France Tax Hike Lends Perspective To Debate In The U.S.

Leave it to France to put socialist economic policy on full display. The reports are out that French president Francois Holland is seeking a new budget plan that would establish a top marginal income tax rate of 75 percent, meaning after your income hits a certain level—in this case about $1.2 million in American dollars—you can count on paying three out of every four dollars earned to the government.

I suppose if nothing else, Holland’s proposal should remind us of how trivial the debates of tax policy are in the United States where the current battle is between the present top rate of 35 percent and the 39 percent rate that would exist if the Bush tax cuts were repealed. In the United States, political strategists define the differences between these figures as the difference between trickle-down economics or socialism (pick your preferred epithet).

When Ronald Reagan took office in 1981, the top tax rate in the United States was 70 percent.

But Holland’s proposal should serve as a reminder that it wasn’t that long ago that debates in the United States weren’t so trivial. When Ronald Reagan came to office in 1981, the top tax rate was 70 percent. Turn the clock back twenty years further and John F. Kennedy came to office when the top rate was a stunning 91 percent. JFK proposed a tax rate reduction, which would be ultimately signed into law after his death, and it triggered a brief economic boom.

By the time Reagan was in office the country was in a deep economic crisis, worse than today’s, because inflation was also rampant. He moved boldly, in winning passage of deep tax cuts his first year in office. Then in 1986, he pushed for and won a revolutionary tax reform victory, where the top rate came all the way down to 28 percent and came in conjunction with eliminating tax deductions heavily used by the wealthy.

The combination of our recent tax history, the current debates over tax fairness and the obvious admiration President Obama and most American leftists have for European social policy beg this question—how high do you want to go? It’s easy to give campaign speeches fulminating about the need of the wealthy to pay their fair share. So what, then, is an appropriate top rate? Do they think the new proposal coming out of France should be the wave of the future for the United States?

I don’t mean these questions as an accusation. They strike me as a perfectly reasonable ones for the president to address. If he believes what’s going on in France goes too far, let him go on the record.

It doesn’t take a believer in trickle-down economics to figure out that when a tax rate reaches a certain level, anyone’s willingness to work more, invest more or risk more is diminished. Reagan himself recalled in his memoirs, how during his acting days he made the conscious decision to stop making movies once his income had reached the top rate. He wasn’t going to work for nine cents on the dollar. Who would?

We should note that Reagan was a politically active Democrat when he was having his first encounter with tax policy. Regular readers here at the CV blog know I’m a believer in the authentic Democratic Party of the pre-1968 period, of which Reagan was a part, as obviously was JFK. But any political philosophy has an area where it misses the mark or goes too far. The traditionalist Democrats I admire lost sight of the fact that there hits a point when taxes get too high, and it took a little bit of help from JFK and a lot of help from Ronald Reagan to restore tax policy to a sane trajectory.

If we want to debate over a few percentage points here and there on the marginal rates like we are right now, fine. But let the president and his allies make clear they understand what’s happening in France should stay in France.

Dan Flaherty is the author of Fulcrum, an Irish Catholic novel set in postwar Boston with a traditional Democratic mayoral campaign at its heart, and he is the editor-in-chief of TheSportsNotebook.com

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20 thoughts on “France Tax Hike Lends Perspective To Debate In The U.S.

  1. Jordan says:

    Francois Hollande’s 75% tax on French citizens who earn more than €1 million is punitive, I agree. Wealthy French citizens will simply move their money to Swiss banks or the City of London. Even so, a direct comparison of the American revenue system and the French revenue system is not possible. Hollande might have campaigned on the 75% top bracket income tax, a hard line against a hike in the retirement age, and against a longer work week, but it’s likely that neither Hollande or the National Assembly (also Socialist) will not be able to enact all of their proposed measures. Hollande not only answers to Paris, but to Brussels and Frankfurt as well. The EU superstate often frustrates unilateral decisions by the heads of EU member state governments.

    Perhaps the Eisenhower and even the Carter tax rates on the top brackets stifled growth. The downside to the Reagan and Bush tax cuts is a grave expansion of the national debt. It is true that deficit spending spares the small businessperson and individual taxpayer from much higher tax rates, but the artificial suppression of revenue also stymies the balancing of budgets. Sufficient revenue to fund the operation of the federal state must be collected. The corporate tax rate cannot be reduced without either increased taxation through personal income tax or a severe restriction of federal services. Perhaps the last option is meritorious given since not a few Catholics consider even the presence of a welfare state to be a threat to the liberty and exaltation of Holy Mother Church.

