Lucky French Taxpayers Get an Obama-Style Flat Tax

I joked back in 2010 that Barack Obama had a very simple flat tax proposal.

But as you can see, sometimes simple isn’t the same as good.

Well, satire too often becomes reality in a world of greedy and corrupt politicians who think class-warfare is an acceptable guide to tax policy.

I say this because thousands of French taxpayers now are being subject to this satirical Obama flat tax.

Here are some of the grotesque details from a Reuters report.

More than 8,000 French households’ tax bills topped 100 percent of their income last year, the business newspaper Les Echos reported on Saturday, citing Finance Ministry data. …President Francois Hollande’s Socialist government imposed the tax surcharge last year, shortly after taking office… The government has been forced to redraft a proposed bill to levy a temporary 75 percent tax on earnings over 1 million euros, which had been one of Hollande’s campaign pledges. …Since then, a top administrative court has determined that a marginal tax rate higher than 66.66 percent on a single household risked being considered as confiscatory by the council.

Ironically, President Hollande already made a commitment that no taxpayers should have to surrender more than 80 percent of their incomes, but I guess that promise didn’t mean much.

After all, this is the guy who equates higher taxes with patriotism.

No wonder successful people are fleeing the country.

If you want to understand real tax reform, click here.

And here’s my video describing why the right kind of flat tax is a good idea.

This topic is particularly meaningful to me since I’m in the middle of the Free Market Road Show and I’ve been five flat tax nations – Bulgaria, Romania, Kosovo, Macedonia, and Albania – in the past 36 hours.

Too bad there’s little reason to hope that America will ever be part of the flat tax club.

P.S. I guess it’s good that the French court thinks that a 66.66 percent tax is “confiscatory.” But isn’t that true of any tax – at any rate – that is used to fund illegitimate activities?

Read Full Post »

Hell Has Officially Frozen Over: French Support Spending Cuts by Overwhelming 4-1 Margin

I like the think I’m a reasonably savvy observer of public opinion and international economics, but every so often I’m stunned by some bit of data.

Several years ago, for instance, I was very surprised to see that more than half of the French people would consider moving to the United States if they had the opportunity.

Well, the French have shocked me again. According to new polling data from Pew, the people of France support spending cuts over spending increases by a margin of 81-18, an astounding result.

I’m also surprised that the Spaniards and Italians support spending cuts. The polling results are especially impressive considering that Pew asked the question in a very biased way, presupposing that Keynesian economics actually works.

The fact that so many European saw through this inaccurate wording is very encouraging.

By the way, I can’t resist sharing this part of the Pew survey. It shows that the people of all eight nations think they’re the most compassionate.

On a humorous note, the folks from every nation chose the Germans as the most trustworthy – except the Greeks, who chose themselves.

With my twisted sense of humor, this reminds me of the funny (but un-PC) maps showing how the Greeks (and folks other nations) view the rest of Europe.

And since we’re being politically incorrect, here’s some English humor about terror alerts in other nations.

P.S. It turns out the French people also supported spending cuts by a very strong margin in a 2010 poll. So there’s something nice about the country other than attractive women. But given those poll numbers, why the heck do they elect big-government statists such as Sarkozy and Hollande?!?

P.P.S. Since I’m a proud America, I can’t resist linking to this poll which shows people in the United States favoring spending cuts by a margin of more than 8-1. So why do we elect big-government statists such as Bush and Obama?!?

Read Full Post »

The Fuse Is Burning Brightly on France’s Fiscal Time Bomb

It’s been more than three weeks since I targeted French fiscal policy for abuse and more than one week since I wrote something negative about the French fiscal system.

I must be slowing down as I get older, so it’s time of rectify this oversight.

My fundamental problem with the French system is that the burden of government spending is excessive and the politicians seem to think the answer is additional increments of class-warfare tax policy.

If you think I’m exaggerating, just check out this chart on government spending. The public sector in France is more bloated than the ones that exist in Italy, Sweden, and Greece!

That’s quite an achievement.

And then remember that the new French President is imposing a new top income tax rate of 75 percent. Though, to be fair, President Hollande generously says he doesn’t want the overall tax burden on any taxpayer to exceed 80 percent. All hail Francois the Merciful!

Notwithstanding this magnanimous gesture, some taxpayers have the gall (no pun intended) to object to this level of fleecing. Famous actors and successful entrepreneurs are among those saying Au Revoir and moving to jurisdictions that have less punitive tax laws.

What most amuses me about this exodus is the way France’s political elite is throwing a temper tantrum. How dare our victims run away!

The situation is so grim in France that The Economist wrote up a special report warning that France is Europe’s “time-bomb.”

Which raises an interesting question. How brightly is the fuse burning, and how much longer until the bomb detonates?

The honest answer is that I don’t know, but here are two stories worth noting.

First, you have to figure the tax burden is a bit too onerous if even high-ranking officials from a socialist government are utilizing tax havens to protect themselves. Here are details from a BBC report.

Jean-Jacques Augier, who managed Mr Hollande’s campaign funds, told the daily Le Monde that there was “nothing illegal” in his tax haven affairs. Meanwhile, ex-budget minister Jerome Cahuzac has been charged with fraud. Ministers are under pressure to reveal what they knew about his tax evasion. On Wednesday President Hollande addressed the scandal on national television, saying that in future all ministers and MPs would have to declare fully their personal finances.

Gee, don’t these members of the political elite understand that Hollande wants them to be able to keep 20 percent of their earnings? What a bunch of ingrates!

Our next story shows that French politicians are so greedy that they’re even willing to undermine their own national sport.

Prime Minister Jean-Marc Ayrault’s office issued a statement today confirming that a 75 percent surcharge on salaries above 1 million euros ($1.3 million) will apply to soccer clubs. “This new tax will cost first-division teams 82 million euros,” France’s Football League said in a statement. “With these crazy labor costs, France will lose its best players, our clubs will see their competitiveness in Europe decline, and the government will lose its best taxpayers.” …Many soccer players would already be taxed at France’s top marginal rate of 49 percent, which kicks in at 500,000 euros a year. Teams would then pay a surcharge to bring the effective tax rate on salaries above 1 million euros to 75 percent.

Mon Dieu! The government “will lose its best taxpayers.” Sounds like the Laffer Curve effects may be so large that the government actually loses tax revenue.

“Follow me. We can escape in this direction”

And since even left-leaning economists have confirmed that tax rates have a big impact on the decisions of such athletes, I hope French sports fans won’t mind if all the best players decide to take their talents elsewhere.

With policy this bad, no wonder Obama will probably never achieve his goal of turning America into another France. But he can take comfort in the fact that the French people overwhelmingly support what he’s trying to do.

But they also must be schizophrenic. As of 2010, an overwhelming majority of them also acknowledged that it was necessary to lower the burden of government spending to boost growth. And an astounding 52 percent of them might move to evil capitalistic America if given the opportunity.

The key thing is not to import French economic policy. Having escaped from her former country, Veronique de Rugy explains why that would be a mistake.

You can also watch Veronique explain the basics of fiscal policy in this testimony to a congressional committee.

P.S. This Chuck Asay cartoon captures the French mentality. Makes you wonder what they’ll do when the house of cards comes tumbling down. All I can say for sure is that the ones who put their money in tax havens will be much happier than the ones who thought they could trust government.

Read Full Post »

Revenge of the Laffer Curve…Again and Again and Again

If I live to be 100 years old, I suspect I’ll still be futilely trying to educate politicians that there’s not a simplistic linear relationship between tax rates and tax revenue.

You can’t double tax rates, for instance, and expect to double tax revenue. Simply stated, there’s another variable – called taxable income – that needs to be added to the equation. This simple insight is what gives us the Laffer Curve.

This is common sense in the business community. No restaurant owner would ever be foolish enough to think that revenues will double if all prices increase by 100 percent. People in the real world know that this would mean lower sales.

At best, revenues will rise by much less than 100 percent in that scenario. And if sales drop by enough, revenues may actually fall.

Perhaps because so few of them have business experience, it seems that politicians have a hard time grasping this simple concept.

The latest examples come from Europe, where the never-ending greed for more revenue has resulted in the imposition of financial transaction taxes.

So how’s that working out? Are politicians collecting the revenue they expected?

Hardly. Here are some of the details from a City A.M. column.

…taxes on financial transactions across Europe have devastated market activity and failed to raise as much as politicians hoped, according to new figures out yesterday.

The article cites three powerful examples, starting with Hungary.

Hungary implemented a 0.1 per cent tax at the start of the year. But it raised less than half the revenue the state had hoped for, bringing in 13bn Hungarian Forints (£36m) in January.

Wow, less than 50 percent of the revenue that politicians were expecting. But the politicians probably don’t care about the collateral damage they’re imposing on the economy because they’ll get to buy votes with another 13 billion Forints (about $55 million).

Now let’s see how the French are doing.

France forged ahead on its own, introducing a 0.2 per cent tax on sales of shares of major firms. But that only raised €200m (£169.4m) from August to November, well below to €530m expected.

Gee, what a shame, the politicians in Paris are only getting about one-third as much money as they were expecting. That’s even worse than Hungary.

But they’ll surely squander that bit of cash as fast as possible.

Our last example comes from Italy. There are no revenue numbers yet, but the decline in financial activity suggests this tax also will be a flop.

And Italy launched its FTT this month. Figures from TMF Group suggest it has cut trading volumes by 38 per cent already

Though politicians may decide it’s a success since they may get more than 50 percent of what they were originally estimating.

That kind of forecasting error would get somebody fired at any private business, but being a politician means never having to say you’re sorry.

And it certainly never means learning from mistakes. The evidence on the Laffer Curve is ubiquitous, with powerful examples in Ireland, the United Kingdom, Italy, France, Spain, as well as Bulgaria and Romania. Or states such as Illinois, Oregon, Florida, Maryland, Washington, DC, and New York.

P.S. Even President Obama has sort of acknowledged the supply-side principles that are the basis of the Laffer Curve.

P.P.S. Remember that the goal of good tax policy is NOT to maximize revenue.

P.P.P.S. I warned the European Union’s Taxation Commissioner about the dangers of a tax on financial transactions last year. Needless to say, my sage counsel appears to have been ignored.

Read Full Post »

More Entrepreneurs Say “Au Revoir” to the Administration Fiscale, Escape France’s Confiscatory Tax Regime

As a general rule, it’s not right to take pleasure at the misfortune of others.

