What the U.S. Can Learn From France

Since President Obama considers raising taxes on the wealthy a patriotic duty, he should ponder the recent fallout in France after that country's new socialist leader zapped millionaires.  The maneuver has fueled a selling frenzy of pricey real estate and triggered an exodus to tax friendly nations.

The great escape began when candidate Francois Hollande pandered to his Socialist Party faithful by vowing to levy a 75 percent tax on all personal income that exceeds one million euros a year.  Many figured it was an election stunt.  But President Hollande has rammed through the new tax and signaled he wants to increase taxes on businesses, too.

The confiscatory tax, scheduled to take affect later this year, has sent shivers through France's top earners.  About 500 residences worth more than one million euros have gone onto the Paris market since May.  Lawyers report an unprecedented number of calls from prosperous executives wanting to flee France.

The country's wealthiest man made no secret of the fact he is seeking citizenship in neighboring Belgium.  Bernard Arnault, chief executive of luxury brand Moet-Hennessy Louis Vuitton (MHLV), wants no part of Hollande's soak-the-rich scheme.

The French media acted with outrage.  Hollande scolded Arnault for being unpatriotic. Socialists and trade unions squealed with delight.   However, Hollande's public approval ratings have nosedived.  The French president has no one to blame but himself and his lousy political acumen.

In defending the tax, France's top man claimed the revenues would help reduce the nation's hefty budget deficit.  However, the tax revenue from an estimated 30,000 wealthy earners would make-up a tiny fraction of the 33 billion euros needed to help balance France's budget.

The tax does nothing to address France's economic woes.  The country recorded zero growth in the second quarter.  Unemployment ticked up to 10.3 percent, the highest in more than a decade.  Raising taxes will blunt any chance of economic recovery.

Does any of this sound familiar?  It should.  Hollande and his socialist pals have ripped a page right out of the playbook of Barrack Obama.  If the U.S. president gets his way, America will be treated to the same sort of spectacle.  

It is political naiveté to think sharp increases in taxes will be met with passive resignation.  As France is discovering, the new levy is stifling business growth, drying up capital for new ventures and motivating foreign companies to consider alternative locations for their investment.

The draconian tax, aimed at the wealthy, has harmed every French citizen and splintered the nation by pitting one class against another.  

Don't expect America's socialist president to learn from his French connection.  President Obama is determined to hoist the top tax rate to 39.6 percent on every couple earning $250,000 or more.   Why stop there?  In 1963, the United States' highest individual income tax rate stood at 91 percent.

Democratic Party President John Kennedy lobbied for a lower rate. After his death, Congress sliced the rate on the largest earners to 70 percent.  President Reagan trimmed the top rate to 50 percent in 1982.  He went a step further in 1988, dropping it to 28 percent, igniting the longest sustained economic boom in the nation's history.

The French lesson should be painfully obvious.  Higher taxes often hinder economic growth by reducing consumer spending and investment.  In the midst of the current U.S. economic malaise, the idea of a tax hike on any wage earner deserves public scorn.

It is rotten political and economic policy.