Letter From Paris

France’s Robin Hood Socialism

Will François Hollande's soak-the-rich policies save or ruin the economy?

By 9.7.12

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The good news is that France's new Socialist government is back from vacation. President François Hollande, known locally as Monsieur Normal, Prime Minister Jean-Marc Ayrault, and all the many and varied cabinet ministers -- strictly 50-50 men-women, conforming to the party's feminist dogma -- took off in August for some much-deserved rest and recreation after laboring in office nearly two whole months. Hollande's splashing around on a Riviera beach with his chubby, bikini-clad First Girlfriend, Valéry Trierweiler, was thoroughly described and photographed by the celebrity press. And in this country where, if the president is an elected monarch, the cabinet ministers are his courtiers, the French were also duly informed of their summer antics, along with the progress of their tans.

The bad news is that, back on the job, the government has to deal with a France in even worse shape than before it left town. The economy is dead in the water, now in its third quarter of zero growth, even if the government tiptoes around the dreaded word recession. The trade deficit is at a record high. Unemployment has surged for 15 straight months and now stands at 10 percent, with fully 3 million of the active population living on the dole. More will be joining their ranks as company after company announces closures and job cuts. Those planning to lay off thousands in coming months range from biggies like Air France and the giant supermarket chain Carrefour, to carmaker Peugeot-Citroën, not to mention the country's largest chicken processor out in Brittany. The leftist CGT labor union, which supported Hollande's campaign, now plans a major national strike in early October.

The problems are not only economic. Simmering violence has erupted in cities north and south. Disaffected young rioters in Amiens, north of Paris, recently torched cars and public buildings, firing buckshot at police, while two dozen have died in Marseilles this year as drug gangs fight turf wars with assault weapons; the government briefly considered the drastic step of sending in the army, but that would look too much like civil war. When the government did act forcefully on another problem and evacuated several illegal gypsy camps, it led to dissention within its own ranks -- Socialists traditionally have protected Roma. More internecine political strains loom over nuclear power, which the Socialists favor as France's main supply of electricity, and their ecologist governing partners flatly oppose.

As they trudge back to work from their own vacations, the French sense that the feckless Hollande administration is passive and floundering. A new poll shows that a convincing 72 percent think the government has not been active enough in handling the problems it was elected to deal with. As for their opinion of Hollande himself, his approval rating has skidded to 44 percent from above 60 percent when he took office in May. His grace period has ended much faster than that of his predecessor Nicolas Sarkozy at the same stage of his presidency. Going from one extreme to another, they voted out an annoyingly hyper-active president, only to be just as unhappy with a listless hypo-active one.

Even some of the usually loyal left-wing press has started to express doubts in editorials. Libération headlined "The very mediocre summer of François Hollande." Another former cheerleader, Le Monde, charged him with "hesitation" and "immobilism." The discontent is surprisingly strong in the ranks of the political left itself. Saying aloud what many disappointed Socialist members of parliament are thinking, the pugnacious far-left leader Jean-Luc Mélenchon said Hollande's first 100 days were "virtually worthless."

Far be it from me to say Hollande and company have no idea how to fix France's problems. They do at least have one, amounting to an idée fixe. The new president never met a tax he didn't like, and his administration may well win the gold for creative taxation. Somehow he has to find an additional $41.3 billion in his 2013 budget to meet his pledge to cut the deficit to 3 percent. It being against his Socialist faith to cut government spending on entitlement programs to achieve that makes his administration a one-trick pony: its only way of dealing with France's problems is -- you guessed it -- more taxes.

Hollande repeatedly pledged during his campaign to soak the rich, making them bear the brunt of painful measures to fix public finances. He is on safe ground there. Ever since the rabble stormed the Bastille in 1789, the congenitally envious French have loved to stick it to the wealthy. Polls show that fully 75 percent favor that, including, perversely, a majority of those claiming to be conservatives. (The French are notoriously hung up on the subject of success and the money derived from it: surveys find something like 80 percent are constipated when it comes to talking about it. Ask a Frenchman about his mistress, but never, ever, about how much he makes.)

Thus it is that the country's wealthiest households, banks, and big businesses are targeted for some $9 billion in tax increases this year, with more to come in 2013. France, already the only EU country with a wealth tax, thanks to the previous Socialist presidency of François Mitterrand, will increase it, with people worth more than about $1.3 million paying a special surcharge, a taxe exceptionelle, this year -- just to get them used to the idea of paying more for the privilege of living in France.

On the fiscal horizon are increased inheritance taxes, along with Hollande's promised 75 percent tax rate on individuals earning over $1.3 million, and a new 45 percent rate on income over $185,000. His Robin Hood approach to taxation approaches the punitive when it comes to top executives of state-controlled companies. New regulations will prohibit their making more than 20 times the salary of the company's lowest-paid employees. Thus for example the CEO of France's lone electric power company will have his salary slashed by 68 percent, or from $1.9 million to $621,000.

Many other top managers at the 52 companies where the French state wields board control will see their pay shrink. Some high-net-worth people could actually end up paying a marginal rate of 90.5 percent tax on certain income. "It is exorbitant, confiscatory and scandalous," the tax lawyer Jean-Philippe Delson told the Guardian newspaper. "This is a punitive tax. It's not that France doesn't like the rich, it hates them." Some well-paid French executives have gotten the message. A number of those due to rotate back to France from posts in the U.S. and Britain are reportedly asking to be left where they are.

The Socialists' creative taxation is hitting successful businesses themselves with new levies on bank profits, dividends, and bonuses, while oil companies are singled out for special treatment. The financial sector is also feeling the tax heat as France proudly became on August 1 the first European country to impose a "Tobin tax" on financial transactions, just the thing to attract investors. The 0.2 percent tax will be applied to shares bought in over 100 French companies with market capitalization of more than $1.2 billion. A similar levy of 0.1 percent is now imposed on high-frequency trading. "French companies are the most taxed in Europe," laments Laurence Parisot, the head of Medef, the equivalent of the National Association of Manufacturers. "We're the champions of corporate taxes." Some French companies have had enough of that. Michelin, the giant tire maker, recently decided to build its first plant in the U.S. in 35 years because of the better business climate there.

If he thinks he can tax France's way out of financial trouble, someone should remind Hollande of the example of British Premier Gordon Brown's Super Tax for the Super Rich, which he applied for ideological reasons in 2009. He hoped to fill government coffers by raising the tax rate from 40 percent to 50 percent on those making over $233,000 a year. But, like Hollande, he reckoned without the ability of free individuals to adapt and adopt defensive measures. After two years, tax revenues from the wealthy actually dropped by $48 billion.

Meanwhile, Monsieur Normal's live-in girlfriend has resourcefully found a way to scratch up a bit of extra money. Valéry, unhappy with the figure she cut in a bikini, sued one of the newspapers that used the vacation photos of her, claiming an infringement of privacy, even though such vacation photos of Sarkozy and his wife Carla were routinely published. Sore beset French taxpayers will surely be grateful if she contributes the $2,500 she won in damages to the French treasury to reduce the national debt.

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About the Author

Joseph A. Harriss is The American Spectator's Paris correspondent. His latest book, An American Spectator in Paris, was released this fall.