But I think we’re allowed an exception to that Schadenfreude rule when the “others” are greedy politicians pursuing spiteful policies. We want the political elite to suffer misfortune because of our desire to promote freedom and prosperity for ordinary people.

With that in mind, I have a big smile on my face because Francois Hollande’s class-warfare tax policy in France is a bigger failure than even I predicted it would be.

I’m particularly happy that the geese with the golden eggs are flying away. And the flock seems to get bigger every day.

Here are some amusing excerpts from a story in the Financial Times.

New evidence of top French executives leaving the country has emerged as President Francois Hollande battles a stalling economy and tumbling approval ratings. Two senior executives at Moet Hennessy, the champagne and cognac arm of the LVMH luxury group, are moving to London from Paris and the head of Dassault Systemes, the software arm of Dassault Aviation, said some senior managers of his company had left and he was considering following suit. …The news follows Mr Arnault’s own application for Belgian citizenship, leaked last September, which poured fuel on a fiery debate in France about entrepreneurship, patriotism and high taxes.

Yup, just like Joe Biden, French politicians want people to think it’s patriotic to give more money to wasteful and incompetent politicians.

“I am the John Galt of France”

And then they have the gall (no pun intended) to complain when the intended victims decide they don’t want to cooperate in their own disembowelment.

You can see why I have a smile on my face.

While I’m happy that some people are escaping Hollande’s punitive tax grasp, there are plenty of victims that can’t escape. France’s economy is in the toilet and millions of ordinary people are suffering.

Figures released on Monday showing a worse-than-expected 1.2 per cent fall in industrial production in January over December underlined the grim outlook facing Mr Hollande, whose approval ratings have fallen this month to as low as 30 per cent. The economy went into reverse in the last quarter of 2012, unemployment has hit 10 per cent of the workforce

Not surprisingly, the politicians are not learning any lessons. They either have their heads buried in the sand or they lash out at those who offer constructive criticism.

The government has denied claims of a tax exodus and denounced as “French bashing” criticism such as the declaration last month by Maurice Taylor, head of tyremaker Titan International, that he would be “stupid” to buy a French factory.

Hollande and his cronies can pretend that successful taxpayers aren’t escaping, but reality will hit them over the head when they count how much tax revenue they receive this year and next year.

In other words, we’re going to see an interesting Laffer Curve experiment.

We saw in America that rich people paid a lot more to the IRS when Reagan lowered their tax rates in the 1980s.

Francois Hollande is trying to run the same experiment, only in reverse.

Anybody want to take a wild guess how that’s going to turn out?

P.S. As shown in this remarkable chart, the real problem in France is that government is far too big. And if the public sector is consuming more than 50 percent of a nation’s economic output, it’s impossible to have a good tax system.

Some big-government nations – such as Sweden and Denmark – try to minimize the damage of high tax burdens, but there’s no way to have a non-destructive tax system when the government wants to take half of what people produce.

And France is trying to maximize the pain rather than minimize the pain, so it’s a safe bet that Hollande’s policies won’t end well.

P.P.S. The debacle in France helps explain why we should celebrate tax competition. The fact that entrepreneurs can migrate to nations with better (or less worse) tax systems is a valuable way of penalizing politicians that impose bad policy.

Read Full Post »

Gerard Depardieu Meets John Galt

Another Frenchman has “gone Galt.”

First, it was France’s richest entrepreneur.

Now, it’s the nation’s most famous actor. Gerard Depardieu has officially announced – in a letter to France’s thuggish Prime Minister – that he is tired of paying 85 percent of his income to finance the vote-buying actions of France’s kleptocratic political elite.

Instead, he is going to move to Belgium (which is hardly a tax haven, but there’s an old line about how you should surround yourself with fat people if you want to look skinny).

Here are some of the amusing details from the UK-based Telegraph.

The French actor whose eccentric personality has come to symbolise a certain, old fashioned form of Gallic love for good food and the pleasures in life, also known as a “bon vivant,” said he is finished with the country, in a letter published in the Journal du Dimanche.It is addressed to Jean-Marc Ayrault, the French prime minister, who called Depardieu “pathetic” for wanting to move just over the French border to the wealthy Belgian town of Néchin, where he will evade the current Left-leaning government’s tax hikes.”I am handing over to you my passport and social security, which I have never used,” he said. …The actor asserts he has always been an upstanding citizen, deserving “respect,” and who has employed 80 people, always paid his taxes, and “never killed anybody.” He said he paid 85 per cent of his income in taxes in 2012, and over 45 years, has paid 145 million Euros – or £118 million – in taxes. …”I leave because you consider that success, creation, talent, difference, in fact, should be sanctioned,” he writes.

Gee, why is Depardieu complaining? In an act of generosity and mercy, France’s President has said he doesn’t want anybody to pay more than 80 percent of their income to the state. So if Gerard is paying 85 percent this year, he’ll get a tax cut!

Methinks that Depardieu doesn’t trust Hollande, Ayrault, and the rest of the thieves. In any event, it’s obvious – and understandable – that he resents the French government’s attack on “success, creation, talent.”

So we’re going to see the Laffer Curve in action. Depardieu has pad nearly $200 million to the French tax authorities over the past several decades. Now that the French government has tightened the screws even further, he’s going to pay them a lot less.

Maybe there’s a lesson there for Obama. But I’ve already tried to educate our taxer-in-chief about these issues, so I doubt this new evidence from France will make any difference.

“Dan, you are such a giver!”

P.S. Going Galt is a bit of a national pastime in France. In 1999, Laetitia Casta was chosen to be “Marianne,” the symbol of France. A couple of years later, as my friend Veronique de Rugy wrote, she decided to move to the United Kingdom to escape confiscatory taxation.

Because I’m a selfless person and a bit of an expert on tax havens, I hereby offer Laetitia my services to help with her tax planning.

I’m even willing to work 24/7 to help her protect her earnings, even if it requires an overnight stay.

No sacrifice is too great, after all, to help the cause of freedom.

Read Full Post »

Sniveling and Despicable French Thief Complains that Victims Are Running Away

Atlas is shrugging and Dan Mitchell is laughing.

I predicted back in May that well-to-do French taxpayers weren’t fools who would meekly sit still while the hyenas in the political class confiscated ever-larger shares of their income.

But the new President of France, Francois Hollande, doesn’t seem overly concerned by economic rationality and decided (Obama must be quite envious) that a top tax rate of 75 percent is fair.” And patriotic as well!

French Prime Minister: “I’m upset that the wildebeest aren’t remaining still for their disembowelment.”

So I was pleased – but not surprised – when the news leaked out that France’s richest man was saying au revoir and moving to Belgium.

But he’s not the only one. The nation’s top actor also decided that he doesn’t want to be a fatted calf. Indeed, it appears that there are entire communities of French tax exiles living just across the border in Belgium.

Best of all, the greedy politicians are throwing temper tantrums that the geese have found a better place for their golden eggs.

France’s Prime Minister seems particularly agitated about this real-world evidence for the Laffer Curve. Here are some excerpts from a story in the UK-based Telegraph.

“No fair!”

France’s prime minister has slammed wealthy citizens fleeing the country’s punitive tax on high incomes as greedy profiteers seeking to “become even richer”. Jean-Marc Ayrault’s outburst came after France’s best-known actor, Gerard Dépardieu, took up legal residence in a small village just over the border in Belgium, alongside hundreds of other wealthy French nationals seeking lower taxes. “Those who are seeking exile abroad are not those who are scared of becoming poor,” the prime minister declared after unveiling sweeping anti-poverty measures to help those hit by the economic crisis. These individuals are leaving “because they want to get even richer,” he said. “We cannot fight poverty if those with the most, and sometimes with a lot, do not show solidarity and a bit of generosity,” he added.

In the interests of accuracy, let’s re-write Monsieur Ayrault’s final quote from the excerpt. What he’s really saying is: “We cannot buy votes and create dependency if those that produce, and sometimes produce a lot, do not act like morons and let us rape and pillage without consequence.”

So what’s going to happen? Well, I wrote in September that France was going to suffer a fiscal crisis, and I followed up in October with a post explaining how a bloated welfare state was a form of economic suicide.

Yet French politicians don’t seem to care. They don’t seem to realize that a high burden of government spending causes economic weakness by misallocating labor and capital. They seem oblivious  to basic tax policy matters, even though there is plenty of evidence that the Laffer Curve works even in France.

So as France gets ever-closer to fiscal collapse, part of me gets a bit of perverse pleasure from the news. Not because of dislike for the French. The people actually are very nice, in my experience, and France is a very pleasant place to visit. And it was even listed as the best place in the world to live, according to one ranking.

But it helps to have bad examples. And just as I’ve used Greece to help educate American lawmakers about the dangers of statism, I’ll also use France as an example of what not to do.

P.S. France actually is much better than the United States in that rich people actually are free to move across the border without getting shaken down with exit taxes that are reminiscent of totalitarian regimes.

P.P.S. This Chuck Asay cartoon seems to capture the mentality of the French government.

Read Full Post »

The French Version of a Pot Calling the Kettle Black, or Maybe the other Way Around

There are some races you don’t want to win.

I’m glad, for instance, that Greece instead of America is winning the race to fiscal collapse (though both the BIS and OECD predict the U.S. faces a bigger long-run challenge).

And I’m happy that California is farther down the path to chaos and meltdown than my state of Virginia (as illustrated by this amusing cartoon).

So you will understand that I am worried when a French socialist defends bad economic policy by saying that his country is copying the United States.

Here are some excerpts from a CNBC report about Obama being a role model for Hollande’s economic team.

“He’s not nearly as socialist as I am”

The French politician who said Indian steel company ArcelorMittal should leave the country has told CNBC that his government is only acting like U.S. President Barack Obama. Industry Minister Arnaud Montebourg, a member of the governing Socialist party, caused controversy last week when he said that the Indian company, which employs close to 20,000 people in France, should leave after it said it would have to close down a factory. The French government announced on Thursday that it could nationalize the factory in question… The news raised the specter of the nationalizations of the early 1980s, which were instigated by Hollande’s predecessor Francois Mitterrand. Montebourg told CNBC after a meeting with trade unions in Paris: “Barack Obama’s nationalized…” Montebourg brushed off comparisons with that era. He said: “It’s a very good sign to send out (to investors). Nationalizing is a very modern step to take. Especially when you not only nationalize losses but profits as well, when you make public/private partnerships. This is our strategy. …He declined to answer a question about comments from Mayor of London Boris Johnson, who told Indian businessmen earlier this week to come to London instead of France.

