France scrapped a more extreme version of Alexandria Ocasio-Cortez’s tax plan for millionaires because it was making so little money

France abolished a tax designed to target the rich after just two years because of a widespread backlash and its meager returns.

The "supertax" that taxed earnings of over €1 million ($1.12 million) was announced in September 2012, but retired just two years later in 2014.
The policy was a more extreme version of one being proposed by New York Rep. Alexandria Ocasio-Cortez, who suggested taxing income over $10 million at up to 70%.
Ocasio-Cortez’s policy has widespread support in some sections of the public and politics, but is attacked by the Republican establishment and is unpopular with many billionaires, who claim it would harm the economy.
Experts say that France’s policy harmed the country’s reputation and drove out some wealthy citizens, in a country that already typically taxed its citizens higher than in the US.

A French tax policy designed to collect money from the country’s wealthiest citizens and was effectively a more extreme version of Rep. Alexandria Ocasio-Cortez’s proposed tax plan was scrapped after just two years because it failed to raise enough money.

In September 2012, then-French President Francois Hollande introduced a "supertax" on the rich, which taxed earnings of over €1 million ($1.12 million) at 75%. The policy was a key pillar of the socialist election platform Hollande used during the country’s election earlier that year, which saw him narrowly defeat incumbent Nicolas Sarkozy.

The tax was a more drastic version of Rep. Alexandria-Ocasio Cortez’s suggestion, which would tax income over $10 million at a 60% to 70% rate. Ocasio-Cortez’s office declined to comment to Business Insider for this story.

But France’s policy was scrapped in 2014 after it failed to generate the desired revenue to help the country recover from the Eurozone economic crisis years earlier, and amid accusations that it would drive the wealthy out of the country and damage the its reputation as a place for business.

Antoine Antoniol/Getty Images

Figures from France’s Finance Ministry show that proceeds from the tax were just €260 million ($292 million) in its first year and €160 million ($180 million) in its second, Reuters reported, which was in line with expectations but not enough to significantly help the country’s budget deficit, which had reached €8.4 billion ($9.4 billion) by the end of October 2014.

The tax faced allegations of being anti-business in a country where income taxes are already high compared to most of the world, and a tax known as the solidarity tax on wealth (ISF) was already in place. Income taxes are typically higher than they are in the US, and France became the OECD’s most-taxed country in 2017, with government tax revenue making up more than a third of GDP.

France was facing blowback from some of the country’s wealthiest citizens, and Hollande’s own economy minister, Emmanuel Macron — who is now the French president — said that the tax could turn France into "Cuba without the sun."

This criticism, combined with its meager returns, led to its abolition.

Both policies faced backlash, but Ocasio-Cortez’s proposal also enjoys widespread support

Ocasio-Cortez has said that her suggested tax rates would equip the federal government to back projects like the Green New Deal, an ambitious proposal to turn the US carbon neutral in 10 years, as well as allowing the introduction of universal healthcare, the creation of new jobs in the clean energy industry, and giving government the ability to address inequality across the US.

While frequently criticized by prominent Republicans, the proposal appears to enjoy broad support — more than 80% of Americans support almost all of its key ideas, according to an INSIDER poll in February.

The tax itself also has support. A January INSIDER poll found that 38.7% of respondents supported a 70% tax rate for all income earned over $10 million, while keeping rates the same for all those on lower incomes. 34.4% of respondents opposed such a tax.

Agence France-Presse/Saul Loeb via Getty Images

Ocasio-Cortez’s proposal has also been polling better than the 2017 Republican tax cuts, which 46% of Americans disapproved of in an October Gallup poll.

And her proposal is supported by historical trends, according to a number of experts. Peter Diamond — a Nobel laureate in economics who is one of the world’s most respected public-finance experts — found that the optimal tax rate for top earners was 73%.

Data shows that the US has taxed the ultrarich to a similarly high level throughout history without harming the economy.

But the Republican leadership and those it would target have expressed opposition. Business leaders who met in Davos in January called it "scary" and said it could hurt the economy. Chief White House economic adviser Kevin Hassett called Democrats’ plans to increase taxes on the rich, including Ocasio-Cortez’s plan, "economically illiterate" in February.

Bloomberg’s editorial board noted that many respected authorities on taxes and public finance support the idea, but ultimately said that such a tax was "unwise" and said that a better move would be to close tax loopholes.

France’s laws was unpopular, and experts say people lost confidence in the already highly taxed country

As a real law and not just a proposal, France’s policy in an already highly taxed country faced much more widespread opposition.

Professional French soccer clubs threatened to go on strike, and actor Gerard Depardieu took up Russian residency, while France’s richest man took out Belgian nationality, Reuters reported.

Tax lawyer Jean-Philippe Delsol, author of a book on tax exiles called "Why I Am Going To Leave France," told Reuters that some people went abroad to places like Luxembourg and the UK, but added that: "In most cases, it was discussed with their company and agreed to limit salaries during the two years and come to an arrangement afterwards."

REUTERS/Charles Platiau

Reuters noted overall that was no mass departure of the country’s rich. But Jorg Stegemann, head of Kennedy Executive, an executive search firm based in France and Germany, told Reuters that the reform "clearly damaged France’s reputation and competitiveness" and made it "harder to attract international senior managers to come to France than it was."

The idea of increasing taxes on the wealthy of France has reared its head once again. Current French President Emmanuel Macron reformed the 36-year-old ISF wealth tax in 2017, but his opponents then called him a "president of the rich."

So in December, a government spokesperson said the reform could be changed again.

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