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Posts Tagged ‘France’

If you appreciate the common-sense notion of the Laffer Curve, you’re in for a treat. Today’s column will discuss the revelation that Francois Hollande’s class-warfare tax hikes have not raised nearly as much money as predicted.

And after the recent evidence about the failure of tax hikes in Hungary, Ireland, Detroit, Italy, Portugal, the United Kingdom, and the United States, this news from the BBC probably should be filed in the category of “least surprising story, ever.”

The French government faces a 14bn-euro black hole in its public finances after overestimating tax income for the last financial year. French President Francois Hollande has raised income tax, VAT and corporation tax since he was elected two years ago. The Court of Auditors said receipts from all three taxes amounted to an extra 16bn euros in 2013. That was a little more than half the government’s forecast of 30bn euros of extra tax income.

And why have revenues been sluggish, generating barely half as much money as the politicians wanted? For the simple reason that Hollande and the other greedy politicians in France failed to properly anticipate that higher tax rates on work, saving, investment, and entrepreneurship would discourage productive behavior and thus lead to less taxable income.

…economic growth has been inconsistent and the unemployment rate hit a record high of 11% at the end of 2013. The French economy saw zero growth in the first three months of 2014, compared with 0.2% growth three months earlier. The income tax threshold for France’s wealthiest citizens was raised to 75% last year, prompting some French citizens, including the actor Gerard Depardieu, to leave the country and seek citizenship elsewhere in Europe.

But we do have some good news. A French politician is acknowledging the Laffer Curve!

French Prime Minister Manuel Valls, who was appointed in March following the poor showing of Mr Hollande’s Socialists in municipal elections, appeared to criticise the president’s tax policy by saying that “too much tax kills tax”.

By the way, France’s national auditor also admitted that tax hikes were no longer practical because of the Laffer Curve. Heck, taxes in France are so onerous that even the EU’s Economic Affairs Commissioner came to the conclusion that tax hikes were reducing taxable income.

Though here’s the most surprising thing that’s ever been said about the Laffer Curve.

…taxation may be so high as to defeat its object… given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.

And I bet you’ll never guess who wrote those words. For the answer, go to the 6:37 mark of the video embedded in this post.

P.S. Just in case you’re not convinced by the aforementioned anecdotes, there is lots of empirical evidence for the Laffer Curve.

  • Such as this study by economists from the University of Chicago and Federal Reserve.
  • Or this study by the IMF, which not only acknowledges the Laffer Curve, but even suggests that the turbo-charged version exists.
  • Or this European Central Bank study showing substantial Laffer-Curve effects.
  • Or this research from the American Enterprise Institute about the Laffer Curve for the corporate income tax.

P.P.S. For other examples of the Laffer Curve in France, click here and here.

P.P.P.S. To read about taxpayers escaping France, click here and here.

P.P.P.P.S. On a completely different subject, here’s the most persuasive political ad for 2014.

I realize the ad doesn’t include much-needed promises by the candidate to rein in the burden of government, but I’m a bit biased. And in a very admirable way, so is Jack Kingston.

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While I mostly focus on bad government policy in the United States, I also think we can learn lessons from what’s happening in other nations.

In some cases, I share positive stories, such as the success of privatized Social Security in Australia, nationwide school choice in Sweden, and genuine spending cuts in the Baltic nations.

In most cases, though, I’m pointing out bad policy.

Some topics deserve special treatment, such as the ongoing horror story of government-run healthcare in the United Kingdom.

In other cases, though, I share one-off stories about government incompetence and stupidity.

*Such as taxpayer-financed friends for mass murderers in Norway.

*Financing a giant “Burger Boy” in the United Kingdom.

*Promoting welfare tourism in the European Union.

*Spending $30 to collect $1 of tax in Germany.

*Regulation of coffee enemas in Japan.

Today, we’re going to share more stories of feckless behavior by foreign politicians and bureaucrats.

From Canada, we learn that the government of Manitoba is micro-managing daycare lunches in such bizarre ways that a family was fined because “grains” weren’t included in their kids’ meals.

Kristin Barkiw of Rossburn, Manitoba, Canada brought two of her children home from Little Cub’s Den daycare when she saw that her kids were sent home with a note. …the message told the mom she had failed to provide a nutritionally balanced lunch for her children, 5-year-old Logan and 3-year-old Natalie.  Not only that, Kristin was fined $10, $5 per child, for missing grains in their lunch of leftover roast beef, carrots, potatoes, an orange and milk. Further, the note said that the daycare staff gave Logan and Natalie Ritz crackers to fulfill the nutritional requirement of grains, which some see as a less than nutritious option. The nutritional regulation for daycare lunches is actually law in the province. The Manitoba government’s Early Learning and Child Care lunch regulations state that daycare programs must ensure children are given a lunch with a meat, a grain, a milk product and two servings of fruit and vegetables and any missing food groups must be supplemented by the care provider.

Heaven forbid that parents actually be in charge of what their kids eat!

You won’t be surprised to learn that France is on the list. It appears the government’s rail system is staffed by numbskulls.

France’s SNCF rail company has ordered 2,000 trains for an expanded regional network that are too wide for many station platforms, entailing costly repairs, the national rail operator said on Tuesday. A spokesman for the RFF national rail operator confirmed the error, first reported by satirical weekly Canard Enchaine in its Wednesday edition. …Construction work has already begun to displace equipment and widen hundreds of train platforms to accommodate the new trains, but hundreds more remain to be fixed, he added. …The RFF only gave the dimensions of platforms built less than 30 years ago, but most of France’s 1,200 platforms were built more than 50 years ago. Repair work has already cost 80 million euros ($110 million).

I guess I’m not surprised by that story since the French once built an aircraft carrier with a flight deck that was too small.

In Sweden, a novelty tourist hotel made of ice will have to install fire alarms.

The Ice Hotel, which is rebuilt every year in northern Sweden out of enormous chunks of ice from the Torne River in Jukkasjärvi, Kiruna, will this year come equipped with fire alarms – and the irony isn’t lost on the staff. “We were a little surprised when we found out,” hotel spokeswoman Beatrice Karlsson told The Local. …While it might sound crazy that a building made of water needs to be equipped with fire alarms, the fact that the hotel is built from scratch every year means it needs to abide by the rules that apply to every new building, rules set by the National Housing Board (Boverket).

If I had to pick a prize from today’s list, this might win the prize. It’s a stunning display of government in action. Though probably not as bad as the time it took a local government in the U.S. two days to notice a dead body in a community swimming pool.

And from Germany, we have a story about massive cost overruns incurred by a pan-European bureaucracy that supposedly helps encourage fiscal discipline.

“Do as we say, not as we do”

It was meant to cost £420m of European taxpayers’ money but the bill for the new headquarters of the European Central Bank (ECB) has more than doubled to £960m and could rise even further. The bank is the key enforcer of austerity measures in the troubled eurozone nations, but appears to be having trouble keeping its own finances in order. The 45-storey glass and steel building, made up of two joined towers, will be more than 600ft tall when it is finished. But it has already been under construction for a decade and is three years behind schedule.

Of course, it goes without saying that cost overruns and delays are par for the course with government.

Just in case anyone thinks I’m picking on foreigners, here’s a story that makes me ashamed to be American. Or, to be more precise, it makes me ashamed that we have some of the world’s most pathetic bureaucrats.

Honors Night at Cole Middle School is no more. Parents got an email from Principal Alexis Meyer over the weekend saying some members of the school community “have long expressed concerns related to the exclusive nature of Honors Night.” The email goes on to say students will be recognized in other ways. …Parents and students are not happy with the change. “How else are they suppose to learn coping skills, not just based on success, but relative failure, it might not be failure, but understand what it takes to achieve high levels,” said parent Joe Kosloski. …“That made me wanna work harder and a lot of other people work harder, so just the fact you can’t work towards it anymore then there is no goal,” said 8th grade student Kaitlyn Kosloski. Changes are also being made to the middle school’s sports awards.

You read correctly. They also won’t recognize athletic success.

I guess everyone gets a participation medal.

Except, of course, we still single out kids who commit horrible crimes in school. Such as having toy army men, eating a pop tart the wrong way, building a motion detector for a school science experiment, or countless other “offenses” that trigger anti-gun lunacy by brainless bureaucrats.

The moral of these stories, both from America and around the world, it that government is not the answer. Unless, of course, you’ve asked a really strange question.

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Back in the 1980s and 1990s, there was a widespread consensus that high tax rates were economically misguided. Many Democrats, for instance, supported the 1986 Tax Reform Act that lowered the top tax rate from 50 percent to 28 percent (albeit offset by increased double taxation and more punitive depreciation rules).

And even in the 1990s, many on the left at least paid lip service to the notion that lower tax rates were better for prosperity than higher tax rates. Perhaps that’s because the overwhelming evidence of lower tax rates on the rich leading to higher revenue was fresh in their minds.

The modern left, however, seems completely fixated on class-warfare tax policy. Some of them want higher tax rates even if the government doesn’t collect more revenue!

I’ve already shared a bunch of data and evidence on the importance of low tax rates.

A review of the academic evidence by the Tax Foundation found overwhelming support for the notion that lower tax rates are good for growth.

An economist from Cornell found lower tax rates boost GDP.

Other economists found lower tax rates boost job creation, savings, and output.