I don’t actually think we’re as bad as France, and the rankings from both Economic Freedom of the World and the Index of Economic Freedom both show the United States with more economic freedom.

But a good overall score doesn’t mean that one nation is better than another in all regards. The United States still ranks above Sweden, even though the Swedes have implemented school choice and personal retirement accounts. And America still ranks above the Slovak Republic, even though that country (at least for now) has a simple and fair flat tax.

So maybe Monsieur Montebourg is right about the U.S. being a trendsetter for bad industry nationalization policy. Gee, what a high honor. I guess this is what it means to be called ugly by a frog.

Read Full Post »

France’s Fiscal Suicide

I try to be self aware, so I realize that I have the fiscal version of Tourette’s. Regardless of the question that is asked, I’m tempted to blurt out that the answer is to reduce the burden of government spending.

But sometimes that’s exactly the right prescription, particularly for an economy weighed down by a bloated public sector. And, as you can see from this chart, the French welfare state is enormous.

Only Denmark has a bigger burden of government spending, but at least the Danes are astute enough to compensate with hyper-free market policies in other areas.

So is France also trying to offset the damage of excessive spending with good policy in other areas? Au contraire, President Hollande is compounding the damage with huge class-warfare tax hikes.

Here’s what the Wall Street Journal says about Hollande’s fiscal proposal – including the key revelation that spending will go up rather than  down.

Remember all that euro-babble before the French election about fiscal “austerity” harming growth? Well, meet the new austerity, same as the old austerity, which means higher taxes on the private economy and token discipline for the state. Growth is an afterthought. That’s the lesson of French President François Hollande’s new “fighting” budget, which is supposed to reduce the deficit to 3% of GDP from 4.5% and represent the country’s toughest belt-tightening in three decades. …More telling is that two-thirds of the €30 billion in so-called savings is new tax revenue, and one-third comes from slowing spending growth. Total public expenditure—already the second most lavish in Europe—will increase by €6 billion to 56.3% of GDP.

The spending cuts are fictional, but the tax increases are very, very real.

The real austerity will be imposed on taxpayers, and not only on the rich. Income above €150,000 will now be taxed at 45%, up from the current 41%. Mr. Hollande’s 75% tax rate on income over €1 million comes into effect for two years, reaping expected (and predictably paltry) revenue of €200 million. That’s dwarfed by the €1 billion from reducing the threshold for the “solidarity” tax on wealth to €800,000 from €1.3 million. The French Socialists will also now tax investment income at the same high rates as regular income. The rates have been 19% for capital gains, 21% for dividends and 24% for interest income. If Mr. Hollande’s goal is to send capital out of France, that should help.

Anybody want to take bets, by the way, on whether the “temporary” two-year 75 percent tax rate still exists three years from now?

I say yes, in large part because the tax almost surely will lose revenue because of Laffer Curve effects. But rather than learn the right lesson and repeal the tax, Hollande will argue it needs to be maintained because revenues are “unexpectedly” sluggish.

It’s also remarkable that Hollande wants to dramatically increase tax rates on capital gains, dividends, and interest. These are all examples of double taxation.

And when you factor in the taxes at both the personal and business level, these charts show that France already has the highest tax on dividends in the developed world and the third-highest tax on capital. And Hollande wants to make a terrible system even worse. Amazing.

I’ve already predicted that France will be the next major economy to suffer a fiscal crisis. I was too clever to give a date, but Hollande’s policies are accelerating the day of reckoning.

P.S. The WSJ also takes some well-deserved potshots at the latest fiscal plan in Spain. Since I endorsed Hollande in hopes that he would engage in suicidal fiscal policy, this post is focused on the French fiscal plan. But Spain also is a disaster.

Read Full Post »

Lucky French Taxpayers: All Hail Francois the Merciful!

I realize it’s wrong, but I can’t help cheering for France’s socialist president. Francois Hollande seems determined to raise every tax, expand every program, and augment every bit of red tape that afflicts the French economy.

“Let them eat cake with the 20 percent I generously allow them to keep”

I fully expect this to end poorly, but at the risk of admitting that I’m chauvinistically concerned first and foremost with the United States, I think it will be helpful to have France as an example of why class-warfare tax policy is a bad idea.

In other words, even though I’m quite fond of many of the French people I’ve met, I’m willing to sacrifice the people of France to save the people of America.

Having explained what’s at stake, now let’s mock Hollande’s latest bright idea. I’ve previously highlighted his support for a 75 percent income tax rate on the so-called rich. Well, he also wants to increase the wealth tax so that the French government arbitrarily seizes as much as 1.8 percent of a household’s assets every year.

Some people – doubtlessly selfish and evil libertarians – have pointed out that the combination of these two levies could result in someone having an annual tax bill equal to 90 percent, 95 percent, or even more than 100 percent of annual income!

But here’s where Monsieur Hollande shows that he is a magnanimous and thoughtful soul. He has decided, out of the kindness of his heart and with generosity of spirit, that no taxpayer will ever have to pay more than 80 percent of their annual income to the government. All hail Francois the Merciful. He puts the Sun King to shame.

Here’s the relevant excerpt from a Tax-news.com report.

The government is therefore planning to restore the ISF tax to the scale that was applied prior to former French President Nicolas Sarkozy’s 2011 reform. Prior to the reform last year, the tax scale comprised six tax rates varying between 0.55% and 1.8%. This compares with the current simplified ISF tax of 0.25% imposed on assets of between EUR1.3m and EUR3m and 0.5% on assets in excess of EUR3m. The government forecasts additional fiscal revenues from the measure of around EUR1.3bn. Given the constraints that it has been working under, the government aims to re-establish a cap of 80% of income, to ensure that taxpayers do not pay more than 80% of their income in ISF, income tax or social contributions.

But there’s one point I don’t understand. Like Vice President Biden, Hollande has asserted that entrepreneurs, investors, small business owners, and other “rich” taxpayers should welcome high tax rates so they can express their patriotism. So why, then, is he limiting their love of government country to 80 percent?

Monsieur Hollande is also boosting the minimum wage, so I guess it will also be patriotic to be unemployed.

And his predecessor, the de facto socialist Sarkozy, also had an interesting way of looking at the world. When he launched an initiative to clamp down on welfare fraud, he wasn’t talking about going after the people who illegitimately mooch off the government. He was targeting taxpayers who objected to paying for the fraud. Those unpatriotic scoundrels!

Just goes to show that Obama will have to try much harder if he wants America to be more statist than France.

P.S. Hollande’s policies already are having an impact. France’s richest person apparently isn’t very “patriotic” and has decided to move where he will be allowed to keep more than 20 percent of his annual income.

Read Full Post »

The French Version of Atlas Shrugged

Ayn Rand’s famous novel, Atlas Shrugged, tells the story of what happens when society’s most productive people go on strike because they don’t want to subsidize the looters and moochers.

I won’t give away the plot, but one interesting twist in the story is when government officials realize that they need some people to produce. Otherwise, as the former President of Brazil acknowledged in real life, there’s nothing to redistribute.

Well, some people in France don’t understand the risks of driving away the geese that lay the golden eggs. Here are some excerpts from a Christian Science Monitor story.

“au revoir, looters and moochers”

As French President François Hollande outlined new taxes and spending cuts while promoting reforms to turn the economy around – word leaked out that France’s wealthiest man, Bernard Arnault, was heading for Belgium in a rumored tax dodge. At first, the timing could not appear to have been worse for the national morale and Mr. Hollande. …he will hit those with direct salaries over 1 million euros ($1.3 million) with a 75 percent tax. The French have not forgotten the national shame when British Prime Minister David Cameron told the world from Mexico in early summer that London was “rolling out the red carpet” for wealthy French seeking tax havens.  Yet, instead, in a national spasm of pique, France spent all day making accusations of “traitor” and “ingrate” at the rich guy – Mr. Arnault, worth $41 billion. …The anti-Arnault frenzy spurred far-left guru Jean-Luc Mélenchon to call him a “parasite,” and far-right darling Marianne Le Pen to proclaim “scandalous” what appears to be a financial exile. A screaming headline in Libération – “Get Lost You Rich Idiot”… Hollande yesterday said the fashion tycoon, who also left France for the US during the last Socialist government of François Mitterand, “should have measured what it means to apply for citizenship to another country. In this period, we need to appeal to patriotism.”

I’ve already posted about productive people escaping France, so that’s not exactly a new development.

What is remarkable, though, is the way French politicians, journalists, and ordinary citizens (presumably of the moocher variety) have viciously attacked Mr. Arnault.

Sort of like thieves who want moral sanction from their victims. Hmmm…seems that somebody wrote a book with that theme – and it didn’t end well for the looter class. Which is exactly why I’m predicting that France will soon face a Greek-style fiscal crisis.

Read Full Post »

Time to Start the Countdown for France’s Fiscal Crisis

I’m a bad person. I know it’s not nice to take joy in the misery of others, but I can’t help but smile when I see a story about bad news in France.

In my defense, this is not because of hostility to French people, who have always been friendly to me. Instead, France has become the global symbol of statism (particularly since Sweden has been moving in the right direction). The French, for instance, are increasingly infamous for class-warfare tax policy and onerous levels of intervention.

And since it’s my job to promote liberty, I’ll confess that it’s easier for me to convince non-French policy makers that free markets and small government are the right approach when there’s more evidence that statism is failing in France.

So why am I smiling? Well, France wasn’t doing so well under the de facto socialist Nicolas Sarkozy, and it seems that things are looking even worse now that the de jure socialist Francois Hollande is in charge.

Here’s some of what Reuters recently reported.

“It’s always time for a tax hike!”

The French are bleaker about their country’s future than at any time since 2005, a new poll showed on Saturday, with 68 percent saying they are “rather” or “very” pessimistic… Hollande’s government has been reeling from unemployment at a 13-year high and a rash of job cuts in recent weeks at top employers like carmaker Peugeot and retailer Carrefour. The government launched a plan this week to create 150,000 state-sponsored jobs for youth. Only 34 percent of those surveyed were confident in the government’s ability to battle unemployment, and just 20 percent expect the government to be able to improve their buying power. …The poll found that the pessimism extended even to 58 percent of Socialist party supporters.

I’m wondering when the pessimism will spread to investors. France recently lost its triple-A credit rating, but the rating agencies don’t do a good job, so I think it’s much more important to look at the prices of credit default swaps.

