The American Interest
Analysis by Walter Russell Mead & Staff
French Austerity: Tax More, Spend More

France’s Socialist government today revealed its solution to the country’s economic malaise: soaking the rich so it won’t have to cut spending. The Wall Street Journal has the details:

[T]he government aims to lift revenue from household income taxes by 23% next year, while revenue from business taxation is expected to rise almost 30%.

The budget increased the top marginal income-tax rate to 45% from 41%, and detailed plans for a special tax on incomes above €1 million ($1.29 million) a year, with 1,500 individuals paying an overall rate of 75%. They will pay on average €140,000 more in taxes next year, the government said.

The Sarkozy government raised taxes by about €7 billion as recently as July; Hollande’s plan will add another €20 billion on top of that. According to the Financial Times, public spending is set to rise to 56.3 percent of GDP next year, the second highest level in Europe. In the past, France got out of these sticky situations by devaluing franc against the Deutsche mark to paper over its debts, which it did in 1981, 1982, 1983 and 1986. But those days are over now that France is straitjacketed by the euro.

With this tool removed from its toolbox, France has two options left: cutting billions in government spending or raising billions in new taxes. Clearly, Hollande has chosen the latter. This is a risky move for a country facing a shrinking economy, closing factories, double digit employment, and a major currency crisis. But Hollande evidently believes that now is the time to double down on the blue policies that got France into this mess.

There’s only bright spot for Paris: other European countries are doing even worse.

Published on September 28, 2012 7:00 pm