    CatholicVote refuses to consider any point outside of economic, fiscal, or social Republican-think. A dismissal of the still quite modest Clinton tax rates as socialist is a deceptive evaluation of modern Democratic tax policies. Also, an implicit presentation of supply-side economics and taxation policy as authentically Catholic betrays a cynical strategy which ultimately dooms the ability of Catholic social conservatism to expand beyond conservative partisanship.

  2. Mary says:

    As an accountant, I will give this a try.
    Imagine that you earn money. Say it is 50,000. because it is earned by you, but through a Corporation, first you pay 35% tax, or $ 17,500. Remainder? 32,500. Next you pay yourself from this through a dividend. It is then taxed for your personal return, another 15%. $4,950. What started out as 50,000 in earnings is now down to 27,550.
    As you see, it is not really 14%, or even 15%
    And if you are generous enough to give up 20% of your earnings to charity, it can be even lower, but we want people to support charity, right?

    1. Imagine that you lived in a world without roads, or train tracks. A world without police officers, firemen and teachers. A world without schools, museums, or libraries.

      We all have to pay for these things that we enjoy as a society.

      1. Ritch says:

        …. and they all exist in countries with much lower tax rates – in fact, the services are far superior in countries with low tax rates. How do you explain that then Marx?

        1. Like where? The US has some of the lowest tax rates in the developed world

          1. Joe M says:

            The US has among the highest corporate tax rates in the world. It doesn’t take an economic genius to recognize that higher corporate costs affect how many workers they hire, how much they pay workers and how low their prices are.

          2. Oddly, we are talking about personal tax rates in the article, which are indeed lower than practically any other developed nation. If you’d like to start paying higher personal tax rates so that businesses can pay lower tax rates, I guess that’s your decision. Feel free to overpay your taxes in April.

          3. Joe M says:

            No. I would prefer that businesses pay less taxes so that they are more able to give raises, lower the cost of goods and hire more people.

            But, I think that you raise an excellent point. There is nothing stopping wealthy liberals from paying more in taxes. Why do we not see “We Are The World” type drives encouraging wealthy liberals to volunteer more of their income to taxes? I’m pretty sure they have enough wealth to meet the rates they desire for our government to impose.

            And PS: your point about personal income tax rates in the US being relatively low is not true. That only measures out if you isolate federal income taxes. When you include state and social security taxes, the US is not one of the lowest taxed countries. This information is easily available from OECD.

  3. GREG SMITH says:

    Is progressive taxation good or not? If it is, then ought Mitt be paying a lower rate than his gardener?

    1. Joe M says:

      Not if his earnings are via capital gains. The evidence is long-standing and clear that raising capital gains taxes does not increase tax revenues. So, the question is really to you (and was already put to Obama): If raising captial gains taxes has no positive effect for anyone, do you do it anyway?

      1. Yeah, because someone that sits on their butt all day should pay a lower tax rate than a firefighter or teacher that goes to work everyday.

        1. Joe M says:

          If it is of no benefit to anyone else to tax them more, why do it? Using taxes as penalties is purely an appeal to envy rather than anything constructive or charitable.

        2. Joe M says:

          The result (as history has already proven) is that investors will just make different types of investments that typically benefit the economy less. While the person could indeed “sit on their butts”, the capital they invest in US companies can do a lot of good for a lot of people.

          It’s a shame that you can’t seem to see that.

    2. Mitt is paying a lower tax rate than his gardener.

  4. And right wing crazies in this country (some on this very website) complain that millionaires like Romney pay 14% in taxes.

    1. Joe M says:

      Raising capital gains taxes does not improve the economy for anyone.

      1. weird, capital gains taxes were higher before 2000. Was the economy better when they were higher, or is the economy better now?

        1. Joe M says:

          Chansen. The economy is affected by many things other than capital gains. But, it’s very easy for us to isolate the record of capital gains rates and the revenues produced. As you can see here, higher capital gains taxes did not produce higher revenues: http://taxfoundation.org/article/federal-capital-gains-tax-collections-1954-2009

          — But, I’m glad that you point out that the economy is bad. Since we can eliminate the capital gains tax rate as a culprit, maybe you will consider other issues such as unsustainable entitlement spending and flawed government manipulation of the home lending industry.

          1. Yes, so let’s raise capital gains taxes to where they were before. Clearly, lowering them hasn’t helped anyone – except the rich.

          2. Joe M says:

            If there is no benefit to anyone else to raise them, why do it? What do you want to punish the rich for?

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