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.
[…] That’s a bit of a strained comparison since “Europe” includes fiscally responsible countries such as Switzerland and Estonia, but also soon-to-be failed states such as Greece and France. […]
[…] asked to describe French economic policy, rational people will use phrases such as “big government” and “high taxes.” Or perhaps “dirigisme” and […]
[…] asked to describe French economic policy, rational people will use phrases such as “big government” and “high taxes.” Or perhaps “dirigisme” and […]
[…] asked to describe French economic policy, rational people will use phrases such as “big government” and “high taxes.” Or perhaps “dirigisme” and […]
[…] asked to describe French economic policy, rational people will use phrases such as “big government” and “high taxes.” Or perhaps “dirigisme” and […]
[…] asked to describe French economic policy, rational people will use phrases such as “big government” and “high taxes.” Or perhaps “dirigisme” and […]
[…] asked to describe French economic policy, rational people will use phrases such as “big government” and “high taxes.” Or perhaps “dirigisme” and […]
[…] asked to describe French economic policy, rational people will use phrases such as “big government” and “high taxes.” Or perhaps “dirigisme” and […]
[…] a giant difference between having the public sector consume 57 percent of economic output (as in France) or a more reasonable amount, such as what’s found in Canada or Australia (as Professor […]
[…] a giant difference between having the public sector consume 57 percent of economic output (as in France) or a more reasonable amount, such as what’s found in Canada or Australia (as Professor […]
[…] stated, government is so big and there’s so much dependency that real reform is politically […]
[…] esses países precisam de mais do que “medidas modestas”, pois o fardo dos gastos do governo ainda é enorme . E despesas excessivas dos programas de bem-estar social são um problema maior porque diminuem a […]
[…] for the bad tax system is that the French government consumes a huge share of economic output. The welfare state is enormous as privileged sectors of the population get expensive […]
[…] it bloated public sector that consumes more than half of the economy’s […]
[…] agenda would only reduce the burden of government spending to 52 percent of economic output (from about 57 percent today), that’s not exactly an example of vigorous budget cutting […]
[…] son secteur public boulimique, qui engouffre plus de la moitié de l’économie française […]
[…] O inchado setor público que consome mais da metade da produção da economia? […]
[…] it bloated public sector that consumes more than half of the economy’s […]
[…] it bloated public sector that consumes more than half of the economy’s […]
[…] never get rid of the income tax, and then we wind up with a French-style tax system (and the bloated government it […]
[…] Southern Europe already has been hit, and while the long-run challenge in Northern European nations such as France has received a lot of attention, there’s been inadequate focus on the problem in Eastern […]
[…] the France of America. And that’s the high cost of high marginal tax […]
[…] I wrote back in 2012 that France was committing fiscal suicide, I should have guessed that President Hollande would get […]
[…] I wrote back in 2012 that France was committing fiscal suicide, I should have guessed that French President François […]
[…] I wrote back in 2012 that France was committing fiscal suicide, I should have guessed that President Hollande would get […]
[…] the ability to increase both the income tax and the value-added tax. When the dust settles, we’re France […]
[…] ability to increase both the income tax and the value-added tax. When the dust settles, we’re France or […]
[…] such as Greece and France have pursued the policies favored by American leftists and the net result – at best – is anemic […]
[…] such as Greece and France have pursued the policies favored by American leftists and the net result – at best – […]
[…] a doctrinaire leftist named Peter Orszag. If Orszag’s policy views were a country, they would be France or Greece. By contrast, I’m guessing that Elmendorf would be like Sweden or Germany. In other […]
[…] countries need more than “modest steps” since the burden of government spending is still enormous. And excessive social-welfare expenditures are a major problem since such outlays depress labor […]
[…] n’est pas non plus une surprise : la France est le pays développé le plus dépensier en matière de protection […]
[…] They simply want to maintain (or even expand!) the social welfare state in America. Vive la France! […]
[…] They simply want to maintain (or even expand!) the social welfare state in America. Vive la France! […]
[…] anti-deficit and anti-debt rules in the European Union haven’t stopped nations such as France and Greece from fiscal […]
[…] transfers in Europe. The French think that’s a good idea since they presumably could prop up their decrepit welfare state with money from taxpayers in nations such as Germany, Finland, and the […]
[…] transfers in Europe. The French think that’s a good idea since they presumably could prop up their decrepit welfare state with money from taxpayers in nations such as Germany, Finland, and the […]
[…] are the French advisers going to do, propose ways to make the government even bigger? Suggest ways of driving even more entrepreneurs out of the […]
[…] find in Nordic nations and the big-government/crony-intervention systems you find in countries like France and […]
[…] Hong Kong, Switzerland, Texas, or Singapore), it’s also good to have bad examples (such as France, Italy, California, and […]
[…] all, Greece, Italy, and France are not exactly role […]
[…] But if you really want to get depressed, look at the “alternative fiscal scenario.” The burden of federal spending soars to more than 50 percent of output. So when you add state and local government spending, the overall burden would be higher than what currently exists in any of Europe’s welfare states. […]
[…] After all, few nations can compete with France in the contest to over-tax and over-spend. […]
[…] is theft. And that’s true if the government is sinisterly malign, such as Venezuela, or a failing welfare state, such as […]
[…] But if you go with a VAT, the downside risk is that America becomes France. […]
[…] should mimic Hong Kong and Singapore, not France and […]
[…] than more. Unless, of course, you think the United States would grow faster if we were more like France or […]
[…] than more. Unless, of course, you think the United States would grow faster if we were more like France or […]
[…] Or, to be more accurate, a thorn in the side of the French economy. […]
[…] n’est pas non plus une surprise si la France est la moins rigoureuse de tous les pays […]
[…] also no surprise that France is the most profligate of all developed […]
[…] also no surprise that France is the most profligate of all developed […]
French´s socialist´s wisdom: A few years ago, by the stroke of a pen PM Mitterrand nationalized the French’s Banking System. Suddenly the economy entered into a dawn hill spiral. Mitterrand was force to reversed his draconian policy and soon the economy began to recover. A lesson to be learned!!
