What an unmitigated disaster for Pikettynomics!

PARIS (Reuters) – When President Francois Hollande unveiled a “super-tax” on the rich in 2012, some feared an exodus of business, sporting and artistic talent. One adviser warned it was a Socialist step too far that would turn France into “Cuba without sun”.

Two years on, with the tax due to expire at the end of this month, the mass emigration has not happened. But the damage to France’s appeal as a home for top earners has been great, and the pickings from the levy paltry.

“The reform clearly damaged France’s reputation and competitiveness,” said Jorg Stegemann, head of Kennedy Executive, an executive search firm based in France and Germany.

“It clearly has become harder to attract international senior managers to come to France than it was,” he added.

Hollande first floated the 75-percent super-tax on earnings over 1 million euros ($1.2 million) a year in his 2012 campaign to oust his conservative rival Nicolas Sarkozy. It fired up left-wing voters and helped him unseat the incumbent.

Yet ever since, it has been a thorn in his side, helping little in France’s effort to bring its public deficit within European Union limits and mixing the message just as Hollande sought to promote a more pro-business image. The adviser who made the “Cuba” gag was Emmanuel Macron, the ex-banker who is now his economy minister.

The Finance Ministry estimates the proceeds from the tax amounted to 260 million euros in its first year and 160 million in the second. That’s broadly in line with expectations, but tiny compared with a budget deficit which had reached 84.7 billion euros by the end of October.

To put that number in perspective, France’s GDP is around 2 trillion euros. The tax raised less than one one-hundredth of one percent of GDP in tax revenue. So much for the pipe dream of American progressives that we could finance a more generous welfare state with higher taxes on the rich. BTW, many people don’t realize that the top MTR on the rich in the US is already relatively high by international standards. The federal top income tax rate is 43.4%, and with state income taxes added it’s above 50% in places like California and New York City (where many of the high earners live.)

But the news is actually even worse than this, much worse. The revenues for the tax are estimated without accounting for dynamic effects. Even if you are not a devout supply-sider (and I am a moderate supply-sider, who believes tax increases usually lead to more revenue) it would be hard to deny that this particular tax increase cost revenue, after accounting for the impact of French economic growth. Even if the tax merely discouraged investment by a small amount, the impact on total revenues would almost certainly be negative, as even a very small reduction in economic growth would reduce ordinary tax revenues by far more than the extra 160 million collected by the rich. France collects close to a trillion euros in tax revenues, meaning even a 0.02% reduction in economic growth would cost their Treasury more than 160 million euros.

Progressive American bloggers often tout the egalitarian French economic model. What they don’t tell you is that France has 10.4% unemployment and a per capita GDP (PPP) that is only about 70% of US levels, and falling. Sure, some of that is the euro. But unemployment was also about 10% to 11% back in 1996-99, before the euro was created. Even worse, the French labor market model would almost certainly perform far worse in the US than in France, because the productivity of American workers is more unequal. And the French government investment model would also perform more poorly in the US, because our government is far less efficient at building infrastructure.

Speaking of the supply-side, I endorse Miles Kimball’s post where he argues that Doug Elmendorf should be reappointed at the CBO. The GOP would be making a mistake if they force him out.

I’ll be busy over the holidays, posting a few items written earlier. Not much time for comments.

Joyeux Noel