Paris seeks alternative to 75% tax

Paris seeks alternative to

75% tax

The finance ministry has neither confirmed nor denied the proposed new rate.

France’s Socialist government is considering replacing its stricken 75 per cent top income tax rate on earnings above €1m, with a 65-66 per cent rate on households earning more than €2m.

The proposed new rate is working its way through the National Assembly as part of budget measures aimed at redressing France’s growing public deficit. But it has come under fire from Christian Eckert, the Socialist head of the assembly’s budget committee, who said it did not fulfil President François Hollande’s emblematic manifesto promise.

In an interview with Le Monde newspaper published on Friday, Mr Eckert said: “It seems to me that we are in danger of losing two symbols: that of incomes above €1m and that of the 75 per cent rate, which will be dropped to 65-66 per cent.”

The finance ministry has neither confirmed nor denied the proposed new rate. Mr Hollande’s 75 per cent rate was struck down by the constitutional council on New Year’s eve, just before it was due to come into force. It said it was unfair to apply the rate to individuals, not households, as is the norm under French income tax rules.

However, simply imposing a €1m threshold on households could pose a political problem, since the number of people affected would rise from about 1,500 to more than 10,000. The tax measure, though popular during Mr Hollande’s election campaign last year, has become totemic for business leaders and others protesting loudly that such policies are driving wealth creators out of the country.

Jérôme Cahuzac, budget minister, has suggested the government could apply the measure – which is not expected to raise much more than €200m a year – to households but raise the threshold to €2m.

 This carries the risk of backlash from within the Socialist party. Mr Eckert said he would prefer a tax on

companies that would disincentivise them from offering salaries of more than €1m. “This does not seem to be the preferred option for replacing the exceptional contribution on very high earnings,” he said.

To help get round objections from the left of the party, Mr Hollande may decide to lengthen the term of the new tax for the rest of his five-year mandate and not just two years as proposed for the 75 per cent rate.

The lower rate may be easier to push through, since public opinion seems to be waning for the 75 per cent rate, because of fears that it might be counterproductive.

A survey by Ifop pollsters last September showed that 60 per cent of those surveyed approved of the 75 per cent rate. But that dropped to 53 per cent last month, as 47 per cent said they wanted the government to drop the idea because “too high a rate encourages the wealthiest and entrepreneurs to leave our country.”

Source; http://www.ft.com/intl/cms/s/0/27f25c6a-826d-11e2-8404-00144feabdc0.html#axzz2MSkl3dTu