There's more to France's new austerity budget than its proposed record-high tax rate, but the 75 percent tax on those making a million euros ($1.29 million) or more is certainly the thing that has people talking. The budget unveiled Friday by President Francois Hollande's Socialist government hits the upper income echelons hard. In addition to the 75 percent tax for millionaires, those making more than 150,000 euros get to pay 45 percent on their income, a hike expected to yield about half a billion euros. It hits business as well, "including a cut in the amount of loan interest which is tax-deductible and the cutting of an existing tax break on capital gains from certain share sales," according to Reuters. But the new budget only freezes government spending and doesn't cut it, as Spain's did. Prime Minister Jean-Marc Ayrault called it a "fighting budget."
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Fortunately for the very rich, the 75 percent rate is only a temporary thing, set to expire after two years. Slate's Matt Yglesias points out the taxes are only on earned income, not investment returns. But that's cold comfort to the business community, which is worried its top talent will flee the country rather than lose the vast majority of its income to taxes. Forbes contributor Tim Worstall notes that there is nothing in the European Union's structure to prevent people from moving from one country to another, and the tax rates are determined by country:
If today you live in Lille then you pay French tax. If tomorrow you move to London then you are subject to UK tax laws, not those of France. You do not have to change citizenship, do not require a permit or permission to do this, you just buy a train ticket and 90 minutes or so later there you are. Free of the French tax system.
But with France's economic growth stagnant for nine months, its lawmakers are apparently ready to risk some scorned rich people in order to achieve their goal of 0.8 percent growth next year.