Even economists at the Paris-based OECD have determined that high tax rates undermine economic performance.

Today, we’re going to augment this list with some fresh and powerful evidence.

Lots of new evidence. So grab a cup of coffee.

The New York Times, for instance, is noticing that high taxes drive away productive people. At least in France.

Here are some excerpts from a remarkable story.

A year earlier, Mr. Santacruz, who has two degrees in finance, was living in Paris near the Place de la Madeleine, working in a boutique finance firm. He had taken that job after his attempt to start a business in Marseille foundered under a pile of government regulations and a seemingly endless parade of taxes. The episode left him wary of starting any new projects in France. Yet he still hungered to be his own boss. He decided that he would try again. Just not in his own country.

What pushed him over the edge? Taxes, taxes, and more taxes.

…he returned to France to work with a friend’s father to open dental clinics in Marseille. “But the French administration turned it into a herculean effort,” he said. A one-month wait for a license turned into three months, then six. They tried simplifying the corporate structure but were stymied by regulatory hurdles. Hiring was delayed, partly because of social taxes that companies pay on salaries. In France, the share of nonwage costs for employers to fund unemployment benefits, education, health care and pensions is more than 33 percent. In Britain, it is around 20 percent. “Every week, more tax letters would come,” Mr. Santacruz recalled.

Monsieur Santacruz has lots of company.

…France has been losing talented citizens to other countries for decades, but the current exodus of entrepreneurs and young people is happening at a moment when France can ill afford it. The nation has had low-to-stagnant economic growth for the last five years and a generally climbing unemployment rate — now about 11 percent — and analysts warn that it risks sliding into economic sclerosis. …This month, the Chamber of Commerce and Industry of Paris, which represents 800,000 businesses, published a report saying that French executives were more worried than ever that “unemployment and moroseness are pushing young people to leave” the country, bleeding France of energetic workers. As the Pew Research Center put it last year, “no European country is becoming more dispirited and disillusioned faster than France.”

But it’s not just young entrepreneurs. It’s also those who already have achieved some level of success.

Some wealthy businesspeople have also been packing their bags. While entrepreneurs fret about the difficulties of getting a business off the ground, those who have succeeded in doing so say that society stigmatizes financial success. …Hand-wringing articles in French newspapers — including a three-page spread in Le Monde, have examined the implications of “les exilés.” …around 1.6 million of France’s 63 million citizens live outside the country. That is not a huge share, but it is up 60 percent from 2000, according to the Ministry of Foreign Affairs. Thousands are heading to Hong Kong, Mexico City, New York, Shanghai and other cities. About 50,000 French nationals live in Silicon Valley alone. But for the most part, they have fled across the English Channel, just a two-hour Eurostar ride from Paris. Around 350,000 French nationals are now rooted in Britain, about the same population as Nice, France’s fifth-largest city. …Diane Segalen, an executive recruiter for many of France’s biggest companies who recently moved most of her practice, Segalen & Associés, to London from Paris, says the competitiveness gap is easy to see just by reading the newspapers. “In Britain, you read about all the deals going on here,” Ms. Segalen said. “In the French papers, you read about taxes, more taxes, economic problems and the state’s involvement in everything.”

Let’s now check out another story, this time from the pages of the UK-based Daily Mail. We have some more news from France, where another successful French entrepreneur is escaping Monsieur Hollande’s 75 percent tax rate.

François-Henri Pinault, France’s third richest man, is relocating his family to London.  Pinault, the chief executive of Kering, a luxury goods group, has an estimated fortune of £9 billion.  The capital has recently become a popular destination for wealthy French, who are seeking to avoid a 75 per cent supertax introduced by increasingly unpopular Socialist President François Hollande. …It has been claimed that London has become the sixth largest ‘French city’ in the world, with more than 300,000 French people living there.

But it’s not just England. Other high-income French citizens, such as Gerard Depardieu and Bernard Arnault, are escaping to Belgium (which is an absurdly statist nation, but at least doesn’t impose a capital gains tax).

But let’s get back to the story. The billionaire’s actress wife, perhaps having learned from all the opprobrium heaped on Phil Mickelson when he said he might leave California after voters foolishly voted for a class-warfare tax hike, is pretending that taxes are not a motivating factor.

But despite the recent exodus of millionaires from France, Ms Hayek insisted that her family were moving to London for career reasons and not for tax purposes.  …Speaking about the move in an interview with The Times Magazine, the actress said: ‘I want to clarify, it’s not for tax purposes. We are still paying taxes here in France.  ‘We think that London has a lot more to offer than just a better tax situation.

And if you believe that, I have a bridge in Brooklyn that I’m willing to sell for a very good price.

Speaking of New York bridges, let’s go to the other side of Manhattan and cross into New Jersey.

It seems that class-warfare tax policy isn’t working any better in the Garden State than it is in France.

Here are some passages from a story in the Washington Free Beacon.

New Jersey’s high taxes may be costing the state billions of dollars a year in lost revenue as high-earning residents flee, according to a recent study. The study, Exodus on the Parkway, was completed by Regent Atlantic last year… The study shows the state has been steadily losing high-net-worth residents since 2004, when Democratic Gov. Jim McGreevey signed the millionaire’s tax into law. The law raised the state income tax 41 percent on those earning $500,000 or more a year. “The inception of this tax, coupled with New Jersey’s already high property and estate taxes, leaves no mystery about why the term ‘tax migration’ has become a buzzword among state residents and financial, legal, and political professionals,” the study, conducted by Regent states. …tax hikes are driving residents to states with lower tax rates: In 2010 alone, New Jersey lost taxable income of $5.5 billion because residents changed their state of domicile.

No wonder people are moving. New Jersey is one of the most over-taxed jurisdictions in America – and it has a dismal long-run outlook.

And when they move, they take lots of money with them.

“The sad reality is our residents are suffering because politicians talk a good game, but no one is willing to step up to the plate,” Americans for Prosperity New Jersey state director Daryn Iwicki said. The “oppressive tax climate is driving people out.” …One certified public accountant quoted in the study said he lost 95 percent of his high net worth clients. Other tax attorneys report similar results. …Michael Grohman, a tax attorney with Duane Morris, LLP, claimed his wealthy clients are “leaving [New Jersey] as fast as they can.” …If the current trend is not reversed, the consequences could be dire. “Essentially, we’ll find ourselves much like the city of Detroit, broke and without jobs,” Iwicki said.

By the way, make sure you don’t die in New Jersey.

The one bit of good news, for what it’s worth, is that Governor Christie is trying to keep matters from moving further in the wrong direction.

Here’s another interesting bit of evidence. The Wall Street Journal asked the folks at Allied Van Lines where wealthy people are moving. Here’s some of the report on that research.

Spread Sheet asked Allied to determine where wealthy households were moving, based on heavy-weight, high-value moves. According to the data, Texas saw the largest influx of well-heeled households moving into the state last year, consistent with move trends overall. South Carolina and Florida also posted net gains. On the flip side, Illinois and Pennsylvania saw more high-value households move out of state than in, according to the data. California saw the biggest net loss of heavy-weight moves. Last year, California had a net loss of 49,259 people to other states, according to the U.S. Census. …Texas had the highest net gain in terms of domestic migration—113,528 more people moved into the state than out last year, census data show. Job opportunities are home-buyers’ top reason for relocating to Texas, according to a Redfin survey last month of 1,909 customers and website users.

The upshot is that Texas has thumped California, which echoes what I’ve been saying for years.

One can only imagine what will happen over the next few years given the punitive impact of the higher tax rate imposed on the “rich” by spiteful California voters.

If I haven’t totally exhausted your interest in this topic, let’s close by reviewing some of the research included in John Hood’s recent article in Reason.

Over the past three decades, America’s state and local governments have experienced a large and underappreciated divergence. …Some political scientists call it the Big Sort. …Think of it as a vast natural experiment in economic policy. Because states have a lot otherwise in common-cultural values, economic integration, the institutions and actions of the federal government-testing the effects of different economic policies within America can be easier than testing them across countries. …And scholars have been studying the results. …t present our database contains 528 articles published between 1992 and 2013. On balance, their findings offer strong empirical support for the idea that limited government is good for economic progress.

And what do these studies say?

Of the 112 academic studies we found on overall state or local tax burdens, for example, 72 of them-64 percent-showed a negative association with economic performance. Only two studies linked higher overall tax burdens with stronger growth, while the rest yielded mixed or statistically insignificant findings. …There was a negative association between economic growth and higher personal income taxes in 67 percent of the studies. The proportion rose to 74 percent for higher marginal tax rates or tax code progressivity, and 69 percent for higher business or corporate taxes.

Here are some of the specific findings in the academic research.

James Hines of the University of Michigan found that “state taxes significantly influence the pattern of foreign direct investment in the U.S.” A 1 percent change in the tax rate was associated with an 8 percent change in the share of manufacturing investment from taxed investors. Another study, published in Public Finance Review in 2004, zeroed in on counties that lie along state borders. …Studying 30 years of data, the authors concluded that states that raised their income tax rates more than their neighbors had significantly slower growth rates in per-capita income. …economists Brian Goff, Alex Lebedinsky, and Stephen Lile of Western Kentucky University grouped pairs of states together based on common characteristics of geography and culture. …Writing in the April 2011 issue of Contemporary Economic Policy, the authors found “strong support for the idea that lower tax burdens tend to lead to higher levels of economic growth.”

