French Hate Tax Hits Soccer Stars

The notorious French hate tax on high incomes was supposed to prevent the Greek-Portuguese-Spanish economic disaster from sneaking across the borders into the Land of Cheap Wine and Unreliable Cars. By confiscating most of what high income earners make, the new socialist government thought it would create some kind of economic recovery.

That, of course, did not happen. If anything, the French economy is destined for an even deeper recession than the one it has been stuck in over the past few years. This time, though, there are going to be fewer high-productive, job-creating people around to alleviate the downturn. In addition to the tax emigration by celebrities such as Gerard Depardieu, Brigitte Bardot and former president Sarkozy, many high-earning French professionals are moving to London, where they will soon enough be able to mark their own Frenchtown on the map.

The French Prime Minister, Jean-Marc Ayrault, has called these taxpatriates “greedy”, not stopping to think for a moment who is really greedy here – the people who worked to earn the money or the people who use brute force to take most of that money. But Mr. Ayrault is up against a strong opponent – the desire among human beings to reap the harvests of their own hard work. And there are few places where that desire is more prevalent than in sports, which spells trouble for Mr. Ayrault. Bloomberg reports that the hate tax will hit high-earning soccer stars in the French professional league:

Paris St. Germain, France’s richest soccer club, will have more on its agenda than controlling Lionel Messi when it takes on Barcelona, the world’s best team, tonight. PSG’s Qatari owners also have the tax man to think about. After conflicting messages by government officials, Prime Minister Jean-Marc Ayrault’s office issued a statement today confirming that a 75 percent surcharge on salaries above 1 million euros ($1.3 million) will apply to soccer clubs. At least 12 members of Paris Saint-Germain make more than 1 million a year, according to France Football magazine.

And that is just one club.

“This new tax will cost first-division teams 82 million euros,” France’s Football League said in a statement. “With these crazy labor costs, France will lose its best players, our clubs will see their competitiveness in Europe decline, and the government will lose its best taxpayers.”

I cannot help but wonder how many of these soccer players have leftist political sympathies. At least one of the highest-paid players in France, Swedish native Zlatan Ibrahimovic, has on occasion declared strong sympathies for socialist policies. This is usually the case with sports stars – they tend to be a little bit like Hollywood celebrities, with lots of money and conventional, superficial wisdoms to share when it comes to politics.

That aside, it remains to be seen whether or not this tax will survive both the erosion of its tax base and the legal challenges that are apparently still going:

President Francois Hollande made the 75-percent tax a cornerstone of his successful presidential campaign last year, saying the wealthiest had to make a special contribution toward cutting France’s deficit. … A first attempt to put the tax into law was shot down by the constitutional court last December because the tax applied to individuals and not households. While the government then said it would rewrite the tax for 2014, the country’s top administrative court said any rate above 66 percent could be rejected as confiscatory.

Now that’s interesting. How do they determine when a tax is confiscatory – and when it is not? As far as common sense and Locke-based natural-rights theory goes, any tax is confiscatory that does not go toward paying for the minimal state’s functions: the protection of life, liberty and property.

From an economic viewpoint there is no absolute cut-off point where a tax switches from being neutral to being a burden on productive economic activity. The negative effect starts kicking in with the first cent of taxes, but as taxes go up the private sector copes and adapts and continues to function. However, the higher taxes get the more the private sector has to spend on adapting and accommodating. Eventually, the net effect is a steady decline in economic activity and prosperity.

Preliminary numbers that I have yet to publish show that this point lies somewhere around 38-40 percent in taxes on GDP. This does not mean that taxes, up to that point, are free from negative influences on the private sector. But it means that so long as taxes remain below those numbers, the private sector can still survive given its accommodations costs on top of the taxes.

France has since long past the 40-percent marker and its on a path to slow but inevitable decline. The 75-percent hate tax is going to do one thing only, namely to speed up that decline.