In other words, how much does it cost for an investor to insure debt from the French government? According to this CNBC site, France isn’t viewed as being as creditworthy as nations such as Switzerland, Germany, and the United States, but it is closer to those countries than it is to Spain, Italy, or Portugal.

This is just a guess on my part, but I think France is reaching the point where investors are suddenly going to get concerned about the government’s ability to fulfill its promises.

If Hollande follows through on his threat to impose a “patriotic” 75-percent tax rate, for example, that could be the trigger that makes the bond market a lot more skittish. Particularly since it will result in fewer rich people in France.

I’ve already written about French entrepreneurs and investors leaving the country because of Hollande’s class-warfare tax agenda. It’s gotten so bad that even Hollywood types are packing their bags.

Actor Johnny Depp has moved out of France and returned to America because he didn’t want to become a permanent French resident and pay income tax there. …Depp has now moved his family out of France after government officials asked him to become a permanent resident, as he feared he would end up paying tax in both countries. He tells Britain’s The Guardian newspaper, “…France wanted a piece of me. They wanted me to become a permanent resident. Permanent residency status – which changes everything. They just want… Dough. Money… ” Depp goes on to explain that if he spends more than 183 days a year in France he will have to pay income tax in both Europe and America, adding, “So you essentially work for free.”

Wow, complaining that he doesn’t want to “work for free.” What is he, some sort of radical libertarian from the Tea Party?

But he may want to chat with fellow tax-averse actor Jon Lovitz before moving back to America. Obama’s class-warfare agenda isn’t as bad as what Hollande is trying to impose, but it’s not Hong Kong or the Cayman Islands either.

P.S. Here’s a very good Chuck Asay cartoon about the French economy.

P.P.S. In a few areas, France has better policy than the United States.

Read Full Post »

American Presidents Should Learn an Important Lesson in Frugality from Francois Hollande

I endorsed Francois Hollande, the Socialist, in his race to become President of France. I wasn’t under any illusion that he would do the right thing, but I figured anything was better than another term for Sarkozy, who was a de facto rather than de jure socialist.

“Mon Dieu, it is time to raise zee taxes!”

Hollande largely has pursued a statist agenda of higher taxes and more wasteful spending since taking office, which is par for the course, but I will give him credit for cutting back on some of the personal excesses of  France’s ruling class.

Here are excerpts from a CNBC report.

Mr. Hollande, a Socialist, and his prime minister, Jean-Marc Ayrault, have ordered downgrades in official luxury… Mr. Hollande has actually taken the train to Brussels, without a state jet following him, and his ministers have been ordered to hit the rails when possible (with a free pass on the national railway system). When they fly, they are encouraged to travel in coach class on commercial airlines. …Official cars have been diminished in size and in luxury. Mr. Hollande has given up the presidential Citroën C6 for a smaller but hardly shabby Citroën DS5 diesel hybrid. He has reduced the ranks of his official drivers to two from three, and they are now supposed to stop at red lights.

I’m not naive. It’s quite likely that Hollande is taking these steps solely to score political points. But that’s still more than can be said of Obama and the rest of the political elite in America.

I’m particularly impressed that Hollande is going to obey traffic laws and not inconvenience other people. It is nauseating how Obama’s security people will block traffic for 20-30 minutes ahead of of time because of a jaunt around town. And the same happened during the Bush years, so my grousing has nothing to do with party labels.

Other French politicians also are downgrading their means of transportation.

Mr. Ayrault gave up his C6 for a cheaper Peugeot 508. Cabinet ministers have also traded down, and the housing minister, Cécile Duflot, an ecologist who was criticized for wearing jeans to an Élysée Palace meeting, has ordered four official bicycles.

Yes, the bicycles are another empty bit of political posturing, but wouldn’t it be a splendid idea to see some department heads in the United States wobbling along on busy streets, particularly in the heat of summer or cold of winter? Though maybe we’ll give Treasury Secretary Geithner a riding lawnmower since he’s the Forrest Gump of this Administration.

Even security has been put to the knife, at least a little. Junior ministers no longer get bodyguards, and the number of security workers attached to the presidency has been reduced by a third. …Mr. Ayrault has ordered his ministers to reduce their official budgets sharply, by 7 percent in 2013 and by an additional 4 percent in each of the next two years.

Bravo, as the French might say (or is that Spanish?). I understand that the President of the United States is an attractive target for dirtbags, so I don’t object to a strong security presence for Obama, but do we really need a Praetorian Guard for a bevy of other government officials? At best, it’s a bit unseemly, sort of reminiscent of some third-world military junta.

I’m also impressed that French ministers will be cutting their budgets, though I recognize that they may be using the same kind of dishonest budgeting we use in America (“Sacre bleu, we raised spending by 5 percent instead of 12 percent, so that’s a 7 percent cut!”).

The only American official (that I know of) who has done something similar to Hollande is Speaker John Boehner, who chose to do without the taxpayer-funded personal jet that Queen Pelosi used for trips back to California.

That being said, I wouldn’t mind giving politicians all sorts of expensive perks if they did things that advanced freedom. So Hollande could upgrade his car if he gave the French people a flat tax. And Boehner could take the private jet out of mothballs if he allowed Americans to shift their payroll taxes to personal retirement accounts.

But so long as they keep screwing us with bad policy, then politicians don’t deserve anything. Other than perhaps rusty old bicycles.

P.S. Cutting back on personal luxuries for the political elite is not the only area where the French are ahead of the United States. They also have a more dignified way of treating folks who choose to expatriate. And a lower corporate income tax rate.

But I’m not quite ready to trade places, no matter how hard Obama tries to make us more statist, I suspect the French will always be worse.

Read Full Post »

The Crazy French Double Down on Obamanomics

Being a libertarian, I’m used to disappointment. So when something actually goes according to plan, I get very happy.

On that basis, I should be utterly and deliriously overjoyed about my endorsement of Francois Hollande to be President of France.  I wanted him to win, in part because he would engage in statist experiments that would help discredit bad policy.

Well, all my dreams are being fulfilled. Here’s some of a new report in the Wall Street Journal.

French Socialist President François Hollande is set to increase the minimum wage by more than inflation, betting consumers will help revive the country’s stalling economy, while his government levies more taxes on the wealthy and large corporations in a bid to reduce the budget deficit. …The government also is preparing to unveil tax increases to make good on its pledge to reduce the budget deficit to 4.5% of yearly output this year and 3% in 2013. The list includes a new tax on dividends, a new top income-tax bracket of 75% for people earning more than €1 million a year, and increases in the wealth and inheritance taxes.

It’s not terribly surprising that Hollande’s going the fully Monty with higher taxes. Indeed, I’ve already mocked those plans.

But I’m surprised that he’s pushing a higher minimum wage as well, particularly with unemployment already at high levels. This video explains why minimum wages undermine job creation and hurt the less fortunate, but Hollande apparently thinks his plan will stimulate growth.

Other European nations have become more rational and now understand that labor markets need to be more flexible.

The Smic increase and the fiscal plan are in line with Mr. Hollande’s election promises but position France at odds with most other euro-zone nations, which are seeking to keep a lid on labor costs to improve their competitiveness and rein in their budget deficits through spending cuts rather than tax increases.

The comment about “spending cuts” is nonsensical, however. Even though traditionally left-leaning organizations such as the World Bank have concluded that government is far too big in Europe, most governments have imposed huge tax increases. Only the Baltic nations have focused on spending cuts.

As such, we can expect more news like this in France.

In France, economic growth has evaporated, with national statistical office Insee forecasting a further rise in the jobless rate, from 10%. Flag carrier Air France last week said it needs to shed more than 5,000 jobs, around 10% of its workforce, by the end of next year.

The nation’s dwindling productive class, meanwhile, will get even smaller since we’re already seeing evidence that investors and entrepreneurs are going to escape to other nations with less punitive tax regimes.

I joked last month that Obama would never be able to make America as socialist as France, and Hollande is confirming that tongue-in-cheek prediction with his crazy policies.

But I should state that I don’t actually want the French people to suffer. But if they elect bad people who impose bad policy, then I want to make lemonade out of lemons and at least help the rest of the world learn from their mistakes.

As my friend (and soon-to-be American citizen) Veronique de Rugy explained in a video, we don’t want America to become more like France.

Read Full Post »

Europe’s Self-Inflicted Decline: French Taxing, Italian Regulating, Greek Mooching, and IMF Economic Illiteracy

Every day brings more and more evidence that Obamanomics is failing in Europe.  I wrote some “Observations on the European Farce” last week, but the news this morning is even more surreal.

Compared to his foolishness on tax policy, Hollande is a genius when it comes to determining what time it is.

Let’s start with France, where I endorsed the explicit socialist over the implicit socialist precisely because of a morbid desire to see a nation commit faster economic suicide. Well, Monsieur Hollande isn’t disappointing me. Let’s look at some of his new initiatives, as reported by Tax-News.com.

The French Minister responsible for Parliamentary Relations Alain Vidalies has recently conceded that EUR10bn (USD12.7bn) is needed to balance the country’s budget this year, to be achieved notably by means of implementing a number of emergency tax measures. …The government plans to abolish the exemption from social contributions applicable to overtime hours, expected to yield a gain for the state of around EUR3.2bn, and to subject overtime hours to taxation, predicted to realize approximately EUR1.4bn in additional revenues. Other proposed measures include plans to reform the country’s solidarity tax on wealth (ISF), to cap tax breaks at EUR10,000, to impose a 3% tax on dividends and to increase inheritance tax as well as the tax on donations. …French President Hollande announced plans during his election campaign to reform ISF. Holland intends to restore the wealth tax scale of between 0.55% and 1.8%, in place before the former government’s 2011 reform, to be applied on wealth in excess of EUR1.3m. Currently a 0.25% rate is imposed on net taxable wealth in excess of EUR1.3m and 0.5% on net taxable assets above EUR3m.

France already has the highest tax burden of any non-Scandinavian nation, so why not further squeeze the productive sector. That’s bound to boost jobs and competitiveness, right? And more revenue as well!

In reality, the Laffer Curve will kick in because France’s dwindling productive class isn’t going to passively submit as the political jackals start looking for a new meal.

But while France is driving into a fiscal cul-de-sac, Italian politicians have constructed a very impressive maze of red tape, intervention, and regulation. From the Wall Street Journal, here is just a sampling of the idiotic rules that paralyze job creators and entrepreneurs.