By the way, even though this post is about tax policy, I can’t resist sharing some of Hood’s analysis of the impact of government spending.

Of the 43 studies testing the relationship between total state or local spending and economic growth, only five concluded that it was positive. Sixteen studies found that higher state spending was associated with weaker economic growth; the other 22 were inconclusive. …a few Keynesian bitter-enders insist that transfer programs such as Medicaid boost the economy via multiplier effects… Nearly three-quarters of the relevant studies found that welfare, health care subsidies, and other transfer spending are bad for economic growth.

And as I’ve repeatedly noted, it’s important to have good policy in all regards. And Hood shares some important data showing that laissez-faire states out-perform their neighbors.

…economists Lauren Heller and Frank Stephenson of Berry College used the Fraser Institute’s Economic Freedom of North America index to explore state economic growth from 1981 to 2009. They found that if a state adopted fiscal and regulatory policies sufficient to improve its economic freedom score by one point, it could expect unemployment to drop by 1.3 percentage points and labor-force participation to rise by 1.9 percentage points by the end of the period studied.

If you’ve made it this far, you deserve a reward. We have some amusing cartoons on class-warfare tax policy here, here, here, here, here, here, and here.

And here’s a funny bit from Penn and Teller on class warfare.

P.S. Higher tax rates also encourage corruption.

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Very few political cartoons make me laugh out loud.

Even when I look back at the all-time favorites that I included in my political cartoonist contest, most of them are on that list because they make a very effective and clever point about public policy.

Though I do recall being very amused by Glenn McCoy’s cartoon on media bias, Chip Bok’s war-on-women cartoon, and Robert Ariail’s cartoon about Greece and the euro.

But I don’t think any of them made me laugh as much as this gem by Scott Stantis.

Socialist Obama Cartoon

I don’t even know why it struck me as being so funny.

Yes, I have a peculiar interest in international economic policy, so I’m fully aware that President Hollande of France is a disaster, but I’m not sure that’s enough to make a cartoon amusing.

And I’ve commented several times on the debate over whether Obama is a socialist, but that’s hardly a topic that lends itself to humor.

Hollande v ObamaOr perhaps I’m just a narcissist and I appreciated a cartoon that was somewhat similar to one of my homemade jokes about Hollande and Obama.

Beats me.

But kudos to Scott Stantis (who also is the author of the best-ever cartoon on the failure of Keynesian stimulus).

Since we’re looking at funny cartoons, it’s time to give some credit to the other side.

I don’t often find much humor on the left, but this cartoon on income inequality is worth sharing.

It’s from the New Yorker, though I don’t know the author. And I confess that I’m merely assuming a left-wing perspective.

It’s your call whether this cartoon is as good as the other leftist cartoons I’ve shared, but it is a good caricature of the GOP country club types.

P.S. Yesterday I shared some libertarian valentines.

So in the interest of fairness, here’s are some left-wing valentines.

They’re designed to trick people into signing up for Obamacare.

Our first option is from a group called the National Women’s law Center.

And here’s one from a group named the Young Invincibles.

obamacare valentine

I have to say that I’m not overly impressed with either one of these valentines.

Though anything has to be better pro-Obamacare marketing than Pajama Boy or casual sex (because big government can take the fun out of anything).

JeffersonP.P.S. Speaking of Valentine’s Day, the PotL graced me with her presence, making me an inexplicable winner.

Even if some of my erstwhile friends who watch Modern Family have started to refer to us as Jay and Gloria.

P.P.P.S. Let’s close with a comment on a very odd story from Norway.

The nut-job who killed 77 people has made an announcement.

Anders Breivik…wants the world to know that he’s being treated “worse than an animal” in prison and is considering going on a hunger strike until the “torture”-like living conditions improve. Just how bad are things for the admitted and unrepentant killer? Well, for one, he says he’s being forced to play his video games on an out-of-date Playstation 2 instead of a newer model. …Breivik was deemed sane by a Norwegian court in the summer of 2012 and sentenced to 21 years in prison, the most-severe sentence allowed under the Scandinavian country’s laws… Details of Breivik’s current conditions are a bit unclear, although Norwegian news reports from the time of his sentencing suggested that he was going to be kept in a three-room cell complete with an exercise area and a television.

I guess it’s a good thing I’m not the warden at his prison.

Why? Because I not only would turn down his request, but I also would dump him in a 6X8 call. Moreover, I would station a couple of guards outside his cell and have them play the newest and fanciest version of Playstation 24 hours a day.

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Some things in life are very dependable. Every year, for instance, the swallows return to Capistrano.

And you can also count on Dan Mitchell to wax poetic about the looming collapse of French statism.

Back in 2011, I said France was engaged in economic self-destruction.

In September 2012, I wrote that it was time to start the countdown for France’s fiscal crisis.

In October of that year, I pontificated about France’s looming fiscal suicide.

Last April, I warned that the fuse was burning on France’s fiscal time bomb.

In June of 2013, I stated that the looters and moochers in France were running out of victims to plunder.

And in October of last year, I expounded on France’s economic death spiral.

Geesh, looking at that list, I guess I’m guilty of – in the words of Paul Krugman – being part of the “plot against France” by trying to discredit that nation’s economy.

Or maybe I’m just ahead of my time because we’re now seeing articles that almost sound like they could have been written by me appearing in establishment outlets such as Newsweek. Check out some amazing excerpts from an article by Janine di Giovanni, who lives in France and serves as the magazine’s Middle East Editor.

…what is happening today in France is being compared to the revocation of 1685. …the king closed churches and persecuted the Huguenots. As a result, nearly 700,000 of them fled France, seeking asylum in England, Sweden, Switzerland, South Africa and other countries. The Huguenots, nearly a million strong before 1685, were thought of as the worker bees of France. They left without money, but took with them their many and various skills. They left France with a noticeable brain drain.

It’s happening again, except this time the cause is fiscal persecution rather than religious persecution. French politicians have changed the national sport from soccer to taxation!

Since the arrival of Socialist President François Hollande in 2012, income tax and social security contributions in France have skyrocketed. The top tax rate is 75 percent, and a great many pay in excess of 70 percent. As a result, there has been a frantic bolt for the border by the very people who create economic growth – business leaders, innovators, creative thinkers, and top executives. They are all leaving France to develop their talents elsewhere.

It’s an exaggeration to say “they are all leaving,” but France is turning Atlas Shrugged from fiction to reality.

“Au revoir, bloodsuckers”

Many of the nation’s most capable people are escaping – ranging from movie stars to top entrepreneurs.

What I find most amusing is that France’s parasitical political elite is whining and complaining that these people won’t remain immobile so they can be plundered.

And when the people who have the greatest ability leave, that has an impact on economic performance – and ordinary people are the ones who suffer the most.

…the past two years have seen a steady, noticeable decline in France. There is a grayness that the heavy hand of socialism casts. It is increasingly difficult to start a small business when you cannot fire useless employees and hire fresh new talent. Like the Huguenots, young graduates see no future and plan their escape to London. The official unemployment figure is more than 3 million; unofficially it’s more like 5 million.

The article also gives some details that will help you understand why the tax burden is so stifling. Simply stated, the government is far too big and pays for things that should not be even remotely connected to the public sector.

Part of this is the fault of the suffocating nanny state. …As a new mother, I was surprised at the many state benefits to be had if you filled out all the forms: Diapers were free; nannies were tax-deductible; free nurseries existed in every neighborhood. State social workers arrived at my door to help me “organize my nursery.” …The French state also paid for all new mothers, including me, to see a physical therapist twice a week to get our stomachs toned again.

Government-subsidized “toned” stomachs. Hey, maybe big government isn’t all bad. Sort of reminds me of the taxpayer-financed boob jobs in the United Kingdom (British taxpayers also pay for sex trips to Amsterdam).

More seriously, all the wasteful spending in France erodes the work ethic and creates a perverse form of dependency.

I had friends who belonged to trade unions, which allowed them to take entire summers off and collect 55 percent unemployment pay. From the time he was an able-bodied 30-year-old, a cameraman friend worked five months a year and spent the remaining seven months collecting state subsidies from the comfort of his house in the south of France. Another banker friend spent her three-month paid maternity leave sailing around Guadeloupe – as it is part of France, she continued to receive all the benefits. Yet another banker friend got fired, then took off nearly three years to find a new job, because the state was paying her so long as she had no job. “Why not? I deserve it,” she said when I questioned her. “I paid my benefits into the system.”

So what’s the bottom line? Well, the author sums up the issue quite nicely.

…all this handing out of money left the state bankrupt. …The most brilliant minds of France are escaping to London, Brussels, and New York rather than stultify at home. …“The best thinkers in France have left the country. What is now left is mediocrity.” From a chief legal counsel at a major French company: “France is dying a slow death. Socialism is killing it…”

As the old saying goes, this won’t end well. Maybe France will suffer a Greek-style meltdown, but perhaps it will “merely” suffer long-run stagnation and decline.

Which is a shame because France is a beautiful country and is ranked as one of the best places to live if you happen to already have a considerable amount of hard-to-tax wealth (and the French also were ranked among the top-10 most attractive people).

But bad government can screw up a country, even if it does have lots of natural advantages.

