It should surprise no one that someone writing at Forbes thinks that France’s 75% income tax rate is going to be disastrous. (And he may, for all I know, be right – I am honestly uncertain how far France can usefully raise its top income tax rate.)
What I found interesting, though, was the contrast he drew between the US and Europe at the end:
… For the US tax system is based upon citizenship while everyone else bases it upon residence. If you have a US passport then you are subject to US taxation (you might not have to pay any because of a low income, but you’re still subject to those tax laws). It doesn’t matter where you live in the world you still cough up to Uncle Sam. The only way out of this, the only way to “avoid” such US taxation is to give up your US citizenship. At which point the Feds will charge you all of the tax you would ever have paid anyway….
Which brings us to the wry point. Given this possibility of simple exit from any and all of the European tax systems (and such exit does not require that one stays in the EU either) the theoretical peak of the Laffer Curve is lower in Europe than it is in the US. Where such exit is very much more difficult. Which is rather odd really, given that tax rates and the tax burden are rather higher in the EU than they are in the US. It’s almost as if each place has the tax system suitable for the other.
Also relevant: Matt Yglesias’ http://www.slate.com/blogs/moneybox/2012/09/28/france_s_new_budget_left_wing_austerity_will_put_top_marginal_income_tax_rate_up_to_75_.html
Matt’s right; this is a form of EU austerity. “Austerity” in the EU involves tax increases as well as spending cuts. In fact, if you look at what Greeks have been protesting, some of it has been public employees protesting the fact that they’re getting pay cuts (steep pay cuts – Greece has been very reluctant to let any public employees go, but it has cut their pay sharply), some of it has been union protests against proposed labor law changes, but some of it has been a tax revolt, particularly against an unpopular utility tax increase. Conservatives in the US might well sympathize with the latter, even as they’d urge Greece to make sharper cuts to the public sector. In EU terms, though, both the tax increases and the spending cuts are austerity.
EU tax increases will likely bring less revenue – so it’s more about punishing success than austerity.
In Hollande’s case, it’s about the fact that he got elected on a “stimulus, not austerity” platform, after France had already signed a treaty agreeing to austerity targets. So he needs to find some way to meet those targets that doesn’t let down his working class Socialist supporters.
While I’m pretty sure that current US tax rates are well on the right hand side of the Laffer curve, and that reasons not to increase tax rates on the rich here (to some degree – for example by letting the Bush tax cuts expire) don’t include “It’s absolutely impossible to get more money from the rich because tax increases will inevitably bring less revenue,” I’m less sure that a 75% top tax rate in France remains on the correct side of the Laffer curve (particularly given Worstall’s points about the portability of income for rich French people). Tim Worstall may be right about this one. I doubt, though, that Hollande is deliberately bringing in less revenue just to punish the rich. More likely, if he *is* setting the tax rate higher than will actually bring in more money, he’s simply engaging in wishful thinking, something that can be found across the political spectrum, in the EU as well as elsewhere.
Make that “well on the safe side” of the Laffer Curve.
I would put 100% tax rates on the richest people, frankly. (I.e. confiscation of everything over a maximum income). I don’t believe that it’s morally acceptable for some people to be making outrageously large incomes, and I believe our society must do its best to discrouage greed, exploitation, and the accumulation of massive amounts of wealth.
What would you set as the maximum permissible income? Would it bear any relationship to the person’s assets?