Once you hire employee 11, you must submit an annual self-assessment to the national authorities outlining every possible health and safety hazard to which your employees might be subject. These include work-related stress and stress caused by age, gender and racial differences. …Once you hire your 16th employee, national unions can set up shop, and workers may elect their own separate representatives. As your company grows, so does the number of required employee representatives, each of whom is entitled to eight hours of paid leave monthly to fulfill union or works-council duties. …Hire No. 16 also means that your next recruit must qualify as disabled. By the time your firm hires its 51st worker, 7% of the payroll must be handicapped in some way, or else your company owes fees in kind. …Once you hire your 101st employee, you must submit a report every two years on the gender-dynamics within the company. This must include a tabulation of the men and women employed in each production unit, their functions and level within the company, details of their compensation and benefits, and dates and reasons for recruitments, promotions and transfers, as well as the estimated revenue impact. …All of these protections and assurances, along with the bureaucracies that oversee them, subtract 47.6% from the average Italian wage, according to the OECD. …which may explain the temptation to stay small and keep as much of your business as possible off the books. This gray- and black-market accounts for more than a quarter of the Italian economy. It also helps account for unemployment at a 12-year high of 10%, and GDP forecast to contract 1.3% this year.

You won’t be surprised to learn that the unelected Prime Minister of Italy, Mr. Monti, isn’t really trying to fix any of this nonsense and instead is agitating for more bailouts from taxpayers in countries that aren’t quite as corrupt and strangled by red tape.

Monti also is a big supporter of eurobonds, which make a lot of sense if you’re the type of person who likes co-signing loans for your unemployed alcoholic cousin with a gambling addiction.

But let’s not forget our Greek friends, the one from the country that subsidizes pedophiles and requires stool samples from entrepreneurs applying to set up online companies.

The recent elections resulted in a victory for the supposedly conservative party, so what did the new government announce? A flat tax to boost growth? Sweeping deregulation to get rid of the absurd rules that strangle entrepreneurship?

You must be smoking crack to even ask such questions. In addition to whining for further handouts from taxpayers in other nations, the Wall Street Journal reports that the new government has announced that it won’t be pruning any bureaucrats from the country’s bloated government workforce.

Greece’s new three-party coalition government on Thursday ruled out massive public-sector layoffs, a move that could help pacify restive trade unions… The new government’s refusal to slash public payrolls and its demands to renegotiate its loan deal comes just as euro-zone finance ministers meet in Luxembourg to discuss Greece’s troubled overhauls—and possibly weigh a two-year extension the new government is seeking in a bid to ease the terms of the austerity program that has accompanied the bailout. …Cutting the size of the public sector has been a top demand by Greece’s creditors—the European Union, European Central Bank and International Monetary Fund—to reduce costs and help Greece meet its budget-deficit targets needed for the country to get more financing. So far, Greece has laid off just a few hundred workers and failed to implement a so-called labor reserve last year, which foresaw slashing the public sector by 30,000 workers.

Gee, isn’t this just peachy. Best of all, thank to the International Monetary Fund, the rest of us are helping to subsidize these Greek moochers.

And speaking of the IMF, I never realized those overpaid bureaucrats (and they’re also exempt from tax!) are closet comedians. They must be a bunch of jokers, I’ve concluded, because they just released a report on problems in the eurozone without once mentioning excessive government spending or high tax burdens.

The tax-free IMF bureaucrats do claim that “Important actions have been taken,” but they’re talking about bailouts and easy money.

The ECB has lowered policy rates and conducted special liquidity interventions to address immediate bank funding pressures and avert an even more rapid escalation of the crisis.

And even though the problems in Europe are solely the result of bad policies by nations governments, the economic pyromaniacs at the IMF also say that “the crisis now calls for a stronger and more collective effort.”

Absent collective mechanisms to break these adverse feedback loops, the crisis has spilled across euro area countries. Contagion from further intensification of the crisis—including acute stress in funding markets and tensions involving systemically-important banks—would be sizeable globally. And spillovers to neighboring EU economies would be particularly large. A more determined and forceful collective response is needed.

Let’s translate this into plain English: The IMF wants more money from American taxpayers (and other victimized producers elsewhere in the world) to subsidize the types of statist policies that are described above in places such as France, Italy, and Greece.

I’ve previously explained why conspiracy theories are silly, but we’ve gotten to the point where I can forgive people for thinking that politicians and bureaucrats are deliberately trying to turn Europe into some sort of statist Dystopia.

Read Full Post »

What Does It Mean When Obama and His Former Top Economist both Reject Obamanomics?

To answer the question in the title, it means you need to read the fine print.

This is because we have a president who thinks the government shouldn’t confiscate more than 20 percent of a company’s income, but he only gives that advice when he’s in Ghana.

And the same president says it’s time to “let the market work on its own,” but he only says that when talking about China’s economy.

Now we have more evidence that the President understands the dangers of class-warfare taxation and burdensome government spending. At least when he’s not talking about American fiscal policy.

After the Greek elections, which saw the defeat of the pro-big government Syriza coalition and a victory for the supposedly conservative New Democracy Party, here’s some of what Politico reported.

President Barack Obama on Monday called the results of Greece’s election a “positive prospect” with the potential to form a government willing to cooperate with Europe.  “I think the election in Greece yesterday indicates a positive prospect for not only them forming a government, but also them working constructively with their international partners in order that they can continue on the path of reform and do so in a way that also offers the prospects for the Greek people to succeed and prosper,” Obama said after a meeting with the G-20 Summit’s host, Mexican President Felipe Calderon.

In other words, it’s “positive” when other nations reject big government and vote for right-of-center parties, but Heaven forbid that this advice apply to the United States.

Interestingly, it’s not just Obama who is rejecting (when talking about other nations) the welfare-state vision of bigger government and higher taxes.

Check out this remarkable excerpt from a Washington Post column by Larry Summers, the former Chairman of the President’s National Economic Council.

… it is far from clear, especially after the French election, that there is any kind of majority or even plurality support for responsible policies.

Remarkable. Larry Summers is dissing Francois Hollande and the French people by implying they want irresponsible policies, even though the Hollande’s views about Keynesian economics and soak-the-rich taxation are basically identical to the nonsense Summers was peddling while in the White House.

It’s almost enough to make you cynical about America’s political elite. Perish the thought!

Read Full Post »

You Be the Judge: Should Executive Pay Be Capped at Government-Owned Companies?

I’m guilty of usually seeing the world through a rigid prism of right vs wrong. But I think that’s understandable since I’m often writing about clear-cut issues such as the corrupting nature of big government or the foolishness of class-warfare tax policy.

But I periodically come across topics where I’m not sure about the right answer. So I throw these topics out there to see what other people think.

Previous editions of “you be the judge” include: Putting politicians on trial, vigilante justice, brutal tax collection tactics, child molestation, sharia law, healthcare, incest, speed traps, jury nullification, and vigilante justice (again).

Now I’ve come across another example. Over in France, the socialist government says it wants to impose pay caps on corporate executives. That seems like a very bad idea, but there’s a catch. The proposal applies to government-owned companies.

Here’s a description from the Financial Times.

France’s new socialist government has launched a crackdown on excessive corporate pay by promising to slash the wages of chief executives at companies in which it owns a controlling stake, including EDF, the nuclear power group. …According to Jean-Marc Ayrault, prime minister, the measure would be imposed on chief executives at groups such as EDF’s Henri Proglio and Luc Oursel at Areva, the nuclear engineering group. Their pay would fall about 70 per cent and 50 per cent respectively… The government also wants to pressure other companies in which it owns a stake to follow its lead, even though it has no legal power to force such a change. France is unusual in that it still owns large stakes in many of its biggest global companies, ranging from GDF Suez, the gas utility; to Renault, the carmaker; and EADS, parent group of passenger jet maker Airbus. Mr Ayrault said he “believed in the patriotism” of company leaders and their willingness to share the country’s economic pain.

The analogy that pops into my mind is Fannie Mae and Freddie Mac. Those government-created entities (before the crash) were used as piggy banks by members of the political elite, who would take a break from climbing the ladder in Washington and spend a couple of years raking in millions of dollars by overseeing subsidized mortgages.

Or what about Government Motors? Or companies like Solyndra that are part of the green energy scam?

So even though I’m completely opposed to salary controls on the private sector, I don’t view government-owned and government-subsidized companies as being part of the free market.

But I also worry a lot about slippery slopes, so here’s my thought process.

1. I fully support pay caps for government-owned entities, such as the Postal Service. Indeed, I assume those already exist.
2. And I like the idea of pay caps for government-subsidized entities, such as Fannie Mae and Freddie Mac. I don’t know if there is a limit now, but if one exists, it’s way too generous if this story is any indication.
3. But I get nervous about subsidies being an excuse for government regulation of executive pay, even when I’m disgusted when big business gets in bed with big government. This is why I was so conflicted in this interview about pay caps for banks getting TARP bailouts.
4. Moreover, I’m instinctively opposed to pay caps on companies that have contracts with government, though obviously my views are affected by whether a contract deals with a legitimate function of government (buying a tank) or whether it’s a festering waste of money (paying a politically connected PR firm to boost the image of the IRS).
5. Last but not least, I get very scared that politicians inevitably will take a good idea and turn it into a bad idea. In other words, if we give them the power to do something reasonable, like regulate pay at Fannie Mae and Freddie Mac, they’ll probably get intoxicated by power and decide they should be able to control compensation levels at genuinely private companies.

So what’s the right answer? If we’re allowed to fantasize, the obvious decision is to shrink government to its legitimate size so there aren’t any government-owned or government-subsidized companies.

But if we’re forced to deal with the world as it is today, then the choice is much more difficult. If we oppose pay caps, then political insiders can use cronyism to get undeserved payouts. But if we endorse pay caps, then we’re giving politicians power that almost surely will be abused.

If you put a gun to my head, I guess I would oppose pay caps. But I hate saying that since few things are as outrageous as rich people using the coercive power of government to take money from those with less.

Read Full Post »

On the Right of Economic Emigration, France Has Better Policy than America

I’ve mocked France on several occasions, and I thought Sarkozy was so bad that I figured (in the long run) the election of Hollande was a step in the right direction.

But in certain ways, France isn’t as bad as the United States.