And that’s exactly what generations of French politicians have done to France. The tax system has become so bad that more than 8,000 French households had to pay more than 100 percent of their income to the government in 2012.

The French government has announced, by the way, that it intends to cap taxes so that no household ever pays more than 80 percent to the state. Gee, how merciful, particularly since the French President has echoed America’s Vice President and asserted that it’s patriotic to pay higher taxes.

That’s why I’ll stand by my prediction that President Obama will never be able to make America as bad as France. Heck, France has such a bad approach on taxes that Obama has felt compelled to oppose some of that country’s statist initiatives.

P.S. The prize for silliest example of government intervention in France goes to the law that makes it a crime to insult your spouse’s personal appearance.

P.P.S. The big puzzle is why the French put up with so much statism. Polling data from both 2010 and 2013 shows strong support for smaller government, and an astounding 52 percent of French citizens said they would consider moving to the United States if they got the opportunity. So why, then, do they elect statists such as Sarkozy and Hollande?!?

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It’s time to extinguish any lingering Christmas cheer. Today’s topic is over-bearing and tyrannical tax administration.

To be more specific, we’re going to look at the extent to which taxpayers are mistreated during the process of collecting revenue.

Yes, the amount that governments steal from you also is important, but that’s a topic we’ve already discussed on many occasions.

Moreover, we’re not going to focus on the IRS. Yes, the internal revenue service is infamous for its brutal and intrusive tactics. And I’m embarrassed to note that the United States scored very poorly in a Tax Oppression Index prepared by Switzerland’s Institut Constant.

But I want to focus today on places other than Washington. And the good news (at least relatively speaking) is that some countries scored even lower than the United States. The very worst nation was Italy, and you probably won’t be surprised that Germany (the country that figured out a way to use parking meters to tax prostitutes) and France were among the jurisdictions that also ranked below America.

This story from Brittany provides a rather appropriate glimpse at what it’s like to be a taxpayer in France.

For customers at the Mamm-Kounifl concert-café in Locmiquélic, carrying drinks trays and used glasses back to the bar was a polite tradition. But for social security agency URSAFF, it was also an infringement of labour laws because customers were acting like waiters, French local newspaper Le Télégramme reported.

But what’s really amazing is the way in which France’s revenue-hungry bureaucrats “caught” the alleged scofflaws.

“Around half-past midnight, a customer returned a drinks tray. She passed by the bar to go to the toilets. That was when it all kicked off.   My husband was pinned against the glass by a man. A woman leapt on me, showing her ID card and that’s when I realised it was a URSSAF check. They told me I had been caught using undeclared labour,” owner Markya Le Floch told Le Télégramme. …The authorities initially fined the pub owners €7,900 and briefly placed them in police custody. …URSSAF are still pursuing a social case and are now seeking €9,000 due to non-payment of the original fine.

Wow. This may be even more Orwellian than the FDA raid against the Amish farm that was selling unpasteurized milk to consenting adults. Or more absurd than the DEA busting a grandmother for buying cold medicine.

Imagine if the IRS adopted this French policy. If you take your significant other on a fancy date to McDonald’s and then carry your trash to the garbage receptacles, you’ll be guilty of providing “undeclared labor” and the tax police can then decide to impose taxes and fines because there could have been a taxable employee fulfilling that role.

I’m not joking. That seems to be the premise of the case in France.

Let’s now look at how taxpayers are treated by the various states here in America. Using data from the Council on State Taxation, the Tax Foundation has put together a map with grades for each state based on “good government” principles of tax administration.

Tax Administration Map of States

I’m surprised that Maine and Ohio rank so highly, particularly since neither state gets very good grades based on either Tax Freedom Day, aggregate tax burden, or the State Business Tax Climate.

But I’m not surprised that California ranks at the bottom. The state routinely gets bad grades on various measures of fiscal policy. No wonder so much income is moving out of the state. As for Louisiana, I can understand why Governor Jindal is so anxious to get rid of the state income tax.

Though the absence of a state income tax doesn’t guarantee good tax administration. Nevada, for instance, gets a poor grade in the COST survey.

P.S. If you like cartoons mocking California’s tax-and-spend politicians, click here, here, here, here, here, and here.

P.P.S. I’ve only shared one French-related cartoon, but you can seem my attempts at humorous captions here, here, and here.

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The title of this piece has an asterisk because, unfortunately, we’re not talking about progress on the Laffer Curve in the United States.

Instead, we’re discussing today how lawmakers in other nations are beginning to recognize that it’s absurdly inaccurate to predict the revenue impact of changes in tax rates without also trying to measure what happens to taxable income (if you want a short tutorial on the Laffer Curve, click here).

But I’m a firm believer that policies in other nations (for better or worse) are a very persuasive form of real-world evidence. Simply stated, if you’re trying to convince a politician that a certain policy is worth pursuing, you’ll have a much greater chance of success if you can point to tangible examples of how it has been successful.

That’s why I cite Hong Kong and Singapore as examples of why free markets and small government are the best recipe for prosperity. It’s also why I use nations such as New Zealand, Canada, and Estonia when arguing for a lower burden of government spending.

And it’s why I’m quite encouraged that even the squishy Tory-Liberal coalition government in the United Kingdom has begun to acknowledge that the Laffer Curve should be part of the analysis when making major changes in taxation.

UK Laffer CurveI don’t know whether that’s because they learned a lesson from the disastrous failure of Gordon Brown’s class-warfare tax hike, or whether they feel they should do something good to compensate for bad tax policies they’re pursuing in other areas, but I’m not going to quibble when politicians finally begin to move in the right direction.

The Wall Street Journal opines that this is a very worthwhile development.

Chancellor of the Exchequer George Osborne has cut Britain’s corporate tax rate to 22% from 28% since taking office in 2010, with a further cut to 20% due in 2015. On paper, these tax cuts were predicted to “cost” Her Majesty’s Treasury some £7.8 billion a year when fully phased in. But Mr. Osborne asked his department to figure out how much additional revenue would be generated by the higher investment, wages and productivity made possible by leaving that money in private hands.

By the way, I can’t resist a bit of nit-picking at this point. The increases in investment, wages, and productivity all occur because the marginal corporate tax rate is reduced, not because more money is in private hands.

I’m all in favor of leaving more money in private hands, but you get more growth when you change relative prices to make productive behavior more rewarding. And this happens when you reduce the tax code’s penalty on work compared to leisure and when you lower the tax on saving and investment compared to consumption.

The Wall Street Journal obviously understands this and was simply trying to avoid wordiness, so this is a friendly amendment rather than a criticism.

Anyhow, back to the editorial. The WSJ notes that the lower corporate tax rate in the United Kingdom is expected to lose far less revenue than was predicted by static estimates.

The Treasury’s answer in a report this week is that extra growth and changed business behavior will likely recoup 45%-60% of that revenue. The report says that even that amount is almost certainly understated, since Treasury didn’t attempt to model the effects of the lower rate on increased foreign investment or other “spillover benefits.”

And maybe this more sensible approach eventually will spread to the United States.

…the results are especially notable because the U.K. Treasury gnomes are typically as bound by static-revenue accounting as are the American tax scorers at Congress’s Joint Tax Committee. While the British rate cut is sizable, the U.S. has even more room to climb down the Laffer Curve because the top corporate rate is 35%, plus what the states add—9.x% in benighted Illinois, for example. This means the revenue feedback effects from a rate cut would be even more substantial.

The WSJ says America’s corporate tax rate should be lowered, and there’s no question that should be a priority since the United States now has the least competitive corporate tax system in the developed world (and we rank a lowly 94 out of the world’s top 100 nations).

But the logic of the Laffer Curve also explains why we should lower personal tax rates. But it’s not just curmudgeonly libertarians who are making this argument.

Writing in London’s City AM, Allister Heath points out that even John Maynard Keynes very clearly recognized a Laffer Curve constraint on excessive taxation.

Supply-side economist?!?

Even Keynes himself accepted this. Like many other economists throughout the ages, he understood and agreed with the principles that underpinned what eventually came to be known as the Laffer curve: that above a certain rate, hiking taxes further can actually lead to a fall in income, and cutting tax rates can actually lead to increased revenues.Writing in 1933, Keynes said that under certain circumstances “taxation may be so high as to defeat its object… given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more—and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.”

For what it’s worth, Keynes also thought that it would be a mistake to let government get too large, having written that “25 percent [of GDP] as the maximum tolerable proportion of taxation.”

But let’s stay on message and re-focus our attention on the Laffer Curve. Amazingly, it appears that even a few of our French friends are coming around on this issue.

Here are some passages from a report from the Paris-based Institute for Research in Economic and Fiscal Issues.

In an interview given to the newspaper Les Echos on November 18th, French Prime Minister Jean -Marc Ayrault finally understood that “the French tax system has become very complex, almost unreadable, and the French often do not understand its logic or are not convinced that what they are paying is fair and that this system is efficient.” …The Government was seriously disappointed when knowing that a shortfall of over 10 billion euros is expected in late 2013 according to calculations by the National Assembly. …In fact, we have probably reached a threshold where taxation no longer brings in enough money to the Government because taxes weigh too much on production and growth.

This is a point that has also been acknowledged by France’s state auditor. And even a member of the traditionally statist European Commission felt compelled to warn that French taxes had reached the point whether they “destroy growth and handicap the creation of jobs.”

