French constitutional panel strikes down 75 percent tax rate on wealthy on technicality

PARIS — France’s Constitutional Council, in a stinging political rebuke to the Socialist government, ruled Saturday that an emblematic new law that imposes a 75 percent tax rate on earnings above $1.3 million is unconstitutional.

The ruling was based on technical grounds, and President Francois Hollande’s government pledged to make the necessary adjustments. But Hollande had made the 75 percent rate an anti-rich symbol during his presidential campaign, and, as a result, the council’s judgment was seen as an embarrassing political setback.

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The measure, called the “exceptional solidarity contribution” and scheduled to last two years, was denounced by Hollande’s conservative opponents as the trademark of a confiscatory tax policy that they said is smothering entrepreneurial spirit in France and driving businessmen out of the country.

The movie actor Gerard Depardieu, who also runs a string of restaurants and vineyards, three weeks ago became the latest well-known figure to pack up in search of more clement tax laws — in Depardieu’s case, in Belgium. The actor said that, counting all the French taxes he owed, he had paid an amount equivalent to 85 percent of his income in 2012 and was unwilling to go higher.

French Sen. Jean Arthuis, a centrist former finance minister, described the 75 percent income tax rate as the latest in a series of confusing tax-law changes driven by “doctrinaire blindness” in the Socialist Party that, taken together, give the appearance of an unsteady policy that is hindering efforts to deal with the European economic crisis.

For instance, he noted, Hollande’s government canceled an increase in the value-added tax scheduled by outgoing President Nicolas Sarkozy, only to impose its own increase a few months later. Similarly, he said, the Socialist government raised business taxes and then, in a program designed to foster competitiveness, instituted a tax rebate for small and medium-size businesses.

“What a mess,” Arthuis said in a discussion of Saturday’s ruling on the BFM-TV all-news channel.

The Constitutional Council, an independent body that rules on legislation passed by the National Assembly and Senate, was asked by the conservative opposition on Dec. 20 to scrutinize Hollande’s entire tax law, which opposition figures had said was confiscatory and thus unconstitutional.

In response, the council said that an increase in the maximum permanent tax rate to 45 percent of income was not confiscatory and therefore was constitutional. But it said that the temporary 75 percent rate for income over 1 million euros, or $1.3 million, violated the constitution because it was calculated strictly on individual income instead of income by household, as is the rule for income tax assessments in France.

Prime Minister Jean-Marc Ayrault said that the government has “taken note” of the ruling and would rewrite the law to make it conform to the constitutional principles outlined by the council. In a statement, he also expressed satisfaction that the increase to 45 percent for the highest general income tax rate and other provisions had been validated despite the conservatives’ criticism.

“The 2013 finance law puts into place the measures of justice that will permit the recovery of public finances while assuring the financing of the government’s priorities: employment, youth, security and justice,” Ayrault added.

 
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