The New York Times has a big story about French entrepreneurs and investors looking to escape looming class-warfare tax hikes. Here are a few excerpts

Benoît Pous-Bertran de Balanda, the descendant of a French general who fought for the Americans, is trying to help his wealthy countrymen escape what he calls the tyranny of a new Socialist government primed to severely tax the rich. …Well-heeled French citizens are scouring real estate opportunities in neighboring countries like Britain and Switzerland. The United States — particularly New York and Miami— is also drawing French investors looking to pick up rental properties or pieds-à-terre, brokers say. The French buyers most active in recent months are generally looking at properties between $500,000 and $5 million, brokers say. What the French are so concerned about is Mr. Hollande’s campaign vow to tax income over 1 million euros at a 75 percent rate. …it will also raise the tax rate on capital gains to the same level as the tax on ordinary income.

Normally, this type of story would be an excuse for me to write about the Laffer Curve and the foolishness of penalizing success.

But I want to focus instead on the right to emigrate. Specifically, there are two ways in which France has better policy than the United States.

1. France, like almost every other civilized nation, does not have worldwide taxation. So when French citizens move to Switzerland, Hong Kong, or the United States, they pay tax to those nations. But they’re no longer subject to French taxes on this foreign-source income. Sadly, that is not true for overseas Americans, who are subject to tax in the nations where they live AND the IRS. Their only choice, if they want to escape this punitive and unfair form of double taxation, is to give up U.S. citizenship.

2. But when Americans like Eduardo Saverin decide to surrender their passports, they are hit by punitive exit taxes. This is the type of policy normally associated with some of the world’s most odious regimes, such as Nazi Germany and the Soviet Union. France, I am told, is not perfect in this regard, but the tax treatment of people re-domiciling in another country is not nearly so onerous (especially if they go to another EU nation).

I want good tax policy, like the flat tax, regardless of what’s happening in other nations. But it says a lot (and none of it good) when one of the world’s most statist nations has better policy than America.

Read Full Post »

No Matter How Hard Obama Tries, He’ll Never Make America more Statist than France

One of my first blog posts, back in 2009, featured Veronique de Rugy in a video, warning that America should not adopt the statist policies that caused so much damage in her home country of France.

Sadly (but predictably), the politicians in Washington ignored Veronique’s sage advice. The burden of government has expanded since that video was released, including the adoption of costly Obamacare legislation.

But if there was a contest among nations for the worst public policy, France would still have a comfortable lead over the United States. For every bone-headed step in Washington to increase taxes, spending, and regulation, it seems there are two similar steps in Paris.

Obama wants to increase the top tax rate in America to 39.6 percent, for instance, but Hollande wants a top tax rate of 75 percent, making Obama look like a libertarian by comparison.

France also has a much more interventionist approach to labor markets. Here are some depressing features of French employment law, as reported by Business Week.

The country has 2.4 times as many companies with 49 employees as with 50. What difference does one employee make? Plenty, according to the French labor code. Once a company has at least 50 employees inside France, management must create three worker councils, introduce profit sharing, and submit restructuring plans to the councils if the company decides to fire workers for economic reasons. French businesspeople often skirt these restraints by creating new companies rather than expanding existing ones. “I can’t tell you how many times when I was Minister I’d meet an entrepreneur who would tell me about his companies,” Thierry Breton, chief executive officer of consulting firm Atos and Minister of Finance from 2005 to 2007, said at a Paris conference on April 4. “I’d ask, ‘Why companies?’ He’d say, ‘Oh, I have several so that I can keep [the workforce] under 50.’

Not surprisingly, French workers are the main victims of this policy. At the risk of stating the obvious, if you make it more expensive to hire workers, there will be fewer jobs. The Business Week article adds more discouraging details.

Companies say the biggest obstacle to hiring is the 102-year-old Code du Travail, a 3,200-page rule book that dictates everything from job classifications to the ability to fire workers. Many of these rules kick in after a company’s French payroll creeps beyond 49. …Pierrick Haan, CEO of Dupont Medical (not to be confused with chemical company DuPont (DD)), decided last year to return production of some wheelchairs and medical equipment to France. The 150-year-old company, based in Frouard in eastern France, created 20 jobs making custom devices at a French plant—and will stop there. …“The cost of labor isn’t the main problem, it’s the rigidities,” Haan says. “If you make a mistake in your hiring plans, you can’t correct it.” …The code sets hurdles for any company that seeks to shed jobs when it’s turning a profit. It also grants judges the authority to reverse staff cuts years after they’re initiated if companies don’t follow the rules. The courts even deem some violations of the code a criminal offense that could send executives to jail.

Keep in mind, by the way, that this describes current French law. Hollande will probably choose to adopt additional policies that discourage job creation. All for the alleged purpose of protecting the rights of labor, of course.

No wonder so many investors and entrepreneurs are looking to move to places where hard work and success are rewarded rather than penalized.

The one thing that puzzles me is why the French people don’t rise up against the corrupt political elite. A poll from 2010 showed that French voters favored spending cuts. And another poll showed that more than one-half of French people would consider moving to America if they had the opportunity. So there’s definitely discontent.

But I suppose I shouldn’t be puzzled. American voters generally reject statism in polls but routinely are forced to choose from the lesser of two evils (or should that be the evil of two lessers?) during elections, so perhaps the lesson to be learned is that politics brings out the inner Julia in all peoples.

Read Full Post »

Some French Economic Humor

Having written several times about crazy French statism, you will understand why I like this cartoon.

Though, to be fair, France hasn’t gotten to the point where it’s being bailed out (it’s probably just a matter of time).

If you want some good analysis of the situation in Europe, Veronique de Rugy of the Mercatus Center hits the nail on the head in her column in today’s Washington Examiner.

France has yet to cut spending. In fact, to the extent that the French are frustrated with “budget cuts,” it’s only because the increase in future spending won’t be as large as they had planned. The same can be said about the United Kingdom. Spain, Italy and Greece have had no choice to cut some spending. However, in the case of these particular countries, the cuts were implemented alongside large tax increases. …This approach to austerity, also known in the United States as the “balanced approach,” has unfortunately proven a recipe for disaster. In a 2009 paper, Harvard University’s Alberto Alesina and Silvia Ardagna looked at 107 attempts to reduce the ratio of debt to gross domestic product over 30 years in countries in the Organisation for Economic Co-operation and Development. They found fiscal adjustments consisting of both tax increases and spending cuts generally failed to stabilize the debt and were also more likely to cause economic contractions. On the other hand, successful austerity packages resulted from making spending cuts without tax increases. They also found this form of austerity is more likely associated with economic expansion rather than with recession. …While the debate over austerity continues, the evidence seems to point to the conclusion that austerity can be successful, if it isn’t modeled after the “balanced approach.” It’s a lesson for the French and other European countries, as well as for American lawmakers who often seem tempted by the lure of closing budget gaps with higher taxes.

This is similar to my recent analysis, and Veronique also is kind enough to cite my analysis of how the Baltic nations have done the right thing and cut spending.

There are obvious lessons from Europe for the United States. If politicians don’t reform entitlement programs, we’re doomed to have our own fiscal crisis at some point in the not-too-distant future.

Only there won’t be anybody there to bail us out.

Read Full Post »

Paul Krugman and the European Austerity Myth

With both France and Greece deciding to jump out of the left-wing frying pan into the even-more-left-wing fire, European fiscal policy has become quite a controversial topic.

But I find this debate and discussion rather tedious and unrewarding, largely because it pits advocates of Keynesian spending (the so-called “growth” camp) against supporters of higher taxes (the “austerity” camp).

Since I’m a big fan of nations lowering taxes and reducing the burden of government spending, I would like to see the pro-tax hike and the pro-spending sides both lose (wasn’t that Kissinger’s attitude about the Iran-Iraq war?). Indeed, this is why I put together this matrix, to show that there is an alternative approach.

One of my many frustrations with this debate (Veronique de Rugy is similarly irritated) is that many observers make the absurd claim that Europe has implemented “spending cuts” and that this approach hasn’t worked.

Here is what Prof. Krugman just wrote about France.

The French are revolting. …Mr. Hollande’s victory means the end of “Merkozy,” the Franco-German axis that has enforced the austerity regime of the past two years. This would be a “dangerous” development if that strategy were working, or even had a reasonable chance of working. But it isn’t and doesn’t; it’s time to move on. …What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills? One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.

And he’s made similar assertions about the United Kingdom, complaining that, “the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback.”

So let’s take a look at the actual data and see how much “slashing” has been implemented in France and the United Kingdom. Here’s a chart with the latest data from the European Union.

I’m not sure how Krugman defines austerity, but it certainly doesn’t look like there’s been a lot of “slashing” in these two nations.

To be fair, government spending in the United Kingdom has grown a bit slower than inflation in the past couple of years, so one could say that there’s been a very modest bit of trimming.

There’s been no fiscal restraint in France, however, even if one uses that more relaxed definition of a cut. The only accurate claim that can be made about France is that the burden of government spending hasn’t been growing quite as fast since the crisis began as it was growing in the preceding years.

This doesn’t mean there haven’t been any spending cuts in Europe. The Greek and Spanish governments actually cut spending in 2010 and 2011, and Portugal reduced outlays in 2011.

But you can see from this chart, which looks at all the PIIGS (Portugal, Italy, Ireland, Greece, and Spain), that the spending cuts have been very modest, and only came after years of profligacy. Indeed, Greece is the only nation to actually cut spending over the 3-year period since the crisis began.

Krugman would argue, of course, that the PIIGS are suffering because of the spending cuts. And since there actually have been spending cuts in the last year or two in these nations, does that justify his claims?

Yes and no. I don’t agree with the Keynesian theory, but that doesn’t mean it is easy or painless to shrink the burden of government. As I wrote earlier this year, “…the economy does hit a short-run speed bump when the public sector is pruned. Simply stated, there will be transitional costs when the burden of public spending is reduced. Only in economics textbooks is it possible to seamlessly and immediately reallocate resources.”

What I would argue, though, is that these nations have no choice but to bite the bullet and reduce the burden of government. The only other alternative is to somehow convince taxpayers in other nations to make the debt bubble even bigger with more bailouts and transfers. But that just makes the eventual day of reckoning that much more painful.

Additionally, I think much of the economic pain in these nations is the result of the large tax increases that have been imposed, including higher income tax rates, higher value-added taxes, and various other levies that reduce the incentive to engage in productive behavior.

So what’s the best path going forward? The best approach is to implement deep and meaningful spending cuts, and I think the Baltic nations of Estonia, Lithuania, and Latvia are positive role models in this regard. Let’s look at what they’ve done in recent years.

As you can see from the chart, the burden of government spending was rising at a reckless rate before the crisis. But once the crisis hit, the Baltic nations hit the brakes and imposed genuine spending cuts.

