![\"\"](\"https:\/\/thedailyeconomy.org\/wp-content\/uploads\/sites\/10\/2025\/09\/Shutterstock_2676056077-300x190.jpg\")
<\/p>\n<\/p>\n
On September 9, France lost its second government in a year. The story behind the fall of Fran\u00e7ois Bayrou\u2019s government is largely the same as that behind the fall of Michel Barnier\u2019s last December<\/a>.<\/p>\n The French government ran a budget deficit of 5.8 percent of Gross Domestic Product (GDP) in 2024, the largest since World War II and well above the three-percent limit required<\/a> from members of the eurozone. The budget<\/a> Bayrou proposed to deal with this included a number of fiscal measures, such as a freeze on increases in welfare benefits and government spending, \u20ac10 billion ($12 billion) of cuts to local authority and healthcare spending, and a \u201csolidarity contribution<\/a>\u201d for individuals with the \u201chighest incomes<\/a>.\u201d This package was a non-starter with both the hard left and big government right<\/a> \u2013 Marine Le Pen\u2019s National Rally \u2013 which dominate parliament. Bayrou called a confidence vote, lost it, and resigned<\/a> the next day.<\/p>\n The incoming prime minister, S\u00e9bastien Lecornu<\/a>, inherits the same conundrum that stumped Barnier and Bayrou: How to balance France\u2019s budget deficit in a way that both the hard left and big government right will support.\u00a0<\/p>\n It is a tough one. Neither faction supports spending cuts and factions are divided over tax hikes.<\/p>\n Bayrou\u2019s \u201csolidarity contribution,\u201d opposed by National Rally<\/a>, is likely to be an absolute requirement for hard left support. The 2 percent tax on the roughly 1,800 households whose wealth exceeds \u20ac100 million ($118 million) is the brainchild of economist Gabriel Zucman.\u00a0<\/p>\n \u201cBillionaires, taking into account all mandatory levies, pay half as much in taxes as the average French citizen,\u201d Zucman argues. \u201cThis is because their income, housed in holding companies, escapes the income tax.\u201d<\/p>\n Significant doubt exists over Zucman\u2019s findings. In 2019, Zucman claimed<\/a> that the previous year, the overall effective tax rate paid by the ultra-rich in the United States had dipped below that paid by the bottom 50 percent of earners for the first time, a claim identical to that which lies behind the proposed \u201csolidarity contribution.\u201d<\/p>\n But, as economist Phil Magness notes<\/a>: \u201cThrough a series of highly opaque and empirically suspect adjustments, Zucman had artificially inflated the tax rate paid by the poorest earners while simultaneously suppressing the tax rate paid by the rich.\u201d\u00a0<\/p>\n Indeed, the controversy surrounding Zucman\u2019s method may have cost him a prestigious gig at Harvard.<\/p>\n Even if we accept the estimates that underlay Zucman\u2019s proposed \u201csolidarity contribution,\u201d the measure has been attacked on other grounds. Of claims that the tax could reduce investment, slow economic growth even further, and worsen the budgetary problem, Zucman told Le Monde<\/em><\/a> that such an argument \u201cdoes not hold up in a country like France, which has abundant savings.\u201d\u00a0<\/p>\n Of a pattern of people leaving countries that impose such taxes, Zucman argues that \u201ctax exile is not non-existent, but it is very limited.\u201d His colleague, economist\u00a0Thomas Piketty<\/a>, suggests that, for those who do leave, \u201cYour assets are frozen, you could be arrested at the airport.\u201d Zucman estimates that the \u201csolidarity contribution\u201d will generate between \u20ac15 billion and \u20ac25 billion annually.<\/p>\n But these arguments cannot be so easily waved away. In an op-ed for Le Monde<\/em><\/a>, seven prominent economists question the \u201cconstitutionality of a wealth tax above 0.5 percent in France.\u201d More directly, they argue that Zucman\u2019s revenue estimate \u201cvastly overestimates the actual revenue that such a measure could actually generate.\u201d<\/p>\n First, the estimate doesn\u2019t account for \u201cbehavioral responses.\u201d \u201cTaxpayers adjust their behavior in response to new taxes, either through tax evasion or optimization (intensive margin), or by relocating abroad to avoid taxes (extensive margin),\u201d the economists note. Empirical studies examining the effects of hikes in taxes on capital which \u201caffected a much broader base of taxpayers than those targeted by the Zucman tax and at much lower rates,\u201d they continue, find \u201cthat for every \u20ac1 collected on paper, only \u20ac0.25 translates into actual long-term revenue due to taxpayer behavioral adjustments.