Even Europeans have a limit when it comes to accepting ever-increasing tax bills. France’s socialist president, Francois Hollande, was surprised to find small business rejected his latest hike. The entrepreneurs known as “pigeons” — French slang for suckers or fall guys — were upset that the capital gains levy on business sales was set to reach as high as 64 percent. The outcry was so loud that government officials retreated, admitting to an embarrassing “design error” in the proposal. They agreed to rewrite the law to exempt local business owners from the onerous tax. It was a minor victory in a losing war for the European Union’s (EU) second-largest economy.
With the largest welfare state in the EU, France is now facing stagnation and a 10 percent unemployment rate. The country’s fiscal deficit was 5.2 percent of gross domestic product last year, but Mr. Hollande wants that number to drop to a more reasonable 3 percent. He proposed to sweep in an extra $26 billion in cash through tax hikes while “saving” $13 billion with a spending freeze. He found no room for any real spending cuts.
Like a good class warrior, Mr. Hollande aimed his tax assault at either the very mobile rich or the job-creating entrepreneurs desperately needed in the struggling French economy. Mr. Hollande’s more notorious proposal involves levying a 75 percent tax on all income in excess of $1.3 million.
This tired gimmick never works. In 2008, Maryland’s Democratic Gov. Martin O’Malley implemented a “millionaire’s tax” that only succeeded in chasing 31,000 people out of the state by the time it expired in 2010, according to the group Change Maryland. Just as Marylanders fled from the grasping hands of Annapolis to lower-tax states, well-to-do Frenchmen can move to virtually any surrounding nation and enjoy fairer treatment.
The French public reacted with ennui to the millionaire’s tax. What got them going was the attack on small and mid-sized companies. Young, social media savvy entrepreneurs would have borne the brunt of the 64 percent sales tax, which is far in excess of Europe’s average of 25 percent. They responded with the tools at hand, launching not just street protests, but also a Facebook community with 63,000 participants.
When governments run out of money, politicians need to find someone to blame. Taxing the individuals who create economic prosperity is nothing more than a distraction. Talking about “the rich” is a way to avoid addressing the enormously burdensome welfare system and the rigid labor market that makes it prohibitively expensive to hire employees to expand a business.
The Hollande administration is planning to meet with union bosses to try to convince them to accept German-style modification of the labor laws. There’s little reason to hope for any significant change. Unless France gets serious about fixing the spending side of the fiscal equation, the nation will remain on the path to implosion. There aren’t that many pigeons left to pluck.
The Washington Times