These are depressing days in France, as the true meaning of Nicolas Sarkozy’s accession to the presidency becomes clear. The new government’s very first law was a massive and unnecessary tax cut, passed by the National Assembly in the early morning hours of Bastille Day, that will go mostly to the wealthy, further degrade France’s public finances and probably lead to cuts in programs the majority of people rely on.
The centerpiece of the new law sets a cap on each household’s overall tax bill at 50 percent of income. This includes income taxes, property taxes, local taxes, the wealth tax and two taxes that were levied to shore up the social security systems. (This cap already existed, but it had been set at 60 percent.)
This might sound reasonable, but according to the French government’s own estimates, very few people will benefit. In a total population of 62 million, there are only 234,397 households whose tax bill exceeds 50 percent of income. And 201,864 of these households will receive an average tax break of only 649 euros (or less than $900 at the current exchange rate of $1.37 to one euro).
As with the Bush Administration’s tax cuts, the big winners in France will be at the very top. According to the Finance Ministry’s estimates, the 1,081 households whose net worth is over 15.5 million euros will each get the equivalent of more than $344,000. So Sarkozy’s “modernization” looks pretty good from the top, especially since the new government sweetened the deal with the completely superfluous near-abolition of the estate tax.
To be fair, the tax package did include something for those who soldier on with less than 15 million euros in net worth: Overtime pay will no longer be taxed. But besides the fact that people will have to work more in order to benefit from this part of the tax cut, this accounted for less than half the package’s total annual price tag of 13.6 billion euros.
Given France’s image in the United States as an overtaxed country, even Americans who opposed the Bush tax cuts might not be shocked by all this. But the previous French government also slashed taxes. The top marginal income tax rate in France is currently only 40 percent, similar to the 39.6 percent rate in the United States at the end of the Clinton Administration. Besides, the other income tax rates, which affect the vast majority of taxpayers, are actually lower in France than in the United States.
The new tax giveaway comes at a time when inequality in France is already rising dramatically. A new report by researchers at the Paris School of Economics shows that the income of the top 0.01 percent of households grew by 42.6 percent between 1998 and 2005, while that of the bottom 90 percent (colloquially known as “everybody”) only increased by 4.6 percent. These findings are astonishing, because they mark the first time in decades that American-style inequality has been observed in France. Sarkozy’s “modern” policies are intensifying this destructive phenomenon.
So why did the French government do this? The answer has little to do with sound public policy and a lot to do with the ideology of “Sarkozysme,” which calls for glorifying wealth. This was repeatedly made obvious in the run-up to the tax-cut vote by the new finance minister, Christine Lagarde, who exclaimed, pep-rally style, during a speech to investors, “Get rich!” This probably confused her audience, which already was rich, but the basic point was clear enough.