But don’t hold your breath waiting for good reforms in France. I fear the current French government is too ideologically fixated on punishing the rich to make a shift toward more sensible tax policy.

P.S. The strongest single piece of evidence for the Laffer Curve is what happened to tax collections from the rich in the 1980s. The top tax rate dropped from 70 percent to 28 percent, leading many statists to complain that the wealthy wouldn’t pay enough and that the government would be starved of revenue. To put it mildly, they were wildly wrong.

I cite that example, as well as other pieces of evidence, in this video.

P.P.S. And if you want to understand specifically why class-warfare tax policy is so likely to fail, this post explains why it’s a fool’s game to target upper-income taxpayers since they have considerable control over the timing, level, and composition of their income.

P.P.P.S. Above all else, never forget that the goal should be to maximize growth rather than revenues. That’s because we want small government. But even for those that don’t want small government, you don’t want to be near the revenue-maximizing point of the Laffer Curve since that implies significant economic damage per every dollar collected.

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Every so often, when the temptation is too great, I’ll comment on something written by Paul Krugman.

When he botched his analysis of Estonia, for instance, I joined that nation’s President in correcting some egregious errors.

And I periodically remind people that Krugman was wildly wrong to deny the scandalous shortcomings of the government-run health system in the United Kingdom.

Today, however, I want to agree with Paul Krugman. He recently wrote that there’s a “plot against France,” and I think that’s unambiguously true.

But we do have one small disagreement. Krugman thinks the plot is being carried out by right-wing ideologues who want to discredit France because it “committed the unforgivable sin of being fiscally responsible without inflicting pain on the poor and unlucky.”

I think, by contrast, that the plot against France is being carried out by France’s statist politicians.

Simply stated, it’s almost as if the nation’s political elite is trying to destroy the nation with a fiscal regime of reckless spending and punitive taxation.

And since France’s “leaders” presumably are aware of the country’s grim medium-term fiscal outlook, it certainly seems like they are scheming to impoverish their own people.

Let’s look at some evidence of France’s decline.

Canada’s Financial Post has an article about the growth of government dependency in France. Here are some of the horrifying details.

More than half of the active French population is living off the state, according to figures in a new book by a tax lawyer seeking to explain why so many of his clients in private enterprise are leaving France. …the author begins with France’s or civil servants, of which there are 5.2 million and whose number has increased by 36% since 1983. These represent 22% of the workforce compared with a European average of 15%, leading him to conclude that France has 1.5 million too many “fonctionnaires”. He then adds the 3.2 million unemployed people in France relying on state benefits, another 1.3 million taking low-income handouts, a further two million in the “parapublic” sector — majority state-owned companies — and more than a million people in state-funded associations such as charities. Under the current Socialist government, there are 750,000 state-subsidized jobs and the author includes a million people in the agricultural sector who rely largely on contributions from European Common Agricultural Policy subsidies.

Wow. I sometimes complain about growing dependency in the United States, but I guess we should count ourselves as being lucky that we’re not as far down the path as France.

The article continues with some observations about how the geese with the golden eggs are tired of being mistreated.

The book is written in the first person, supposedly by a successful boss of a medium-sized company who decided to move abroad with his wife and children to avoid “being treated like an enemy because I make a good living”. In fact, the narrator is a mixture of about 20 clients of Jean-Philippe Delsol, a tax advisor, who is also an author and administrator of the Institute for Research in Economic and Fiscal Issues, a think tank. Those fleeing France would only speak anonymously “to avoid reprisals from the tax authorities,” he explained. …The huge nanny state, he said, had “modified the very spirit of (French) society by turning everyone into fonctionnaires”. …soon “the system will no longer function as there will be less and less people working to support more and more people working less”, he argued.

The last quote in the excerpt, by the way, is a real-world version of the famous set of cartoons about what happens when too many people decide to climb in the wagon.

But not everybody has the ability to escape France’s tax net, and those that remain are protesting against a rapacious central government.

A story from France 24 discusses anti-tax riots. Here are some highlights.

Protest organisers said 30,000 people, including hauliers, fishermen and food industry workers, had gathered in the town of Quimper in Brittany to demonstrate against an environmental tax on trucks and layoffs, even though the government had earlier in the week suspended the application of the so-called ecotax. Authorities estimate that 15,000 people joined in the protest. Some of the protestors pelted police with stones, iron bars and even pots of chrysanthemum, while others burned palettes. Police responded with water cannons and tear gas. …protestors marched under banners such as “Right to work”, “Bretons yes, sheep no” and “France is not a cash cow”. Many also wore red caps, a symbol of the anti-tax campaign in Brittany in the 17th century. …52-year-old mason Claude Sergent said the taxes “are killing us”.

Even equestrians are agitated about the growing burden of the value-added tax. Here are some tidbits from a news report.

Thousands of horse-lovers paraded their animals through central Paris on Sunday in a protest against a planned sales tax rise they say will put riding centers out of business and send horses to the slaughterhouse. …Organizers of Sunday’s protest say the EU-mandated rise of France’s VAT to 20 percent as of January 1 – from the 7 percent reduced rate paid by equestrian centers today – will shut down a fifth of centers across France. Some 6,000 jobs will be lost, they estimate, and 80,000 horses will have to be sent to slaughter. “Riders, up in arms!” shouted protesters carrying signs reading “Sales tax at 20 percent – Death of Horses and Ponies”. A guillotine was wheeled through the streets, its blade poised above a toy horse’s head. Another horse effigy was mounted on a crucifix.

And since we’re on the subject of the VAT, it’s worth noting that the feckless Finance Minister is browbeating retailers in hopes that they will swallow the cost of a tax hike rather than passing it on to consumers. Here are key portions of a Reuters report.

France’s finance minister appealed to retailers’ better instincts on Thursday, urging them not to pass on a rise in sales tax to shoppers in January as public frustration grows over a tax-heavy 2014 budget. Following violent anti-tax protests in western France, Pierre Moscovici said he would not abandon plans to raise value added tax by 0.4 percent on Jan. 1. But he would ask retail chains – already struggling with smaller margins than some of their European peers – not to raise their prices. Nobody has to reflect this (VAT hike) in their prices,” he told RTL radio. “I think it’s important to show virtuous behaviour, notably in the retail sector which along with the French people must display a civic spirit.”

And let’s not overlook the government’s additional taxes on people who save. Here is some analysis from a column in the UK-based Telegraph.

This was the face of a future French Tea Party, a political development that seems increasingly likely. Mr Hollande also had to “suspend” — a word that fills the French with unease, as it promises a stealthy return of the same measures whenever the fracas dies down — a 15.5 per cent retroactive tax on savings schemes that seemed tailor-made to infuriated his most natural voters. A Parisian barrister, himself not a Hollande voter, told me that his Portuguese-born cleaning lady, a single mother of five children, had sworn never again to cast her ballot for the president, as she did last year. “You work hard all your life, you do what’s right, and then they come after the little bit you’ve managed to put aside for your retirement age?” she said. “What kind of a Left-wing government is that?” …Since the spending ministries do not really want to make hard cuts, the only way — or so he thinks — is through more taxes.” The Laffer curve theory (too much tax kills tax revenue) does not seem to have made it to Bercy, the massive brutalist fortress built 20 years go to accommodate the finance ministry’s plethoric troops. …An unchecked French civil servant can think up some pretty outlandish tax ideas. …The beginning of the week saw Mr Hollande’s ratings plunge even lower than before, breaking records of unpopularity. Two separate polls have given him the worst ratings of any French president.

So let’s sum up all these articles. France is in the toilet, with a stifling fiscal burden, growing social unrest, and a deeply unpopular political class.

Does that sound like a nation that has been, in the words of Krugman, a role model of “fiscal responsibility”?

Krugman’s response would be that the French government still has the ability to borrow at very low interest rates, meaning that there is faith among international investors that the nation is well managed.

I must confess that this is a strong point. It’s possible to argue, of course, that the investors are wrong. After all, many investors thought Greece, Spain, Italy, etc, were in good shape before those nations suffered their fiscal crises.

My prediction, for what it’s worth, that France will suffer a fiscal crisis. As I’ve already admitted, I don’t pretend to know whether that crisis will start in 7 months or 7 years, but the underlying trend lines are unsustainable in the long run. This is a nation that violates my Golden Rule on a regular basis and that can’t end well.

P.S. To elaborate, I don’t think French politicians actually are plotting against their own country, just like I reject conspiracy theories that American leftists are deliberately trying to bring down the United States. Instead, what we’re witnessing is classic and predictable political behavior. Simply stated, politicians always have an incentive to buy votes with other people’s money and they very rarely are willing to engage in genuine reform until a crisis actually happens.

P.P.S. For those who think that it is “compassionate” for government to provide an extensive array of services, I’ll ask the same question I posed to a French audience earlier this year: Is there any evidence that the French government, which consumes 57 percent of the economy’s output, provides more and/or better services than the Swiss government, which accounts for only 34 percent of GDP?

P.P.P.S. I’ve written that Obama will never be able to make America as bad as France. But as this Michael Ramirez cartoon illustrates, that doesn’t mean he isn’t trying.

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There’s a tendency in public life to exaggerate the positive or negative implications of any particular policy.

