President Francois Hollande

French Court Says 75% Tax Rate on Rich Is Unconstitutional

by Helene Fouquet & Alan Katz, Bloomberg.com  |  published on January 1, 2013

President Francois Hollande’s 75 percent millionaire-tax is unconstitutional because it fails to guarantee taxpayer equality, France’s top court ruled today.

The tax, one of Hollande’s campaign promises, had become a focal point of discontent among entrepreneurs and other wealth creators, some of whom have quit French shores as a result. The ruling comes as the president seeks to cut France’s public deficit to 3 percent of gross domestic product next year from a projected 4.5 percent this year.

“Politically, this has an impact because it was a symbol for French public opinion, and was considered abroad as the emblem of French tax excess, of French tax hell,” said Dominique Barbet, senior economist at BNP Paribas SA in Paris. “In deficit terms, it’s truly negligible.”

The court said Hollande’s plan would have added extra levies of 18 percent on individuals’ incomes of more than 1 million euros ($1.32 million), while regular income taxes and a 4 percent exceptional contribution for high earners would have been based on household income, an e-mailed statement shows.

As a result, two households with the same total revenue could end up paying different rates depending on how earnings are divided among members of those households. That runs counter to a rule of equal tax treatment, the Paris-based court said.

Government Response

Prime Minister Jean-Marc Ayrault said in an e-mailed statement that the government “takes note” of the court decision on the 75 percent tax band and “will present a new proposal in line with the principles laid down by the Constitutional Court.” The ruling doesn’t call into question deficit targets or the path set out to get there, Ayrault said.

The court’s decision will lower tax revenue by less than 500 million euros in 2013, according to a spokeswoman for the prime minister’s office who declined to provide her name.

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