,” French weekly newspaper Le Journal du Dimanche said in a front-page banner headline Sunday. The council sanctioned Mr. Hollande’s “fiscal bludgeoning,” former Prime Minister François Fillon told French radio.

The constitutional watchdog didn’t reject the principle of a more-stringent tax regime, but rather the way it would have been applied.

It ruled that the plan to levy a 75% tax rate on annual incomes of more than €1 million ($1.3 million) was illegal because it would have been applied to individuals and not households, the traditional basis for France’s income-tax code.

The measure would have been unfair, the court said, as it meant that a household with two people earning just under €1 million each a year wouldn’t have been subjected to the tax, while any person making more than €1 million would have had to pay it.

The office of Prime Minister Jean-Marc Ayrault said the government intends to introduce new tax legislation for France’s top wage-earners in the next budget in 2013 that would conform to the court ruling.

Ahead of his election in May, Mr. Hollande had said the tax, known as the “exceptional solidarity contribution” would be a key plank of his platform that called for greater fiscal justice.

The tax was expected to apply to around 1,500 people and yield some €210 million in 2013—a highly symbolic fraction of the country’s budget of about €300 billion. Still, government officials had said Mr. Hollande’s calculation was that unpopular spending cuts would be better-accepted by the wider population, once the higher tax rate had been introduced.

Mr. Hollande was using the tax plan to deflect attacks from the leftist wing of his party for policies that were perceived as being un-Socialist, most notably a €20 billion tax credit designed to improve corporate competitiveness, kick-start the stalling economy and stem a steep rise in the country’s jobless rate.

But Mr. Hollande also faced attacks from the conservative opposition. The tax plan came under fierce criticism from center-right lawmakers, who challenged it before the Constitutional Council in December, and was cited as a factor in the decisions by some high-profile personalities such as actor Gérard Depardieu to leave the country. Mr. Depardieu was quoted in French media Sunday as saying the court’s decision “doesn’t change anything” about his choice to move to Belgium.

Real-estate agents and tax consultants said they have registered a surge in applications by French individuals eager to flee France and Mr. Hollande’s tax regime. In the absence of official data, however, it is has been hard to determine whether the planned 75% tax rate had sparked a real exodus.

In September, Bernard Arnault, the chairman and chief executive of luxury goods giant LVMH Moët Hennessy Louis Vuitton SA, MC.FR +1.16% confirmed he had applied for Belgian citizenship but insisted he wasn’t motivated by fiscal reasons, and would still pay income tax in France.

In its examination of the 2013 budget’s conformity with the constitution, the Council approved raising the top income-tax rate for households to 45%.

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