This is why I try to be careful not to overstate the potential benefits of reforms I like, such as the flat tax. Yes, we would get better growth and there would be less corruption in Washington, but tax reform would not be a panacea for every ill. Many other policies also need to be fixed to generate sustained prosperity.

Likewise, I’m obviously not a fan of Obamacare, but I try to remind people that our system was already messed up even before Obama was elected. As such, repealing Obamacare – while the right thing to do – is just one of many things that need to happen to restore a competitive and efficient healthcare system.

Now that I’ve warned about the risks of overstatement, I’m going out on a limb to say that we may be at the point where France is taxing itself to the point of economic ruin.

One French budget expert warned that, “the spiraling welfare debt was particularly abnormal and particularly dangerous” and that “The strategy of fixing the system by collecting new revenue is reaching its limits.”

And even a European Union Commissioner thinks France has gone too far. As one newspaper reported, “Tax increases imposed by the Socialist-led government in France have reached a ‘fatal level’, the European Union’s commissioner for economic affairs said today. Olli Rehn warned that a series of tax hikes since the Socialists took power…threatens to ‘destroy growth and handicap the creation of jobs’”

You know you’re taxing too much when even Euro-crats in Brussels think the fiscal burden is excessive!

I’ve certainly added my two cents to this discussion, but I suspect people will be more willing to believe someone who endures the French fiscal regime every day.

And that’s our topic for today. A woman from France has written a very powerful indictment of France’s coercive and confiscatory economic system. Here are some excerpts from the UK-based Telegraph.

More than 70 per cent of the French feel taxes are “excessive”, and 80 per cent believe the president’s economic policy is “misguided” and “inefficient”. …Worse, after decades of living in one of the most redistributive systems in western Europe, 54 per cent of the French believe that taxes – of which there have been 84 new ones in the past two years, rising from 42 per cent of GDP in 2009 to 46.3 per cent this year – now widen social inequalities instead of reducing them.

Some of you may be wondering why French voters elected a socialist if they overwhelmingly think taxes are too high, but keep in mind that the former President was just as much of a statist.

I’m curious, by the way, about the data on taxes and social equality. Why do the French think higher taxes increase inequality? Is it that they think the higher taxes are being imposed on the middle class and the poor? Do they think that high taxes stifle growth and prevent upward mobility? Is it some combination of these factors, or something else altogether?

One thing we can say with certainty is that all these taxes have led to a bloated public sector.

By 2014, France’s public expenditure will overtake Denmark’s to become the world’s highest: 57 per cent of GDP. In effect, just to keep in the same place, like a hamster on a wheel, and ensure that the European Central Bank in Frankfurt isn’t too unhappy with us, Hollande now needs cash. …finance minister Pierre Moscovici recently admitted that he “understood” the French’s “exasperation” with their heavy tax burden. This earned him a sharp rap on the fingers from the president… “It’s not only that people don’t like to be treated like criminals just because they’re successful,” says a French banker friend who has recently moved to London. “But this uncertainty in every aspect of the tax system means it is impossible to do business: you don’t know what your future costs are, or your customer’s. You can’t buy, you can’t sell, you can’t hire, you can’t fire.”

Not surprisingly, this hostility to achievement is having a predictable impact.

…tax has been the clincher that sent hundreds, possibly thousands of French citizens abroad: not just “the rich”, whom Hollande, during his victorious campaign, said he personally “disliked”, …but also the ambitious young, who feel that their own country will turn on them the minute they achieve any measure of personal success. …one out of four French university graduates wants to emigrate, “and this rises to 80 per cent or 90 per cent in the case of marketable degrees”, says economics professor Jacques Régniez, who teaches at both the Sorbonne and the University of New York in Prague. “In one of my finance seminars, every single French student intends to go abroad.

Heck, a majority of French people have said they would be interested in escaping to the United States if they had the opportunity.

However, those are the productive and ambitious young people of France. Unfortunately, there’s another group of young French people, and they have different dreams.

…young people, and many of their parents, dream of getting any kind of state or local administration post…which ensures complete job security, unrelated to the economic situation, the market, or their own performance. More than a quarter of the French workforce is employed by some public body or other: schools, hospitals, local and regional councils, the police, the civil service proper – or those new subsidised public-service jobs the Hollande government is so keen on.

We have people like that in the United States as well.

What matters for a society, though, it whether there are too many people living off the government. When the moochers and looters outnumber (and out-vote) the people who are producing, the conditions exist for an economic death spiral.

Simply stated, the folks riding in the wagon keep voting to impose heavier burdens on those pulling the wagon. That eventually leads to economic ruin, and it leads to trouble even faster when the people pulling the wagon have the opportunity to move across borders.

Which is what is happening in France.

P.S. Here’s a powerful comparison of France and Switzerland.

P.P.S. More than 8,000 French households last year got to experience the Obama-version of a flat tax.

P.P.P.S. Americans shouldn’t feel superior to France since our tax code is worse in certain ways.

P.P.P.P.S. That being said, we’re not as bad as France, and even Obama won’t be able to change that.

P.P.P.P.P.S. I endorsed the current socialist President of France, but for a strategic reason.

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We have an amazing man-bites-dog story today.

Let’s begin with some background information. A member of the European Commission recently warned that:

“Tax increases imposed by the Socialist-led government in France have reached a “fatal level”…[and] that a series of tax hikes since the Socialists took power 14 months ago – including €33bn in new taxes this year – threatens to “destroy growth and handicap the creation of jobs”.

Given the pervasive statism of the European Commission, that was a remarkable admission.

But the Commissioner who issued that warning, Olli Rehn, is Finnish, so French politicians presumably don’t listen to his advice any more than they listen to the thoughtful, well-meaning, and generous suggestions I make.

Indeed, based on the actions of the current President and the former President, we can say with great confidence that French politicians compete over who can pursue the most misguided policies.

But maybe, just maybe, there are some people inside France who realize the house of cards is in danger of collapse.

Here are some excerpts from a story I never thought I would read. At least one senior official in France has woken up to the dangers of ever-rising taxes and an always-growing burden of government spending.

France’s state auditor urged the government Tuesday to redouble efforts to limit spending rather than increases taxes… The head of the state auditor, Didier Migaud, said the interruption in deficit reduction stemmed primarily from lower-than-expected tax revenue, due to the weak economy. Yet, he said “the spiraling welfare debt was particularly abnormal and particularly dangerous.” During his first year in power, President François Hollande relied on large tax increases to plug holes in public finances, including social programs such as pensions, unemployment benefits and health care. But economic stagnation in 2012, coupled with a mild recession at the start of 2013, has waylaid the plan, while both companies and households are crying foul over what some have called “a tax overdose.” Mr. Migaud added his voice, saying: “The strategy of fixing the system by collecting new revenue is reaching its limits.”

Before any further analysis, I have to make one correction to the story. Hollande’s plan was not “waylaid” by a recession. Instead, his policies doubtlessly helped cause a recession. You don’t impose huge tax hikes on productive behavior without some sort of negative impact on economic performance.

So the “holes in public finances” are at least partially a result of the Laffer Curve. As I’ve repeatedly warned, higher tax rates rarely – if ever – collect as much money as politicians expect.

Returning to the specific case of France, the fiscal variable that should set off the most alarm bells is that the burden of government spending has soared to 57 percent of GDP. And based on projections from the BIS, OECD, and IMF, that number is going to get even worse in the future.

This is the data that presumably has convinced Monsieur Migaud that France is approaching the point of no return on taxes and spending.

Interestingly, the French people may be ahead of their politicians. Polling data from 2010 and 2013 show that ordinary people very much understand the need to limit the size and scope of government.

Heck, a majority of French people have said they would be interested in escaping to the United States if they had the opportunity. And successful people already have been leaving the country because of punitive tax rates.

But I’m not sure I believe the aforementioned polls. If the French people genuinely have sound views, why do they keep electing bad politicians? Of course, the same thing could be said about the United States, so perhaps I shouldn’t throw stones in my glass house.

P.S. My favorite example of government running amok in France is the law threatening three years in jail if you say your husband is a fat slob or if you accuse your wife of being a nag.

P.P.S. The most vile French official may be the current Prime Minister, who actually had the gall to complain that some of his intended victims weren’t quietly entering the slaughterhouse.

P.P.P.S. Just in case you think I’m exaggerating about France being a fiscal hellhole, more than 8,000 households last year were subjected to a tax burden of more than 100 percent . Obama must be very envious.

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I’m not a big fan of the European Commission. For those not familiar with this entity, it’s sort of the European version of the executive-branch bureaucracy we have in Washington. And like their counterparts in Washington, the Brussels-based bureaucracy enjoys a very lavish lifestyle while pushing for more government and engaging in bizarre forms of political correctness.

But just as a stopped clock is right twice a day, it appears that the European Commission is right once every century. Or perhaps once every millennium would be more accurate. Regardless, here are parts of a story I never thought would appear in my lifetime.

Olli Rehn: “Taxes shouldn’t be any higher than this”

According to the UK-based Independent, the European Commission – or at least one European Commissioner – now realizes that there’s such a thing as too much tax.

Tax increases imposed by the Socialist-led government in France have reached a “fatal level”, the European Union’s commissioner for economic affairs said today. Olli Rehn warned that a series of tax hikes since the Socialists took power 14 months ago – including €33bn in new taxes this year – threatens to “destroy growth and handicap the creation of jobs”.