[…] In October of that year, I pontificated about France’s looming fiscal suicide. […]
[…] Wow. I almost don’t know how to respond to this passage. Does he think government should be even bigger in France, where it already consumes 57 percent of the country’s economic output? […]
[…] key… (Look at) France and Hong Kong over the past 50 or so years. France is a nation that prides itself of redistribution to “help” the poor while Hong Kong is famous for having the most economic freedom of any jurisdiction… Since […]
[…] as if the nation’s political elite is trying to destroy the nation with a fiscal regime of reckless spending and punitive […]
[…] shows per-capita GDP in France and Hong Kong over the past 50 or so years. France is a nation that prides itself of redistribution to “help” the poor while Hong Kong is famous for having the most economic freedom of any […]
[…] cápita en Francia y Hong Kong en los últimos 50 años más o menos. Francia es un país que se enorgullece de la redistribución de “ayudar” a los pobres , mientras que Hong Kong es famoso por tener la mayor libertad económica de cualquier […]
[…] shows per-capita GDP in France and Hong Kong over the past 50 or so years. France is a nation that prides itself of redistribution to “help” the poor while Hong Kong is famous for having the most economic freedom of any […]
[…] 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 […]
[…] But even though I endorsed him, Hollande has ignored my advice. […]
[…] 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. […]
[…] The burden of government spending is enormous, with the public sector consuming 57 percent of economic output. […]
[…] The burden of government spending is enormous, with the public sector consuming 57 percent of economic output. […]
[…] such as Italy, Greece, France, Spain, Ireland, Portugal, and the United Kingdom have imposed massive tax increases, yet their […]
[…] I’m currently in Paris for my final stop on the Free Market Road Show. In other words, I’m in the belly of the beast of big-government statism. […]
[…] Though I didn’t realize that the state of Washington imposes a 75 percent tax on marijuana. How…um…French! […]
[…] 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. […]
[…] 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 […]
[…] As shown in this remarkable chart, the real problem in France is that government is far too big. And if the public sector is […]
[…] warned about potential fiscal crises in France, Greece, and the United Kingdom. I’ve even noted that the United States has a very dismal […]
[…] 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. […]
[…] 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. […]
[…] 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. […]
[…] such as Italy, Greece, France, Spain, Ireland, Portugal, and the United Kingdom have imposed massive tax increases, yet their […]
[…] such as Italy, Greece, France, Spain, Ireland, Portugal, and the United Kingdom have imposed massive tax increases, yet their […]
[…] such as Italy, Greece, France, Spain, Ireland, Portugal, and the United Kingdom have imposed massive tax increases, yet their […]
[…] What nation, after all, has ever prospered by placing obstacles in front of those who create jobs? France? Don’t make me […]
[…] What nation, after all, has ever prospered by placing obstacles in front of those who create jobs? France? Don’t make me […]
[…] That’s a bit of a strained comparison since “Europe” includes fiscally responsible countries such as Switzerland and Estonia, but also soon-to-be failed states such as Greece and France. […]
[…] France’s Fiscal Suicide (aka look out, California, math is coming for you) […]
[…] That’s a bit of a strained comparison since “Europe” includes fiscally responsible countries such as Switzerland and Estonia, but also soon-to-be failed states such as Greece and France. […]
“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.”
Not that I approve of French tax rates, but this is not double taxation. The principal isn’t taxed, just the gain.
“I say yes, in large part because the tax almost surely will lose revenue because of Laffer Curve effects.”
Awesome!