French Court Overturns 75% Income Tax on Rich
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France’s Constitutional Council struck down on Saturday a plan to impose a 75 percent upper income tax rate, arguing that the so-called millionaire tax failed to “recognise equality before public burdens.”
The Constitutional Council’s decision is a political blow to President Francois Hollande, who had vowed in his election campaign to shift to the rich the burden of efforts to improve the country’s finances.
France’s Constitutional Council struck down on Saturday a plan to impose a 75 percent upper income tax rate, arguing that the so-called millionaire tax failed to “recognise equality before public burdens.”
The Constitutional Council’s decision is a political blow to President Francois Hollande, who had vowed in his election campaign to shift to the rich the burden of efforts to improve the country’s finances.
Hollande had in July announced new tax raises worth 7.2 billion euros that would mainly target the country’s wealthiest households and France’s largest corporations. As part of the tax plan, individuals earning more than 1 million euros per annum would be subject to a hefty 75 percent tax rate.
Related News: Hollande Targets the Rich in a €7bn Tax Plan
However, the Constitutional Council ruled that the so-called millionaire tax was illegal because it was applied to individuals and not households, the traditional basis for France’s income tax code.
Specifically, the court found that the tax did not take into consideration the needs and income of an entire household, as opposed to the individual earner, and thus the tax “has violated the requirement to take into account the ability to pay” and “infringed on the principle of equality before public burdens.”
As a result, two households with the same total income could end up paying different rates depending on how earnings are divided among their members, counter to the rule of equal tax treatment, the Paris-based court said.
[quote] In essence, the constitutional watchdog did not reject the principle of a more stringent tax regime but found fault with the way the tax code would have been applied. [/quote]
Finance Minister Pierre Moscovici said the ruling could cut up to 500 million euros in forecasted tax revenues but insisted that it would not hurt efforts to cut public deficit to 3 percent of gross domestic product next year.
“Our objective is to maintain an exceptional, temporary tax for the most rich,” Moscovici told the Financial Times, adding that he “respected” the criticisms but it had been exaggerated.
Prime Minister Jean-Marc Ayrault said the government would redraft the upper tax rate proposal to answer the Council’s concerns and resubmit it in a new budget law, meaning Saturday’s decision could only amount to a temporary political blow.
Despite the setback, the government stressed that the constitutional council had validated other key elements of its tax policy.
These included raising capital gains taxes in line with income tax rates, an increase in wealth tax rates as well as a 20 billion euros tax break for companies intended to boost France’s weak competitiveness.
Related News: France Announces €20bn Tax Break for Businesses