Wow, that sounds like something I might have said.

But even though I endorsed him, Hollande has ignored my advice.

President Hollande has kept his electoral promise to attack French deficits and accumulated debt. He has done so, however, almost entirely by tax increases rather than by cuts in a state apparatus which swallows 56.6 per cent of the country’s GDP.

It’s worth noting, by the way, that tax hikes haven’t worked. Deficits today are still far higher than they were before the financial crisis. Yet the crazy French are not slowing down.

it has emerged that final budget plans for 2014 will include at least €6bn in tax rises. This figure does not include the impact of a programmed rise in the basic rate of VAT from 19.6 per cent to 20 per cent from January next year. …Mr Hollande’s 75 per cent “temporary” tax on incomes over €1m – also blocked by constitutional objections – may also finally take effect in 2014.

Geesh, no wonder even European bureaucrats are saying enough is enough.

Just like the IMF said that Greece had reached the tipping point where taxes were too high.

Just like the United Nations acknowledged the Laffer-Curve insight that taxes can be too high.

Just like the OECD admitted that better tax policy leads to more taxable income.

Just like the European Central Bank found big Laffer-Curve responses to changes in tax policy.

Hmmm…, makes you begin to think there’s a pattern and that people finally understand the Laffer Curve. Though let’s not get too optimistic since this common-sense observation about tax rates, taxable income, and tax revenue has not had any impact on the pro-tax bureaucrats at the Joint Committee on Taxation in Washington. But that’s a separate story.

I feel guilty about writing something favorable about the European Commission, so I want to close with some information showing that this bureaucracy is on the wrong side more than 99 percent of the time. Which should surprise anyone since it is headed by a former Maoist (who is eminently forgettable – other than the fact that he is unintentionally engaged in a contest to see who can be the most laughable European bureaucrat).

Let’s look at some highlights from the past few years.

European Commission bureaucrats lash out at credit rating companies for warning that governments may not be able to pay their bills.

European Commission bureaucrats squander millions of dollars on empty political correctness as they publish calendars that omit Christmas.

European Commission bureaucrats pissed away millions of dollars to create a green-skinned “Mr. Fruitness” superhero.

European Commission bureaucrats wasted money on comic books portraying themselves as super heroes.

But let’s set aside their perks and boondoggles and instead look at the bad policies generated by this army of paper pushers.

The European Commission pushes for tax harmonization because it is “unfair” for some nations to have lower taxes.

The European Commission advocates gender quotas at private businesses.

The European Commission is hostile to entrepreneurship and supports ever-higher levels of regulation and red tape.

The European Commission supports higher taxes as a “solution” to overspending by national governments.

The European Commission has decided that taxpayer-funded vacations are a human right.

The European Commission finances killing ducks at the absurd price of $750 each.

In other words, the crowd in Brussels is just as wasteful as the folks in Washington. And just as profligate as the people in Paris. And just as reckless as the group in London. And…well, you get the idea.

P.S. While the purpose of this post is to congratulate the European Commission on a rare bit of sanity, it’s worth noting that there’s another bureaucracy in Brussels called the European Parliament. I don’t think they’ve ever displayed any evidence of sanity. But since it doesn’t have much power, it also has little opportunity to do really stupid things. That being said, they enjoy a level of pampering that must make American lawmakers green with envy.

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I damned Obama with faint praise last year by asserting that he would never be able to make America as statist as France.

My main point was to explain that the French people, notwithstanding their many positive attributes, seem hopelessly statist. At least that’s how they vote, even though they supposedly support spending cuts according to public opinion polls.

More specifically, they have a bad habit of electing politicians – such as Sarkozy and Hollande – who think the answer to every question is bigger government.

As such, it’s almost surely just a matter of time before France suffers Greek-style fiscal chaos.

But perhaps I should have taken some time in that post to explain that the Obama Administration – despite its many flaws – is genuinely more market-oriented that its French counterpart.

Or perhaps less statist would be a more accurate description.

However you want to describe it, there is a genuine difference and it’s manifesting itself as France and the United States are fighting over the degree to which governments should impose international tax rules designed to seize more tax revenue from multinational companies.

Guardian Tax HeadlineHere’s some of what the UK-based Guardian is reporting.

France has failed to secure backing for tough new international tax rules specifically targeting digital companies, such as Google and Amazon, after opposition from the US forced the watering down of proposals that will be presented at this week’s G20 summit. Senior officials in Washington have made it known they will not stand for rule changes that narrowly target the activities of some of the nation’s fastest growing multinationals, according to sources with knowledge of the situation.

This is very welcome news. The United States has the highest corporate tax rate in the developed world and the overall tax system for companies ranks a lowly 94 out of 100 nations in a survey of “tax attractiveness” by German economists.

So it’s good that U.S. government representatives are resisting schemes that would further undermine the competitiveness of American multinationals.

Particularly since the French proposal also would enable governments to collect lots of sensitive personal information in order to enforce the more onerous tax regime.

…the US and French governments have been at loggerheads over how far the proposals should go. …Despite opposition from the US, the French position – which also includes a proposal to link tax to the collection of personal data – continues to be championed by the French finance minister, Pierre Moscovici.

It’s worth noting, by the way, that the Paris-based Organization for Economic Cooperation and Development (OECD) has been playing a role in this effort to increase business tax burdens.

The OECD plan has been billed as the biggest opportunity to overhaul international tax rules, closing loopholes increasingly exploited by multinational corporations in the decades since a framework for bilateral tax treaties was first established after the first world war. The OECD is expected to detail up to 15 areas on which it believes action can be taken, setting up a timetable for reform on each of between 12 months and two and a half years.

Just in case you don’t have your bureaucrat-English dictionary handy, when the OECD says “reform,” it’s safe to assume that it means “higher taxes.”

Maybe it’s because the OECD is based in France, where taxation is the national sport.

France has been among the most aggressive in responding to online businesses that target French customers but pay little or no French tax. Tax authorities have raided the Paris offices of several firms including Google, Microsoft and LinkedIn, challenging the companies’ tax structures.

But British politicians are equally hostile to the private sector. One of the senior politicians in the United Kingdom actually called a company “evil” for legally minimizing its tax burden!

In the UK, outcry at internet companies routing British sales through other countries reached a peak in May after a string of investigations by journalists and politicians laid bare the kinds of tax structures used by the likes of Google and Amazon. …Margaret Hodge, the chair of the public accounts committee, called Google’s northern Europe boss, Matt Brittin, before parliament after amassing evidence on the group’s tax arrangements from several whistleblowers. After hearing his answers, she told him: “You are a company that says you do no evil. And I think that you do do evil” – a reference to Google’s corporate motto, “Don’t be evil”.

Needless to say, Google should be applauded for protecting shareholders, consumers, and workers, all of whom would be disadvantaged if government seized a larger share of the company’s earnings.

And if Ms. Hodge really wants to criticize something evil, she should direct her ire against herself and her colleagues. They’re the ones who have put the United Kingdom on a path of bigger government and less hope.

Let’s return to the main topic, which is the squabble between France and the United States.

Does this fight show that President Obama can be reasonable in some areas?

The answer is yes…and no.

Yes, because he is resisting French demands for tax rules that would create an even more onerous system for U.S. multinationals. And it’s worth noting that the Obama Administration also opposed European demands for higher taxes on the financial sector back in 2010.

But no, because there’s little if any evidence that he’s motivated by a genuine belief in markets or small government.* Moreover, he only does the right thing when there are proposals that unambiguously would impose disproportionate damage on American firms compared to foreign companies. And it’s probably not a coincidence that the high-tech sector and financial sector have dumped lots of money into Obama’s campaigns.

Let’s close, however, on an optimistic note. Whatever his motive, President Obama is doing the right thing.

This is not a trivial matter. When the OECD started pushing for changes to the tax treatment of multinationals earlier this year, I was very worried that the President would join forces with France and other uncompetitive nations and support a “global apportionment” system for determining corporate tax burdens.

Based on the Guardian’s report, as well as some draft language I’ve seen from the soon-to-be-released report, it appears that we have dodged that bullet.

At the very least, this suggests that the White House was unwilling to embrace the more extreme components of the OECD’s radical agenda. And since you can’t impose a global tax cartel without U.S. participation (just as OPEC wouldn’t succeed without Saudi Arabia), the statists are stymied.

So two cheers for Obama. I’m not under any illusions that the President is turning into a genuine centrist like Bill Clinton, but I’ll take this small victory.

* Obama did say a few years ago that “no business wants to invest in a place where the government skims 20 percent off the top,” so maybe he does understand the danger of high tax rates. And the President also said last year that we should “let the market work on its own,” which may signal an awareness that there are limits to interventionism. But don’t get your hopes up. There’s some significant fine print and unusual context with regard to both of those statements.

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The late, great Margaret Thatcher famously said that “Socialist governments…always run out of other people’s money” and “I love the smell of napalm in the morning” is an iconic line from Apocalypse Now.

Thinking about the fiscal mess in Europe, I’m going to combine these two sentiments and state that, “I love it when statists run out of victims and start cannibalizing each other.”

And that’s about to happen in France.

The burden of government spending is enormous, with the public sector consuming 57 percent of economic output.