\u201d In this case, \u201cthe Zucman tax could reduce the structural deficit by \u20ac5 billion, not \u20ac20 billion.\u201d<\/p>\n In addition, the economists note, \u201cTaxing business assets directly would create liquidity problems for owners and shareholders of non-listed companies, potentially discouraging investment and entrepreneurial risk-taking by imposing double taxation on income that has not yet been received.\u201d This would harm economic growth, but \u201cexcluding professional assets would reduce the taxable base by nearly 90 percent, bringing tax revenue below \u20ac1 billion,\u201d or 0.6 percent of the budget deficit of \u20ac170 billion.\u00a0\u00a0<\/p>\n Zucman\u2019s response to this objection is startling: \u201cSuch cases are rare, but they do exist,\u201d he concedes. \u201cSolutions can be found. The simplest is to allow those concerned to pay the tax in kind, by transferring shares of their company. The state would then be responsible for keeping or selling these shares, for example to the company\u2019s employees, while prohibiting resale to non-residents.\u201d\u00a0<\/p>\n This would be a disaster for innovation and economic growth in France.<\/p>\n \u201cYou have the power to bring down the government, but you do not have the power to erase reality,\u201d Bayrou stormed on his way out of office. \u201cReality will remain relentless: expenses will continue to rise, and the burden of debt, already unbearable, will grow heavier and more costly.\u201d<\/p>\n He is right. France\u2019s budgetary problems are, quite simply, the result of a level of social spending its economy cannot support. The explosion of debt incurred to finance the fight against COVID-19, the money printing to finance that, and the resulting inflation, have exposed this, as in other countries, by ending the period where the French government could borrow at a rate of effectively zero. Its bond yields are now above those of Europe\u2019s perennial economic sick man, Italy.\u00a0<\/p>\n Sooner or later, the laws of economics will be enforced with the doggedness of Inspector Javert<\/a>, and the merciless brutality of Marc Ferrot<\/a>.<\/p>\n France\u2019s budget problems are shared across the developed world, including in the United States. Federal debt is spiraling<\/a> and borrowing costs are rising: The Treasury is now spending more money on debt interest<\/a> than on defense<\/a> for the first time in history. Proposals like the \u201csolidarity contribution\u201d are offered as a solution to our deficit, but they face the same problems: They do not generate enough money and what revenues they do generate come at a disproportionate cost in lost output. Those who want \u201cthe rich\u201d to pay their \u201cfair share\u201d usually mean that they want them to pay for everything. They won\u2019t<\/a>.\u00a0 \u00a0 \u00a0<\/p>\n The post Zucman\u2019s Wealth Tax Can\u2019t Save France From Itself<\/a> was first published by the American Institute for Economic Research (AIER)<\/a>, and is republished here with permission. Please support their efforts.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" On September 9, France lost its second government in a year. The story behind the fall of Fran\u00e7ois Bayrou\u2019s government is largely the same as that behind the fall of [\u2026]<\/p>\n","protected":false},"author":274,"featured_media":2324418,"comment_status":"close","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[],"class_list":["post-2483732","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics"],"_links":{"self":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2483732","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/users\/274"}],"replies":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/comments?post=2483732"}],"version-history":[{"count":1,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2483732\/revisions"}],"predecessor-version":[{"id":2483733,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/posts\/2483732\/revisions\/2483733"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media\/2324418"}],"wp:attachment":[{"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/media?parent=2483732"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/categories?post=2483732"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/monetizemail.com\/magatoon\/wp-json\/wp\/v2\/tags?post=2483732"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Zucman\u2019s Wealth Tax<\/h2>\n
Les Mis\u00e9rables\u00a0\u00a0<\/h2>\n