Tax Analysts Blog

A Benchmark for Socialist Tax Rates

Posted on Mar 14, 2012

You've heard it a thousand times. President Obama wants to continue the Bush-era tax cuts for households with taxable incomes under $250,000 a year, while allowing those cuts to expire for wealthier taxpayers.

Were that to occur, the 33% bracket would increase to 36%, and the 35% bracket (currently the top marginal income tax rate) would increase to 39.6%. That's identical to the top tax rate we had at the end of Clinton administration. Some people claim a top rate of 39.6% smacks of socialism.

Really? 39.6% is socialism? I can't help but think we could benefit from a more realistic frame of reference to put all this socialism talk in perspective. And what better place to look than France.

The top marginal rate in France is 41%. Yes, that's within a few hairs of the top U.S. rate during the Clinton era -- and where it will be in January 2013 if President Obama gets his way. But don't assume the two countries' tax systems are so similar. The top French rate kicks in at a mere 70,800 euros. That's about $92,000 at today's exchange rates. By comparison, the top U.S. rate doesn't apply until your taxable income is $372,951.

For a moment let's ignore whether the top U.S. rate is 35% or 39.6%. Look again at the income levels where these rates apply. You could literally quadruple the amount of income subject to the top French rate and it still wouldn't fall in the top U.S. bracket.

Lesson #1: Don't judge a tax system by rates alone.

There's more. France also has substantial payroll taxes, steep property taxes, an inheritance tax, a gift tax, a wealth tax, a 21% VAT, two supplemental taxes on rental properties, an asset transfer tax, a financial transaction tax, and gasoline taxes that would make any red-blooded American SUV driver cringe.

Here's the kicker. France has presidential elections this year. The incumbent, Nicolas Sarkozy, leads a center-right coalition. His main challenger is Francois Hollande, leader of the French Socialist party. If you're curious what an ACTUAL SOCIALIST would do with the tax code, look no further than Monsieur Hollande. He wants to raise the top marginal rate to 75%. Mon Dieu !

Lesson #2: Even the mathematically challenged can see that 40% is a far cry from 75%.

Interestingly, the 75% tax rate is a central theme of Hollande's campaign. It's not something he's running away from; he's flaunting it. Oh, and he's leading Sarkozy in the polls. Now that's socialism.

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