That’s more than either Greece or Sweden!

If something isn’t done, France will suffer a Greek-style crisis as investors lose trust in the government’s ability to pay its bills.

The situation is so bad that even the country’s Socialist President claims that he plans to cut spending, but he faces a revolt in his own party from those who refuse to recognize reality. Here are some excerpts from a column in the UK-based Telegraph.

President Francois Hollande has already angered much of his own Socialist base with plans to cut spending next year in absolute terms for the first time since 1958, but this may be just start of the battle. The Cour des Comptes said France is not even “halfway” through its fiscal squeeze. …”France is drifting away. Like a receeding wave, it is retreating little by little from the global economy, imperceptibly in the past, but visibly so today,” said Jean-Pierre Letartre, Ernst & Young’s chief in France. …The government has pencilled in economic contraction of 0.3pc this year, with a weak recovery starting in the second half, but a chorus of private economists fear far worse if there is any outside shock. “It could be as much as minus 1.5pc,” said Jean-Michel Six from Standard & Poor’s. …Mr Hollande has so far gone along with EU austerity demands, backing away from his pledge for a New Deal growth strategy in the elections last year. But his poll ratings have crashed at the fastest rate ever for a new president, and much of his own party is near revolt.

I’ll be surprised if France actually follows through with genuine spending cuts, but you can see from this chart that the time for fiscal restraint is long overdue.

French Spending, 2003-2012

To be somewhat optimistic, it’s worth noting that governments will do the right thing when there’s no other alternative.

Greece, for instance, has cut spending three years in a row, bringing the budget down from 124 billion euro in 2009 to 106 billion euro last year. Unfortunately, there have also been big tax hikes, and the overall level of spending is still about where it was in 2007, so Greece is far from a role model. But at least the era of ever-rising outlays has ended.

And I’ve already pointed out that the Baltic nations are a role model since they made genuine spending cuts the moment the crisis began and they’re now enjoying an economic rebound.

I realize this will be the understatement of the year, but France is not going to be the new Estonia.

Unlike the Canadian Liberal Party or Australian Labor Party, it does not appear that the Socialist Party in France is willing to recognize reality and do the right thing.

But the good news is that they don’t have any room to raise taxes. Successful people already are leaving the country because of punitive tax rates, and I suspect even President Hollande privately understands that France is on the wrong side of the Laffer Curve.

So I expect there will be a fight. On one side, we’ll have the rational statists who recognize that spending cuts are needed to avoided a fiscal crisis. On the other side, we’ll have the irrational statists who blindly think more money can be squeezed from the rich with more class-warfare tax policy.

Let’s hope for heavy casualties on both sides.

P.S. There’s a lot to like about France, and I reported a few years ago that it was ranked as the top nation for good living. But that’s only if you already are rich. Now that the French national sport is taxation, productive people who want to become rich have a big incentive to go someplace else.

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I’ve never figured out why soccer is so popular in some parts of the world. What’s the point of watching people run up and down a field for 90 minutes when the result is usually a 0-0 tie?

But non-Americans generally don’t get the point of baseball, so I guess it’s all a matter of background and taste.

I mention soccer because it’s an excuse to write about competitiveness and taxation. Except I’m not going to write about low tax rates and job creation, or low tax rates and capital formation. Instead, today’s topic is tax competitiveness and French soccer.

And since the French care about soccer, maybe this will be a valuable opportunity to teach them why high tax rates are a bad idea in all areas.

Though you won’t be surprised to learn that the French government is on the wrong side.

Here’s how the New York Times begins a story.

Monaco may seem almost comically tiny, less a real country than a glorified safe deposit box festooned with palm trees and Lamborghini dealerships, but it teems with interesting statistics. Population: 35,427. Number of nationalities represented: 125. Unemployment rate: 0 percent. Income tax rate: 0 percent.

So far, so good. I’ve written favorably about Monaco and I have no objection to this description.

Monaco SoccerAnd it seems that Monaco’s fiscal policy is good for the local soccer team.

…a potash fertilizer tycoon…in 2011 expressed his support for his adopted country by buying a majority stake in its struggling soccer team, A.S. Monaco, and proceeding to aggressively vacuum up expensive European players. …Monaco is different from other countries. Rybolovlev can offer players…liberation from the petty annoyance of income tax. This is a happy prospect no matter what you earn; it begins to look like bliss when you count your income in millions.

But it seems there’s a controversy in this fiscal paradise. Or, to be more accurate, there’s a controversy in the tax hell next door.

…it puts the rest of the French league at a significant disadvantage. While Monaco basks in its special tax status, players for French teams are subject to the kind of high tax rates that recently motivated the actor Gérard Depardieu to renounce his citizenship… It’s like having a major league baseball team in the Cayman Islands.

Gee, what a surprise. The French are complaining that lower tax rates are an “unfair” form of tax competition.

So how did the French react? By engaging in their true national sport – imposing higher taxes.

The French soccer league has grumbled about Monaco’s exceptional situation in the past. But now, alarmed by the team’s sudden winning streak and unnerved by its 120 million-or-so euro (about $157 million) acquisition of three great players — João Moutinho and James Rodríguez from Porto and Radamel Falcao from Atlético Madrid — it finally did something. In March, it decreed that starting next June, any team playing in the French league would have to be based in France and subject to French taxes. For “any team,” read “Monaco.”

Naturally, their “solution” is to impose higher taxes in Monaco, not to lower taxes in France. At least the Spanish government, when confronted by competition from soccer clubs in other nations, created a special low-tax regime for soccer players.

That’s not the right answer. There should be low tax rates for all. But a special loophole for soccer players is a “far-less-worse” approach than what France is doing.

It’s also worth noting that the French approach won’t work. I’m not saying they can’t impose higher taxes on the Monaco soccer team.

But I am saying that the French soccer league will continue to lose top players so long as the government has a punitive 75 percent tax system.

Entrepreneurs are escaping France. Actors are escaping France. And now top soccer players have a big tax incentive to play other places other than France (or Monaco).

P.S. Speaking of soccer, you probably won’t be surprised to learn that ordinary people were screwed over at the last World Cup in order to benefit the rich elitists in private jets who like to lecture the rest of us about our carbon footprints.

P.P.S. It has nothing to do with public policy, but I was amused that the United States advanced farther than France at the last World Cup.

P.P.P.S. Returning to the realm of public policy, the statists in Europe have decided that free soccer broadcasts are a human right.

P.P.P.P.S. The United Kingdom also has lost high quality players because of excessive taxation.

P.P.P.P.P.S. Since I’m writing about sports, I suppose this is a good opportunity to pat myself on the back by sharing this award from last weekend’s tournament. I came to the plate 22 times and came away with two home runs, eight doubles, six singles, and a walk, while scoring 15  runs and driving in 16 RBIs.

Salem Offensive MVP

I’ve had plenty of bad softball performances over the years, but fortunately they never give awards for screwing up.

Now if I can merely convince politicians to reduce the burden of government spending, I’ll be able to say 2013 was a good year.

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At the European Resource Bank conference earlier this month, Pierre Bessard from Switzerland’s Institut Liberal spoke on a panel investigating “The Link between the Weight of the State and Economic prosperity.”

His presentation included two slides that definitely are worth sharing.

The first slide, which is based on research from the Boston Consulting Group, looks at which jurisdictions have the most households with more than $1 million of wealth.

Switzerland is the easy winner, and you probably won’t be surprised to see Hong Kong and Singapore also do very well.

Switzerland Liberal Institute 2

Gee, I wonder if the fact that Switzerland (#4), Hong Kong (#1), and Singapore (#2) score highly on the Economic Freedom of the World index has any connection with their comparative prosperity?

That’s a rhetorical question, of course.

Most sensible people already understand that countries with free markets and small government out-perform nations with big welfare states and lots of intervention.

Speaking of which, let’s look at Pierre’s slide that compares Swiss public finances with the dismal numbers from Eurozone nations.

Switzerland Liberal Institute 1

The most impressive part of this data is the way Switzerland has maintained a much smaller burden of government spending.

One reason for this superior outcome is the Swiss “Debt Brake,” a voter-imposed spending cap that basically prevents politicians from increasing spending faster than inflation plus population.

Now let’s compare Switzerland and France, which is what I did last Saturday at the Free Market Road Show conference in Paris.

As part of my remarks, I asked the audience whether they thought that their government, which consumes 57 percent of GDP, gives them better services than Germany’s government, which consumes 45 percent of GDP.

They said no.

I then asked if they got better government than citizens of Canada, where government consumes 41 percent of GDP.

They said no.

And I concluded by asking them whether they got better government than the people of Switzerland, where government is only 34 percent of economic output (I used OECD data for my comparisons, which is why my numbers are not identical to Pierre’s numbers).

Once again, they said no.

The fundamental question, then, is why French politicians impose such a heavy burden of government spending – with a very high cost to the economy – when citizens don’t get better services?

Or maybe the real question is why French voters elect politicians that pursue such senseless policies?

But to be fair, we should ask why American voters elected Bush and Obama, both of whom have made America more like France?

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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?

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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.

Pew European Spending Cuts

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.

Pew European Stereotypes

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?!?

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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.

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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).

Popeye Laffer CurveNow 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 IllinoisOregonFlorida, 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.

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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.

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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.

DepardieuThe 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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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