Maryland Gov. Martin O’Malley and French President Francois Hollande are trans-Atlantic kindred spirits when it comes to fiscal policy. Unfortunately for French government coffers, Hollande is making the same mistake in Paris as O’Malley did in Annapolis three years ago.
Hollande made raising taxes on upper income households a central component of his platform, and Hollande is now moving forward on his campaign promise to raise tax rates on those who earn over $1.2 million a year, taking the rate from 46.8% to a whopping 75%. Not surprisingly, it looks like we are starting to see results in France that are similar to what occurred in Maryland following Gov. O’Malley’s tax increase on high earners. Just this week it was reported that France’s richest citizen, Bernard Arnault, the CEO of luxury goods manufacturer Louis Vuitton, is applying for citizenship in Belgium. The obvious motivation for this is to avoid Hollande’s tax increase.
Don’t expect Arnault to be the only one fleeing France’s heightened tax burden. Those who fail to learn from history are doomed to repeat it, so the saying goes, and President Hollande’s case is no exception. In fact, Hollande could have anticipated to the unintended consequences of his tax increase had he paid attention to experience of his fellow class warrior, Gov. Martin O’Malley, and what occurred in the aftermath of O’Malley’s tax increase on high income Maryland households, which was detailed by ATR last year:
"In 2008, to address a state budget deficit brought about by Maryland’s structural overspending problem, Gov. O’Malley championed and signed into law a new millionaire income tax bracket, raising the rate to 6.25%. A May 2009 Wall Street Journal editorial described the result of O’Malley’s tax increase one year later-
“One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a 'substantial decline.' On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates."
Taxing the rich might make for a good political talking point, but it is neither fiscally nor economically sound. For instance, a study by the Wall Street Journal shows that if you took all of the income earned by the top 5% in the United States in the economic boom year of 2005, you would get only $1.89 trillion, a mere drop in the bucket that is our $16 trillion dollar debt. This data belies assertions by President Obama and Democrats in Congress that raising taxes on the rich is a panacea to America’s budgetary woes.