A tax-the-rich bombshell has dropped in the presidential race. The French presidential race. But this bombshell’s blast will almost certainly reverberate elsewhere. Maybe even in the United States.
Mainstream political leaders in the world’s developed nations have been suffering from political amnesia — on tax policy — for over 30 years now.
In the generation before 1980, the world’s top industrial nations routinely subjected their highest income brackets to tax rates as high as 70 and 80 and even 90 percent.
But then conservatives swept to power in Britain and the United States — Margaret Thatcher in 1979, Ronald Reagan in 1980 — and obliterated steeply graduated progressive tax rates. By 1986, no dollar of income that America’s richest reported would face more than a 28 percent tax rate. In the UK, the top rate would plummet from 83 to 40 percent.
Top tax rates in other developed nations would soon follow the same trajectory — and then largely settle down, after some bouncing around, within a narrow range that ran from 35 percent in the United States to 40 percent in Britain.
This tax-the-rich-lightly mainstream political consensus would begin cracking somewhat all across the developed world in 2008. Public anger at banker bailouts and windfalls would start tax rates marching back upward. But the marching would be modest.
In Britain, the highest tax rate on any dollar of rich people’s income would move from 40 to only 50 percent. No major mainstream world political leader would dare suggest anything higher, anything close to the tax rates on the rich once commonplace in the decades right after World War II.
In mainstream political circles, a 50 percent top tax rate simply seemed the absolute upper limit on the politically possible. Until last week.
Last Monday, in a national TV interview, the candidate that public opinion polls have leading the French presidential race called for a 75 percent super tax on all individual income over $1 million euros, the equivalent of about $1.33 million.
On the network news program Parole de Candidat, French Socialist Party presidential standard-bearer François Hollande told the French people that he could not any longer “accept excessive wealth.”
“I appreciate the talent, work, merit of those who create and enable France to move forward,” Hollande continued. “I do not agree with excessive wealth — and compensation that has no connection with talent, intelligence, or effort.”
Hollande’s vow to enact a 75 percent top tax rate came as a complete surprise — even to his budget adviser. And French conservatives immediately rushed to blast him. The right-wing daily Le Figaro declared that “war has been declared on ‘the rich.’” A top French business leader dubbed Hollande’s proposal “ridiculous.”
Hollande’s chief rival in this spring’s upcoming French presidential election, incumbent French president Nicolas Sarkozy, would be derisively dismissive.
“Not a single other politician in the world, not one, thinks this is a good idea,” Sarkozy intoned.
“And why not a 100 percent rate?” mocked Marine Le Pen, the presidential candidate of France’s ultra-right National Front.
The idea of a 100 percent top tax rate — a maximum wage, in effect — actually has considerable support within French progressive political circles. Le Monde Diplomatique, one of France’s most prestigious public policy journals, even ran a major piece last month that traced the roots of the maximum wage notion back to the United States and Franklin Roosevelt.
By pledging to enact a 75 percent top rate if elected this May, analysts believe, the politically moderate Hollande is moving to consolidate his support among French progressives. And that move seems to be working.
Former presidential candidate Ségolène Royal says Hollande’s proposal honors the progressive tradition “to bring fiscal justice and to push back inequality.”
“It’s time for a better distribution of wealth,” Royal pronounced last week. “It’s one of the keys to economic recovery.”
France’s current distribution of wealth hasn’t yet neared the levels of disparity that bedevil the United States. The French top 1 percent average less than half the income of the top U.S. 1 percenters. Major French CEOs only average 2 million euros a year, about a quarter the going rate in the United States. But French executive pay has risen markedly over recent years.
“How can we accept that?” Hollande asked French TV viewers last Monday.
Before last week, Hollande had called for raising the top tax rate on all income over 150,000 euros from 41 percent to a permanent new 45 percent rate. His proposed 75 percent rate on individual income over 1 million euros now sends, says Hollande, a stronger “message of social cohesion.”
And the rich who pay at a 75 percent top marginal rate, Hollande told journalists Tuesday, would be engaging in “a patriotic act.”
“It is patriotic,” the candidate explained, “to agree to pay a supplementary tax to get the country back on its feet.”
France’s top expert on taxing the rich, Thomas Piketty of the Paris School of Economics, would like to see Hollande go beyond a “supplementary tax” and attempt an even more “daring” overhaul of French taxation.
But Piketty — a close colleague of the top U.S. tax-the-rich expert, Berkeley’s Emmanuel Saez — considers Hollande’s call for a 75 percent top rate “an important step” that “goes in the right direction.”
“Many countries,” Piketty noted last week, “are bound to follow this voice.”
The first round of France’s presidential voting will take place April 22. A May 6 run-off round will follow.
Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Institute for Policy Studies. Read the current issue or sign up at Inequality.Org to receive Too Much in your email inbox.