March 29, 2013

Payroll tax could hit richest French firms

The president, foiled in his attempt to tax rich people, seeks taxes on the big salaries in their companies.

The Associated Press

PARIS - French President Francois Hollande may have finally found a way to tax the really rich: by making their companies pay.

In a televised interview Thursday night, he said he wants companies that pay their employees more than 1 million euros -- $1.3 million -- to pay 75 percent payroll taxes on those salaries.

The proposed tax, which still needs to be approved by parliament, replaces one of Hollande's signature campaign proposals: to tax individuals who earn more than 1 million euros at 75 percent. France's highest court has thrown out that plan and the government has been looking for a replacement.

Hollande said he hoped the new proposal would push companies to lower executive pay at a time when France's economy is suffering, unemployment is soaring and employees are being asked to take pay cuts.

While the president reiterated his goal of stopping the rise of unemployment this year and restarting growth, he offered no specific new economic policies.

"The tools are there. We need to use them fully," he said on France-2 television.

The new payroll tax would last only two years. On the highest salaries, companies already pay payroll taxes that add up to at least 50 percent of the paycheck.

"What's my idea? It's not to punish," Hollande said. "When so much is asked of employees, can those who are the highest-paid not make this effort for two years?"

Hollande's original plan for a 75 percent tax on individuals was also conceived as a largely symbolic measure. It was likely to have brought in only about 100 million to 300 million euros -- an insignificant amount in the context of France's roughly 85 billion-euro deficit.

As Hollande's popularity slides, he has struggled to convince the French that he is doing enough to boost growth -- or to redistribute wealth, as his leftist base wants. Going after high-earners may be an easy win for him with voters.

French growth has been stagnant for nearly two years, and unemployment has been rising for 19 straight months and is now at 10.6 percent -- a level not seen since 1999. Consumer confidence slipped again in March after briefly starting to rise earlier this year. The national statistics agency, Insee, found this month that the French are more pessimistic about the economy's prospects for the coming year than they have ever been. (The survey was first taken in 1972.)

But some wonder if adding another tax on companies as he is trying to encourage growth is the right message to be sending.

 

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