France OKs millionaire’s tax, US still tied to Reaganomics
By Mike Andrew
In December, France’s highest court approved a 75% tax on salaries above one million Euros ($1.4 million), effective for 2013 and 2014.
The millionaire’s tax is one of Socialist President Francois Hollande’s signature policies, and the court’s final approval capped more than a year of legal wrangling over the details.
The new tax law will require about 470 companies and a dozen soccer teams (soccer stars earn salaries equivalent to those enjoyed by leading professional ball players in the United States) to help pay taxes for their top earners.
Because French income taxes are already among the highest in Europe, the tax is not expected to net much new revenue for the government. Some estimates put the increase at only $290 million per year, and all observers agree it will not top $1 billion.
Hollande himself acknowledged that the millionaire’s tax would not produce enough new revenue to prevent cuts in services, but he defended it as a symbol of “solidarity” with France’s working people at a time when more than 3 million French workers are unemployed.
Although Hollande has advocated increased public spending to stimulate domestic demand, which has still not recovered from the recession of 2007- 2008, as a member of the Eurozone France is bound by international agreements that restrict the government’s freedom to spend money.
Nevertheless, the millionaire’s tax puts Hollande at odds with his partners in the Eurozone, who rely mainly on the VAT (Value Added Tax), essentially a glorified sales tax, to finance government services.
It also puts France at odds with the United States, where income taxes for the very rich have been declining since the Reagan administration.
When the modern income tax was first established in 1913, the top rate was only 7%, but within a few years the top rate rose to 77% to help finance US involvement in the First World War.
Under Republican Treasury Secretary Andrew Mellon – himself a multi-millionaire – the top tax rate was cut four times in the 1920s, till it reached a low of 24%.
During the New Deal, the top rate reached 75%, but only applied to incomes over $5 million, a princely sum in the 1930s. In 1944 and 1945, the top tax rate reached its all-time high of 94%, to help finance World War II.
For nearly 30 years, from 1950 to 1980, tax rates for the richest Americans fell somewhere between 35% and 45%.
Then the “Reagan revolution” hit. Reagan was in love with so-called “supply side” or “trickle-down” economics, the idea that if you give rich people even more money, they will spread it around and everyone will be happy.
Reagan cut the top tax rates to 28%, the lowest they’d been since the Roaring Twenties, and “flattened” tax brackets to “relieve” high income Americans and spread more of the tax burden to ordinary working families.
Along with this, Reagan began to shift the cost of social services from the federal government – where it was financed by income taxes – to the states and municipal governments – where it is financed by sales and property taxes, which force poorer taxpayers to bear a disproportionate share of the cost.
We now know from 30 years of experience that cutting taxes for the super-rich does not result in more jobs or higher wages for working people. On the contrary, real wages have declined since the Reagan years, and only the richest Americans have benefitted from the supposed “economic recovery.”
A US tax system still tied to the false assumptions of Reaganomics only exacerbates income inequality and delays real economic recovery.