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Liberté, Egalité, Fraternité…For Some

12/31/2015

[Originally published September 2013, by Mises Canada.]

The French revolution promised liberté, égalité, fraternité for its citizens. The present situation is somewhat different. Nowhere is this more apparent than in tax treatment.

The Socialist government of François Hollande was elected over a year ago amidst an economic plan that would see public spending rise to fund social programs. The French government would fund this spending growth through tax increases, notably, an increase in the top tax bracket on income over 1 million euros to 75 percent.

While Hollande has taken heat over the legality of his proposal from the French legal system, the more pressing practical concern is how such a tax would impact regular French life. The average Frenchman or woman will not be directly affected by this change. They will keep their jobs, and perhaps relish in the fact that their bosses will have to pay their “fair share.”

One of the great French pastimes, along with brie and baguettes, is imperiled. French soccer clubs risk being relegated to the little leagues with this new tax proposal. With the costs of players already a concern, adding a hefty tax bill on top of historically high salaries would prove insurmountable for most teams to remain competitive.

The French newspaper, Le Figaro, estimates that a tax exemption for soccer players could save the French league 82 million euros ($110 million) a year. The club with the highest payroll, Paris Saint Germain, would save 32 million euros ($43 million).

Saving the great sport may keep the masses placated, but it teaches a much broader lesson.

If soccer players and teams need a tax break to stay competitive, why not the rest of us? The salaries may be larger and the tax rates higher, but the basic logic applies to the working class proletariat as well. They too are squeezed by taxes, and few come to their defence to argue for lower taxes.

What of businesses in general? The topic of tax complexity has become a hot topic in Canada, as well as the United States. Deductions and exemptions have allowed businesses and individuals who earn their livelihoods from investment sources to pay a far lower tax bill than the average Jacques or Jill. Legendary investor Warren Buffett even lamented that he paid a lower tax rate than his secretary.

While Buffett may have seemed noble in bringing this issue to light, he could have rectified the great injustice in short order: voluntarily write a cheque and send it to the U.S. Treasury. I’m sure they would accept a donation.

The reason why Warren Buffett didn’t do this, why business clamor for tax breaks, and why French soccer clubs are lobbying for an exemption, is the same. To remain competitive against others, they demand special treatment.

Now, importantly, note that none of these groups have argued for an elimination of the tax they object to. They want someone to pay it, just not them. More to the point, they don’t want to sacrifice the government services funded by it and would prefer that someone else foot the bill.

This type of argumentation gets the point exactly wrong. Governments are not given blank cheques to spend as they wish. Effective governance relies on a basic compliance – a perception that people like the services provided and would otherwise voluntarily fund them through taxes, even though they are really legally obliged to pay.

Warren Buffet, business groups and French soccer clubs would not object to paying the tax, even a seemingly outrageous rate such as 75 percent, if they thought they were getting a good deal out of it. The fact that so many efforts are dedicated to creating loopholes and exceptions should signal to us that these taxes are objectionable. If they are objectionable to these groups, they are probably so for the rest of us. If a soccer player needs special tax treatment to be competitive, why not also your local butcher, baker or candlestick maker?

The single best test of the “goodness” of a tax could be whether it can be reasonably expected to affect all parties similarly. Presumably, these effects should not be pernicious. Deductions and tax exemptions for special interest groups should signal that all citizens should have access to the same. Only then do we have a true situation of liberté, égalité, fraternité.

Author:

Contact David Howden

David Howden is Chair of the Department of Business and Economics and professor of economics at St. Louis University's Madrid Campus.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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