The Baltic nations went through a rough patch when this happened, particularly since they also had their versions of a real estate bubble. But, as I’ve already argued, I think the “cold turkey” or “take the band-aid off quickly” approach has paid dividends.

The key question is whether nations can maintain spending restraint, particularly when (if?) the economy begins to grow again.

Even a basket case like Greece can put itself on a good path if it follows Mitchell’s Golden Rule and simply makes sure that government spending, in the long run, grows slower than the private economy.

The way to make that happen is to implement something similar to the Swiss Debt Brake, which effectively acts as an annual cap on the growth of government.

In the long run, of course, the goal should be to shrink the overall burden of government to its growth-maximizing level.

Read Full Post »

Choosing a President: The Long-Awaited Dan Mitchell Endorsement

I periodically get emails asking whether I support a presidential candidate. Most of these messages complain that I’ve been critical of Romney, Santorum, Gingrich, etc, and inquire if there’s anybody I like.

As a general rule, I don’t respond because I work at a think tank and we’re not supposed to be involved in partisan politics according to IRS rules.

But I found a loophole, so the time has come for me to announce my preferred candidate for the 2012 presidential election. And I’m making this much-anticipated announcement even though I won’t be casting a vote.

I want people to select François Hollande.

Who is Mr. Hollande, you ask? Well, actually, he’s Monsieur Hollande, because I’m making an endorsement in France’s presidential election.

For those of you who follow such matters, you may be wondering why I would prefer Monsieur Hollande. After all, he is the candidate of the French Socialist Party.

Read these excerpts from today’s Wall Street Journal editorial page and you’ll begin to understand why. We’ll start with a quick glimpse at France’s dire situation.

The French head to the polls Sunday for the first round of Presidential voting, but you wouldn’t know the candidates were competing in Europe’s most important election since the start of its economic crisis. …the contenders for the Elysée Palace—including Mr. Sarkozy—are in one way or another running on fairy tales. …The French economy is in a severe, if not yet acute, crisis. …French growth has been stagnant for five years. Unit labor costs have risen steadily for more than a decade, and high unemployment has become chronic. A quarter of French youth are jobless.

Here’s what we know about the supposedly right-of-center incumbent, Nicolas Sarkozy.

Nicolas Sarkozy, the center-right incumbent, is proposing to shrink the budget deficit by raising taxes in the name of “solidarity.” On top of his already-passed hikes in corporate and personal income taxes, and his 4% surcharge on high incomes, Mr. Sarkozy also promises an “exit tax” on French citizens who move abroad, presumably to make up for the revenue that goes missing when all those new levies impel high earners to leave the country. …Mr. Sarkozy proposes reducing payroll charges paid by employers but would make up for it by increasing VAT and taxes on investment income. This assumes there will be investment income left in France once Mr. Sarkozy’s financial-transactions tax goes into effect in August.

In other words, Sarkozy is a statist. But you knew that already if you read this, this, this,this, or this.

So what’s the alternative? Well, there isn’t one.

The President’s Socialist rival is a throwback of a different sort. François Hollande’s campaign has adopted a fiery old-left style that most had taken for dead after the Socialists’ 2007 defeat. All of Mr. Hollande’s major economic policy plans have roots in a punitive populism that would make U.S. Congressional class warriors blush. …Mr. Hollande says he’s “not dangerous” to the wealthy—he merely wants to confiscate 75% of their income over €1 million, and 45% over €150,000. He is, however, a self-avowed “enemy” of the financial industry, and he plans to impose extra penalties on oil companies and financial firms. He’d also raise the dividends tax and impose a new, higher rate of VAT on luxury goods.

The unfortunate people of France, to be blunt, are screwed no matter which candidate prevails. Government will get bigger, taxes will climb higher, jobs will be lost, and living standards will continue to stagnate.

Given this dismal outlook, though, I’d rather have the unambiguously left-wing party come out of top.

My reasoning is simple, and I’ve even decided to create a new rule to commemorate the analysis. The “Richard Nixon Disinfectant Rule” is that it’s always better to let the left-wing party win when the supposedly right-wing party has a statist candidate.

I name this rule after Nixon for the obvious reason that he was one of the worst Presidents in American history. And I’m not even counting the Watergate scandal and subsequent resignation. I’m referring to the spending, the taxes, the regulation, and the intervention.

Sarkozy, needless to say, has shown that he’s a French version of Nixon. Or Bush.

So if the French are going to be governed by a statist, it may as well be Hollande. That way, there’s at least a slight chance that the alleged right-of-center party will come to its senses and offer voters a genuine choice in the next election.

By the way, this was my mindset as a teenager when I wanted Jimmy Carter to beat Gerald Ford. I figured that was the best way of getting Ronald Reagan.

Read Full Post »

Clowns of a Feather Stick Together: French Presidential Candidate Echoes Biden, Says Higher Tax Rates Are Patriotic

I rarely comment on Vice President Biden because he is not a serious person in the world of policy. The only attention he gets on this blog is jabs from the late-night talk show hosts, and I also posted the Joe Biden caption contest and this Joe Biden joke.

Perhaps I would have given Biden some attention if I had started this blog in 2008 instead of 2009, because the then-Delaware Senator made a very silly statement during that year’s campaign.

Joe Biden said Thursday that paying more in taxes is the patriotic thing to do for wealthier Americans. …Biden said: “It’s time to be patriotic … time to jump in, time to be part of the deal, time to help get America out of the rut.”

I’m not sure how America’s Founding Fathers would have reacted to that statement, but I suspect that Washington, Jefferson, Franklin, Mason, and Paine would have had a different perspective.

But I’m not surprised that the Socialist candidate for President in France has the same mentality (and I’m referring to the official candidate of the Socialist Party, not the socialist currently running the country). Here’s a blurb from the BBC.

The Socialist favourite in France’s presidential election, Francois Hollande, has said top earners should pay 75% of their income in tax. …Mr Hollande himself renewed his call on Tuesday, saying the 75% rate on people earning more than one million euros a year was “a patriotic act”. …”It is patriotic to agree to pay a supplementary tax to get the country back on its feet.”

Isn’t this wonderful that politicians of different nationalities and from different continents can be united in the idea that it is “patriotic” to give the world’s least competent people more money?

Maybe Biden and Hollande can also take a trip to Greece together so they can learn how to use the additional money to subsidize pedophiles and collect stool samples as a condition of getting a business license to set up an online company.

Read Full Post »

The Laffer Curve Works, Even in France

One year ago, I wrote about how the French government was getting unexpected additional revenues following the implementation of lower tax rates.

This is the Laffer Curve in action, and it’s happening again in France, only this time because the government reduced the wealth tax.

Here’s part of the story at Tax-news.com.

France’s solidarity tax on wealth (l’impôt de solidarité sur la fortune – ISF), which was radically reformed by the government in June last year, has served to yield much greater fiscal revenues for the state than initially predicted. …the government agreed that the solidarity tax on wealth would in future comprise of only two tax brackets: a 0.25% tax rate imposed on individuals with net taxable wealth in excess of EUR1.3m (USD1.7m), and a 0.5% tax rate levied on individuals with net taxable assets above EUR3m. Previously, the entry threshold at which wealth tax was applied was EUR800,000, with the rates varying between 0.55% and 1.8%. To alleviate any threshold effects, a discount mechanism was also instated applicable to wealth of between EUR1.3m and EUR1.4m, as well as to wealth of between EUR3m and EUR3.2m. Although the new provisions provide for lower tax rates and for the abolition of the first tax bracket, effectively exempting around 300,000 taxpayers from the tax, according to latest government figures, the tax yielded around EUR4.3bn in 2011, almost EUR60m more than originally forecast in the collective budget.

This is not to say that France is an example to follow. There shouldn’t be any wealth tax, and income tax rates are still far too high.

And it’s also worth remembering that tax policy is just one of many factors that determine economic performance.

That being said, nations that shift from terrible tax policy to bad tax policy will enjoy better economic performance, just as nations that go from good policy to great policy also will reap benefits.

In other words, incremental changes make a difference. That’s even the case when the politicians impose a “Snooki tax” on indoor tanning services.

The most dramatic Laffer Curve effects, though, occur when there are big changes in policy. This video looks at some of the evidence.

This video is part of a three-part series, by the way. Click here if you want to see the entire set.

Read Full Post »

Making Obama Seem Reasonable by Comparison, Merkel and Sarkozy Propose Higher Taxes to “Strengthen Growth Now”

The German Chancellor and French President have put together a plan to boost growth. Sounds like a good goal, but what specifically are they proposing?

Some of the obvious ideas include:

• Lowering tax rates to boost incentives for productive behavior.
• Reducing the burden of government spending to allow more efficient allocation of labor and capital.
• Cutting back regulation and red tape to boost market efficiency.

But those are only obvious ideas if you want a growth plan that actually leads to…(drum roll, please)…more growth.

Merkel and Sarkozy must have some other objective in mind, because they’ve proposed a plan comprised of new taxes, higher taxes, and tax harmonization.

This is beyond satire. Even if I was trying to make fun of the French and Germans (perish the thought), I wouldn’t be able to make up something this absurd.

Here’s some of what the EU Observer reported.

A six-point plan drafted by France and Germany has suggested corporate tax “co-ordination,” an EU financial transactions tax and the re-deployment of EU funds in troubled countries as ways to spur growth and jobs. …Paris and Berlin have teamed up once more and drafted a six-page paper called “Ways out of the crisis – strengthen growth now!” …The financial transactions tax – a pet project of French President Nicolas Sarkozy ahead of his re-election bid in April – features among the six proposals under “efforts to reinforce the framework of financial market.” …plans for “tax co-ordination” and another Franco-German proposal to be put forward by end of February on the “convergence of their corporate tax.” “European institutions and member states should accelerate the process of tax coordination in order to foster growth” …Apart from the Tobin tax, both leaders want to speed up EU legislation on an energy tax and a “common consolidated corporate tax base.”

Even Obama is not this blind to reality. He’s a big fan of higher taxes, of course, but at least the President realizes you don’t pass the laugh test if you tell people that higher taxes will “spur jobs and growth.”

Returning to Merkel and Sarkozy, the dynamic duo of statism also have some bizarre ideas on the spending side of the fiscal ledger. Here are a couple of additional passages from the story.

…proposal would have 25 percent of unspent EU regional funds in countries under a bail-out program or under serious economic difficulties redirected to a special “fund for growth and competitiveness.”  …As for employment-boosting measures, one of Sarkozy’s make-or-break campaign themes, the document asks governments to instruct employment agencies to make an offer to every unemployed person – be it for a job, an apprenticeship or further training.

