Income Taxation in France: The 75% Rate!

If you’ve got a business … you didn’t build that!

It was one of the most frequently quoted statements of the 2012 American Presidential campaign, and one of the most controversial as well. President Obama made the comment while describing how entrepreneurs rely on “this unbelievable American system” to build their businesses.

But presidential candidate Mitt Romney retorted that Obama’s comment was “insulting to every entrepreneur, every innovator in America.” He then dedicated an entire day of the Republican National Convention to the theme “We Built It.”

Although President Obama won his re-election campaign, this debate rages on across the globe. Just two weeks ago, for instance, the iconic French actor Gérard Depardieu protested his nation’s new 75% income tax rate by charging that politicians “think success, creation, talent and anything different should be punished.”

Then he turned in his French passport and Social Security card. And then he moved his residence to Belgium.

Trans Atlantic Similarities

Depardieu’s bombastic emigration decision triggered a wave of derision across France. Prime Minister Jean-Marc Ayrault, for instance, referred to him as “pathetic.” And the newspaper Liberation called him a “drunken, obese petit-bourgeois reactionary.”

The son of an alcoholic metal worker, Depardieu represents the very type of self-made entrepreneur that attracted the commentary of Obama and Romney, except for his French (and not American) lineage. Depardieu first arrived in Paris as a destitute teenager, and subsequently achieved prosperity as an actor, director, writer, restauranteur, vineyard owner, and global investor.

Has anything like Depardieu’s emigration decision ever occurred in the United States? On a far smaller scale, bombastic Republican radio personality Rush Limbaugh recently decamped from his New York City home to Florida, a state with no individual income tax.

Mr. Limbaugh claimed that New York’s taxation system was “punishing the achievers for the mistakes and the lack of discipline on the part of a bunch of corrupt politicians.” Governor David Paterson, though, retorted with the quip ““if I knew that (Limbaugh’s departure) would be the result … I would’ve thought about the taxes earlier.”

Trans Pacific Similarities, Too

This debate about our government’s ability to impose financial burdens on affluent citizens appears to bind societies on both sides of the Atlantic Ocean. Interestingly, it is increasingly binding societies on both sides of the Pacific Ocean as well.

This past week, for instance, China’s national legislature passed a bill that punishes children who fail to support their needy parents. The law mandates that adult children must visit their aging parents “often,” and explicitly empowers seniors to sue their children for parental neglect.

The alternative to mandated parental care, of course, is a government managed social safety net that is financed by heightened levels of taxation. But China has recently experienced its own taxation inspired protests, and thus its drive for greater parental support by children has been construed as an attempt to avoid the type of tax policy that has driven Depardieu to Belgium and Limbaugh to Florida.

The Fiscal Cliff

At the present time, American government leaders in Washington DC are spending the New Year’s holiday in a tense dispute over taxation policy. Facing a budgetary deadline of midnight on December 31st, they are striving to find a compromise that would enable American citizens to avoid the expiration of President George W. Bush’s income taxation levels and a reversion to the higher levels that were in place during the Clinton Administration.

The rancorous debate has brought the apparatus of the federal government to a standstill, and is being described as a “fiscal cliff.” But what is the primary nature of the dispute?

Well, the Democratic Party proposes to impose increases in income tax rates on individuals earning over $450,000 per year. But the Republican Party proposes to limit such increases to those earning over $360,000 per year … not very much different than the Democratic Party’s proposal!

And if they should fail to reach an agreement? What happens if America hurtles over the fiscal cliff? Well, the taxation rate on the wealthiest Americans will increase from 35.0% to 39.6%, an amount that is roughly only half of France’s 75% top rate.

The Debate Continues

There is very little chance that this global debate about the role of government will be settled in the near future. The French 75% tax rate, for instance, was recently invalidated on technical grounds, and most American pundits are predicting that any agreement reached on New Year’s Eve will be a “small deal” that fails to resolve the mammoth fiscal imbalances that threaten America’s future.

Nevertheless, there are clearly striking similarities in the public debates that are sweeping across European, North American, and Asian nations. As these debates continue into 2013, governmental leaders from the three societies may come to realize that similar challenges may necessitate common approaches.

After all, common problems are often most effectively addressed through the implementation of common solutions. As we turn the page on the new year, we may hope that our leaders will come to appreciate this message of policy solidarity.