International Economy & Tax Spend: Wealth Tax Backed by French Lawmakers Is Panned by Government. What lesson for the U.S.?

Contact Us

Table of Contents

This article was published on 02/21/25 By Tara Patel of Bloomberg. LNB Accounting is a paid subscriber.

Link to the original post.

French Budget Minister Amelie de Montchalin criticized a bill adopted by the National Assembly for a 2% wealth tax, saying the measure — which is unlikely to become law — would hurt investment and job creation.

The measure “would have one grave consequence for our country and that is that the investment, entrepreneurship and corporate growth that we are trying to promote because it’s good for the French, for jobs and everyone’s wealth, would drop, and that’s not tolerable,” she said Friday in an interview on TF1 television.

Montchalin spoke hours after the lower house of parliament adopted the proposal for a 2% levy on the country’s ultra-wealthy citizens. The so-called “Zucman tax,” named for French economist Gabriel Zucman, was backed by green and leftist lawmakers but not by the government, centrist, conservative or far-right groups. It’s not expected to go any further in the legislative process.

Calling the vote a “historic victory” in a post on X, Zucman said it represents a “giant step forward for France and could inspire other countries.” He backs adoption of a 2% global minimum wealth tax on billionaires.

The measure would apply to 0.01% of the country’s richest citizens, or about 4,000 people who are worth more than €100 million ($105 million) each, according to the proposal, which says that the wealthiest generally pay proportionally less tax than most French because of their use of tax optimization methods.

The levy could bring an estimated €15 billion to €25 billion a year into state coffers and would apply only to those not paying enough tax through other existing levies, according to the version of the law adopted by deputies. It would apply to trusts and holding companies often used for tax avoidance, it said.

Yet the measure would need to be debated and win support in the French Senate, which is dominated by right-of-center lawmakers, and it wouldn’t be expected to pass.

Tax Avoidance

Montchalin said the government plans to start discussions in a couple of months with legal and other experts to find ways to fight the over-use of tax optimization strategies by the country’s wealthiest citizens.

“This is the start of the process,” she said. “We’ll take measures so that this type of avoidance ceases.”

The minister reiterated President Emmanuel Macron’s longstanding policy that the country’s business community wants political, economic and fiscal stability, and that when taxes are too high, the wealthy choose to leave the country.

“Fiscal stability isn’t to create new taxes,” she said. “There will be mechanisms to ensure that those who steadfastly avoid taxes or don’t pay taxes on revenue that is from private income will be taxed.”

France is home to some of the world’s wealthiest people, including LVMH founder Bernard Arnault and L’Oreal SA heiress Francoise Bettencourt Meyers. Taxing the rich was a hot-button topic during last year’s French election campaign, which resulted in a deeply divided parliament and weak coalition government.

What lesson for the U.S.?

A 2% wealth tax is a proposed tax on the net worth of individuals with significant wealth. Here are some key points about it:

  1. Definition: A wealth tax is levied on the total value of an individual’s assets minus liabilities. This includes cash, real estate, investments, and other valuable possessions.
  2. Purpose: The primary goal of a wealth tax is to reduce economic inequality by taxing the wealthiest individuals and using the revenue to fund public services and social programs.
  3. Proposals: Various proposals have been made for wealth taxes in different countries. For example, Senator Elizabeth Warren proposed an “Ultra-Millionaire Tax” in the U.S., which includes a 2% annual tax on household net worth between $50 million and $1 billion and a 6% tax on net worth above $1 billion.
  4. Implementation: Implementing a wealth tax can be challenging due to the need for accurate asset valuation and potential legal and administrative hurdles. Critics argue that it may be difficult to enforce and could lead to capital flight or tax avoidance.
  • Revenue: Wealth tax advocates argue that they can generate significant revenue. Warren’s proposal is estimated to bring in nearly $4 trillion over a ten-year period.

Some countries, like France and Spain, have implemented wealth taxes with varying degrees of success.

What are the potential impacts of a wealth tax on society?

A wealth tax can have several potential impacts on society, both positive and negative. Here are some key points to consider:

Positive Impacts

  1. Reduction in Economic Inequality: A wealth tax aims to reduce the gap between the wealthy and the rest of the population by redistributing wealth. This can lead to a more equitable society.
  2. Increased Revenue for Public Services: The revenue generated from a wealth tax can be used to fund essential public services such as healthcare, education, and infrastructure, which can improve citizens’ overall quality of life.
  3. Encouragement of Productive Investment: By taxing idle wealth, a wealth tax can incentivize wealthy individuals to invest their money in productive ventures, such as businesses and startups, which can stimulate economic growth.

Negative Impacts

  1. Administrative Challenges: Implementing a wealth tax can be complex and costly due to the need for accurate asset valuation and enforcement, which can lead to administrative inefficiencies.
  2. Potential for Capital Flight: Wealthy individuals may move their assets or themselves to countries with more favorable tax regimes, leading to a loss of capital and talent.
  3. Impact on Innovation: Some argue that a wealth tax could discourage innovation and entrepreneurship by reducing the incentives for individuals to accumulate wealth through successful ventures

Mixed Impacts

  1. Behavioral Changes: A wealth tax may lead to changes in behavior among the wealthy, such as increased charitable giving or changes in investment strategies. These changes can positively and negatively affect the economy and society.
  2. Impact on Savings and Consumption: The tax could affect the savings and consumption patterns of wealthy individuals, potentially leading to changes in overall economic activity.

In summary, while a wealth tax can potentially reduce economic inequality and generate revenue for public services, it poses significant administrative challenges and capital flight risks. The overall impact on society would depend on the specific design and implementation of the tax and the broader economic context.

Source:

  1. www.bloomberg.com
  2. www.elizabethwarren.com
  3. www.pbs.org
  4. www.taxfoundation.org
  5. www.brookings.edu
  6. www.poole.ncsu.edu

Share on

Blogs

Scroll to Top