The notion that bureaucrats and politicians can boost prosperity with some sort of “fund for growth and competitiveness” is hardly worth a rebuttal. I’ll just wish them luck as they create European versions of Solyndra.

The other idea, though, is worth a bit more analysis. If the article is correct, the Merkozy twins are going to wave a magic wand and direct employment agencies to make an offer to everybody.

Gee, isn’t that wonderful. While they’re at it, why don’t they turbo-charge the wand and insist that all the offers be for jobs making twice the national wage. With this kind of magical thinking, it’s just a matter of time before 90 percent of the population is part of the top-10 percent.

You may be thinking the previous sentence doesn’t make sense, but that’s probably because you’re one of those crazy libertarians who doesn’t understand how higher taxes boost economic performance.

In previous posts, I’ve expressed some pessimism about the future of Europe. After considerable reflection, I want to retract those statements and instead say that the outlook is hopeless. If you’re reading this from Europe, get out while you still can.

======================================================

P.S. I’ve been reminded that Merkel and Sarkozy are not alone in their crazy theory that higher taxes are good for growth. The geniuses at the Congressional Budget Office have written that higher taxes are good for long-run growth, even to the point of implying that 100 percent tax rates would maximize economic performance.

P.P.S. I’m further reminded that the Congressional Research Service also seems to think that higher taxes increase economic growth. Perhaps German and French spies have taken over Washington?

Read Full Post »

A Futile Economics Lesson for France’s Politicians

I realize this is about as productive as talking to a brick wall, but I’m going to explain some basic economics to statist French policymakers (oops, pardon the redundancy).

This heroic – albeit surely futile – impulse is triggered by a recent proposal from President Sarkozy to supposedly boost job creation by lowering payroll taxes and raising the value-added tax

Here’s how the Wall Street Journal described the proposal.

The proposal…calls for reducing the amount companies contribute to the state-run health-care and pension systems. To make up for the lost income, the center-right government would raise France’s value-added tax—a levy similar to sales taxes in the U.S.—which is currently as high as 19.6%. …Mr. Sarkozy is expected to discuss the VAT proposal together with other job measures at a meeting with unions and business leaders on Jan. 18.

At first glance, this seems to make sense. After all, won’t it help to shift the tax burden from jobs to consumption?

If we look only at direct effects, the answer is yes. But if we channel our inner Bastiat and look at both the seen and the unseen, the answer changes.

The key thing to understand is that people prefer leisure to work. The reason they get jobs, by and large, is to obtain the income needed to consume and enjoy life.

As such, anything that expands the “tax wedge” between pre-tax income and post-tax consumption is going to impose similar levels of economic harm.

Here’s a simple example. If I earn $100, does it matter to me if the government takes $25 as I earn that income (either with a payroll tax or income tax) or as I spend that income (either with a sales tax or value-added tax)?

Is there any reason that my incentives to earn and produce will be altered by shifting from one approach to the other?

To be sure, there are probably some short-run effects when government reshuffles the tax burden in the way Sarkozy is proposing. People don’t react instantaneously when policy changes. That’s presumably even more true when some taxes are disguised, which is definitely the case with both the VAT and payroll taxes that are collected at the business level.

But transitory effects won’t solve France’s problems.

The bottom line is that Sarkozy shouldn’t expect any permanent boost in employment if all he does is shift the collection point for a small portion of a large tax burden.

If he really wants to improve the French economy, he should copy the Baltic nations and dramatically reduce the burden of government spending, while also replacing a punitive tax system with a simple and fair flat tax.

But don’t hold your breath waiting for this to happen. The French people occasionally show signs of intelligence, but the political elite have no incentive to change a system that gives them wealth and power.

Read Full Post »

The “Merkozy” Version of Political Humor

I’m not even sure why this is funny. Maybe it’s the context.

Was it put together by somebody in the United Kingdom, who is irritated by the he way Sarkozy and Merkel are turning a bad fiscal crisis into a worse fiscal crisis and trying to blame England? That’s possible, and we know the Brits have a good sense of humor.

Or was it put together by a German, who is feeling sanctimonious about his country’s relatively strong position (at least compared to other European welfare states) and is tired of having to deal with the French.

Or is it funny simply because it’s amusing to mock the French?

Read Full Post »

The French Government’s Moral Depravity and Self-Imposed Fiscal Suicide

Appearances can be deceiving. I saw an article with a blaring headline that warmed my heart: “France’s Sarkozy Eyes Welfare Rethink, Fraud Clampdown.”

Could it be, I thought, that the political elite finally realized that the welfare state was the wrong model? Had they finally realized, as demonstrated by these cartoons, that it was foolish to bribe more and more people to ride in the wagon while raping and pillaging the shrinking number of taxpayers pulling the wagon?

I remembered that the French increased the retirement age to 62 last year, so perhaps that tiny step was the beginning of broader reforms to shrink the burden of government.

These were the thoughts that flashed through my mind as I clicked on the Reuters story, and the first few sentences got me even more excited.

President Nicolas Sarkozy branded welfare fraud a “betrayal” of national principles on Tuesday and said France needed to rethink the way its benefit system was financed in order to ease the burden on employers. The financing of the welfare system, one of the world’s most generous, has become a hot issue ahead of a presidential election next April due to worries about the health of public finances and a parliamentary report pointing to billions of euros being lost every year because of fraud.

But then my dreams of a French renaissance were dashed on the rocks of reality when I discovered that “welfare fraud” in France occurs when taxpayers don’t pay enough, not when able-bodied people have their snouts in the public trough.

“We must have no tolerance for cheaters and fraudsters,” Sarkozy told supporters in the southeastern city of Bordeaux. “Cheating — and I mean stealing from the social security system — is stealing from each and every one of us, and each and every one of you.” …The parliamentary report, published earlier this year, estimated the French state loses 20 billion euros ($27 billion)per year to welfare fraud, much of it due to employers failing to pay social fees for their workers.

In other words, oppressed French businesses and workers are the welfare cheats. To the French political class, welfare fraud occurs not when undeserving people suck at the public teat, but instead occurs when employers and employees resort to the shadow economy to protect jobs.

So what can we learn from this?

Well, we can safely assume that the great 19th-century French economist Frederic Bastiat is rolling over in his grave. Classical liberalism is not enjoying a rebirth in France.

More important, we can probably conclude that France is past the tipping point of fiscal suicide. If you have any French government bonds, sell them now. If you don’t believe me, look at this graphic from the New York Times.

Read Full Post »

Vote for the French Gal in the Stimulus Debate

The folks at U.S. News & World Report have posted an online debate on the never-ending topic: “Does Stimulus Spending Work?“

You know my thoughts on the topic, including my thumbs-down to Obama’s latest stimulus scheme, so it won’t surprise you to know that I think Veronique de Rugy of the Mercatus Center beat her three left-wing opponents (there was also a participant who served in the Bush Administration, but I don’t view his section as credible since he basically argued that stimulus spending is okay when GOPers are the ones wasting money).

Here’s some of what Veronique wrote.

…let’s look at the latest attempt to use government spending to jump start the economy: the American Recovery and Reinvestment Act. Three years after Congress passed that law, unemployment lingers over 9 percent, far above the promised 7.25 percent, and the economy remains weak. Clearly, the stimulus didn’t work as advertised. …The data show that stimulus money wasn’t targeted to those areas with the highest rate of unemployment. In fact, a majority of the spending was used to poach workers from existing jobs in firms where they might not be replaced. Finally, a review of historical stimulus efforts shows that temporary stimulus spending tends to linger. Two years after the initial stimulus, 95 percent of the new spending becomes permanent. …Research from Harvard Business School shows that federal spending in states causes local businesses to cut back rather than to grow. In other words, more government spending causes the private sector to shrink, the exact opposite of the intended result.

If anything, Veronique is too kind in her analysis. I would have pointed out that Keynesian stimulus didn’t work for Hoover and Roosevelt in the 1930s, Japan in the 1990s, or Bush in 2001 or 2008.

But how often do you find someone from France arguing for smaller government?

Read Full Post »

Which Group Is More Despicable, French Politicians or French Rich People?

I enjoy mocking the French every so often, including posts about the nation’s absurd fiscal policy, its protesting government workers, its oddball laws against meanness, its penchant for high taxes, and its shallow attempts to redefine success.

Sometimes, I even criticize the French when they move policy in the right direction.

But it’s worth pointing out that my animosity is only directed at the French elite. After all, 84 percent of the French people support less government spending and 52 percent of them would be interested in escaping to (evil, bad, capitalistic) America. And how can you not admire a people who are so aggressive about escaping the tax net?

With that lengthy caveat now on the record, let me unload a wheelbarrow full of disgust and disdain on the aforementioned French elite. I’m motivated by a BBC story about (surprise) a French tax hike.

The French government is to impose an extra tax of 3% on annual income above 500,000 euros (£440,000; $721,000). …The tax increase came after some of France’s wealthiest people had called on the government to tackle its deficit by raising taxes on the rich. …Sixteen executives, including Europe’s richest woman, the L’Oreal heiress Liliane Bettencourt, had offered in an open letter to pay a “special contribution” in a spirit of “solidarity”. …It was signed by some of France’s most high-profile chief executives, including Christophe de Margerie of oil firm Total, Frederic Oudea of bank Societe Generale, and Air France’s Jean-Cyril Spinetta.

I obviously have little regard for the French politicians who are imposing this tax hike. You might think they would know better, particularly after they benefited from a Laffer Curve effect after lowering tax rates a few years ago.

It’s also worth pointing out that France’s deteriorating situation has nothing to do with inadequate tax receipts. Revenues consume the same share of economic output they did 10 years ago – about 50 percent of GDP. The problem, as you might expect, is that the burden of government spending has jumped to more than 55 percent of GDP, up from 51. 6 percent a decade ago.

Most of my scorn, however, is reserved for the rich people who are copying Warren Buffett and asking the government to seize more of their income.

The story cites a billionaire heiress, who presumably might sing a different tune if the politicians wanted to boost the tax burden on wealth rather than income. In any event, it’s rather odious for someone who inherited money to endorse a tax hike on people trying to make money.

And the other people cited in the story are top executives with three companies that are deeply dependent on favors from, and good relations with, the French government. They’re behavior is on the same level as a dog that is willing to roll over in exchange for some scraps from the dinner table.

Read Full Post »