It was May of 2012 in France, Mr. Hollande swept to the office of president with bold economic claims and rhetoric of how he would bring about equality and prosperity for the French people. Indeed, Mr. Hollande won the office of President of the Fifth French Republic over previous incumbent, Nikolas Sarkozy, with 51.67% of the vote in the final round of elections. Currently, France’s budget deficit stands at about 4.5% of France’s GDP; President Hollande has made the bold promise to reduce that to 3% of France’s GDP by the end of 2013. His solution? Introduce a 75% income tax on all French citizens with an income of 1 million Euros or more. (That is about $1.25 million). I’m not joking, that really is the figure, which, when implemented, will become the highest income tax rate in the world. Mr. Hollande’s efforts represent the most socialist reforms in an industrialized country in the modern era (which is a breath of fresh air considering the far-right conservative filth we have impeding progress here in the U.S), but, one must question in the light of Mr. Hollande’s bold promise regarding France’s budget deficit, whether this measure is motivated by politics rather than economics. Whatever the motivation, France’s new income tax could force France’s elite to say “Au Revoir” to France’s new regime.
If history is anything to go by, it is that whenever the rich threaten to flee in protest of policies that damage their hegemony on politics, history tells us that is it always just merely a bluff. One such example is the rise of Leon Blum’s popular front regime in 1936 during the depression era in France. However, despite all of Blum’s socialist reforms, the rich did not flee as they had vowed to. However, globalization has changed things considerably. Consider the amount of progress made in communications by 1936 compared to the progress of communications today. With the rise of the internet and world-wide web, busniesses now have the ability to reach out to their consumers almost seemlesley from any part of the world. In other words, French busniessmen could simply move their shops somewhere else, but still reach out to their French consumers through the world-wide web. Indeed, globalization makes it ever more possible for France’s elite to flee than ever before. Now that we have established that globalization and the rise of the world-wide web has made it possible for the rich to flee, the question that rises is this; where would they go? Well, anywhere really. Recently, British Prime Minister David Cameron has recently stated that he would welcome an influx of French busniess in Britain. They have a 50% income tax rate. New York central busniess districts must be salvaiting at the prospect of French busniesses coming to the city. Real estate agencies in Belgium and Switzerland have been overwhelmed with the calls from France’s wealthy enquiring as to the avaliability of property. Unfortunetly, man’s most inherent insticnt is greed, and globalization as well as the growth of the internet has made it possible for the France’s elite to succumb to their greed and say “Au Revoir” to Hollande’s regime and France’s poor.
Many supporters of France’s new income tax argue that France’s situation in relation to their budget deficit was already so perilious that a measure this extreme was the only measure that could reduce the deficit. However, budget deficits. though thoroughly debated, have a rather simple solution; the government must bring in a revenue that is larger than it’s spending. What is the government’s man form of revenue? Taxes. France despretly needed higher taxes. A small increase of France’s income tax from the 48% rate under Sarkozy to perhaps the 54% tax rate seen in Sweden would have gradually reduced France’s budget deficit while allowing the French government to maintain it’s current spending. Now, this is where politics comes into play. Mr. Hollande promised on his election to office that he would reduce France’s budget deficit from 4.5% of the GDP to 3% of the GDP by the end of 2013. In order for Mr. Hollande to make good on that promise, the new tax rate was vital towards reducing the budget deficit that much in such a short period of time. Clearly, Mr. Hollande did not want to lose the support of the French people he fought to hard to gain by not following through on his promises, so he had no choice but to introduce this extreme measure. It is commendable that Mr. Hollande is not functioning like the stero-typical lying politician that so many of us are used to feeling dissapointed in and that he is actually following through on his promises, but perhaps Mr. Hollande should have not made promises he knew he could not keep.
Now, it is time for us to explore the potential impact Mr. Hollande’s new tax rate could have on the economy of France. First, we have established that, with globalization and the rise of the internet, that it is possible for the rich to defy histroy and come through on their vow to leave France for good. Mr. Hollande has said that France’s 75% tax rate is only a temporary measure to balance the books of France’s government; the tax rate is due to expire in 2017. It is clear that Mr. Hollande was banking on miliking as much income he could from France’s wealthy, evidenced by the fact that France’s income tax drops to a 48% rate for those making between 75,000 and 1 million euros and a meagre 30% rate for those making below 75,000 euros. But how can Mr. Hollande expect for his tax rate to work if there are no wealthy people to pay that 75% tax rate. This could lead to two possibilites. The first possibility is that France becomes the next Greece. France’s government spending and reduced revenue would lead to an ever-increasing budget deficit, forcing France to accumulate international debt. This, in turn, would lead to a devaluing of France’s standing on the international monetary exchange. However, with France being a member of the European Union, the Euro would become devalued, thus forcing the European community to get together and possibly discuss restructuring France’s debt, or, even worse, removal from the European Union. The Second possibility is that France becomes the next Spain. Unlike Greece, Spain implemented conservative measures similiar to the Ryan plan that was proposed in Congress. Juan Carlos I and the Spanish government cut taxes for the wealthy, slashed corporate taxes, cut government programs and subsidies to education. Juan Carlos I was hoping to restore the Spanish economy by encouraging growth through the private sector. However, the private sector did not follow through on what was expected of them. With access to education having been cut, the Spanish workforce suffered from a lack of ingenuity, corporations concentrated on turning profit rather than creating jobs, and poverty in Spain became more widespread. The ultimate dagger in the heart of Spain’s economic recovery plan was the fact that unemployment rose to a staggering 25%. These are the two possibilites France faces with the current tax rate. One thing is certain, Mr. Hollande must put aside his political agenda and reform France’s tax system to something more practical, perhaps a tax code modeled off Sweden’s, which seems to balance out free enterprise and government intervention well. Mr. Hollande, you better hope that France’s wealthy stays.
Mr. Hollande certainley deserves praise for the way that he has been honest with the French people and stuck to his beliefs. In comparison to the garbage that we call politicians here in the U.S who are nothing but corrupt individuals influenced by corporate intrests and the lobbyists that fund there campaigns, Mr. Hollande is a politician who wants to work for the people who elected him. He is a man of conviction, a trait that is almost impossible to find in politicans on both the left and the right here in the U.S. Though I do take a somewhat conservative stance on Mr. Hollande’s tax rate, those of you who read my post “The Myth of Socialism here in the United States” will know that I certainley favor the left of the politcal spectrum. This fact alone should be enough to tell you that France’s new tax rate is too extremist of a policy. However, if Mr. Hollande remains honest with the French people, then he can still lead France to the prosperity that he promised upon his election. The first step that he must take is to admit that he made a promise he could not possibly keep in regards to France’s budget deficit. Then, he must apply some policies of moderation and reform France’s tax code to something that is fair and reasonable for all. If Mr. Hollande cannot overcome his own pride, then we may begin to hear calls of “Au Revoir” from the streets of Paris.