France' plan to confiscate wealth with 75% tax

Indigestion for ‘les Riches’ in a Plan for Higher Taxes

Vincent Grandil, a tax lawyer in Paris, said many of his wealthy clients were asking him if they should bother to remain in France.

By LIZ ALDERMAN
Published: August 7, 2012

PARIS — The call to Vincent Grandil’s Paris law firm began like many others that have rolled in recently. On the line was the well-paid chief executive of one of France’s most profitable companies, and he was feeling nervous.

President François Hollande is vowing to impose a 75 percent tax on the portion of anyone’s income above a million euros ($1.24 million) a year. “Should I be preparing to leave the country?” the executive asked Mr. Grandil.

The lawyer’s counsel: Wait and see. For now, at least.

“We’re getting a lot of calls from high earners who are asking whether they should get out of France,” said Mr. Grandil, a partner at Altexis, which specializes in tax matters for corporations and the wealthy. “Even young, dynamic people pulling in 200,000 euros are wondering whether to remain in a country where making money is not considered a good thing.”

A chill is wafting over France’s business class as Mr. Hollande, the country’s first Socialist president since François Mitterrand in the 1980s, presses a manifesto of patriotism to “pay extra tax to get the country back on its feet again.” The 75 percent tax proposal, which Parliament plans to take up in September, is ostensibly aimed at bolstering French finances as Europe’s long-running debt crisis intensifies.

But because there are relatively few people in France whose income would incur such a tax — perhaps no more than 30,000 in a country of 65 million — the gains might contribute but a small fraction of the 33 billion euros in new revenue the government wants to raise next year to help balance the budget.

The French finance ministry did not respond to requests for an estimate of the revenue the tax might raise. Though the amount would be low, some analysts note that a tax hit on the rich would provide political cover for painful cuts Mr. Hollande may need to make next year in social and welfare programs that are likely to be far less popular with the rank and file.

In that regard, the tax could have enormous symbolic value as a blow for egalité, coming from a new president who has proclaimed, “I don’t like the rich.”

“French people have an uncomfortable relationship with money,” Mr. Grandil said. “Here, someone who is a self-made man, creating jobs and ending up as a millionaire, is viewed with suspicion. This is big cultural difference between France and the United States.”

Many companies are studying contingency plans to move high-paid executives outside of France, according to consultants, lawyers, accountants and real estate agents — who are highly protective of their clients and decline to identify them by name. They say some executives and wealthy people have already packed up for destinations like Britain, Belgium, Switzerland and the United States, taking their taxable income with them.

They also know of companies — start-ups and multinationals alike — that are delaying plans to invest in France or to move employees or new hires here.

Whether many wealthy residents will actually leave and companies will change their plans, of course, remains to be seen. Some of the criticism could be political posturing, aimed at trying to dissuade the government from going through with the planned tax increase.

But some wealthy people left after Mr. Mitterrand raised taxes in the 1980s. And more recently, the former Victoria’s Secret model Laetetia Casta, the restaurateur Alain Ducasse and the singer Johnny Hallyday caused a stir by moving to countries just across the border to escape the French treasury’s heavy hand.

There is no question Mr. Hollande is under fiscal pressure. He has pledged to reduce France’s budget deficit, currently 4.5 percent of the nation’s gross domestic product, to 3 percent by next year, to meet euro zone rules.

The matter of how best to hit that target, though, is as much a political question as a fiscal one. Mr. Hollande was elected in May on a wave of resentment against “les riches” — company executives, bankers, sports stars and celebrities whose paychecks tend to be seen as scandalous in a country where the growing divide between rich and poor touches a cultural nerve whose roots predate Robespierre.
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This article has been revised to reflect the following correction:

Correction: August 7, 2012

An earlier version of this article misspelled the given name of Laetitia Casta as Latitia