France's Highest Court Has Approved a 75% Tax Rate


The news: A French court has ruled in favor of the new "millionaire tax," approving a measure that will levy a tax rate of 75% on employers paying French workers more than 1 million euros. Now that is what you call a tax.

The tax will be in place for only two years, and will apply to salaries paid out in 2013 and 2014. The bulk of the 75% tax rates comes in a 50% duty on salaries over 1 million euros, with other taxes and charges rounding out to 75%. But there is a limit: an employer cannot pay a tax exceeding 5% of the company's revenue. 

The backstory: The tax has been a pet project of French President François Hollande. It was among his prominent 2012 campaign promises as he scrounged for socialist support. A 75% tax rate on high salaries will appease that base, but his plan has hit a bumpy road getting here.

Hollande originally intended for the 75% tax rate to apply to individuals, but a French court ruled that unconstitutional, claiming 66% was the highest rate that could be placed on individual citizens. Hollande retooled and came up with the plan to tax companies, which the Constitutional Council approved on December 29. 

Why this matters: That 75% tax rate makes any tax here in the United States look like small potatoes. Merely suggesting something like that in America would be political suicide. Even though a majority of French citizens approve the tax, it's not like all of France is welcoming it with open arms.

In fact, a few particularly powerful opponents have opposed the law, notably, soccer teams. According to the BBC, soccer organizations have threatened to strike if the tax is enacted, because many of their players make salaries that exceed 1 million euros.

According to some people, the 75% tax rate doesn't go far enough. As it will only be in place for the next two years, it is estimated to generate 1 billion euros, a drop in the bucket for the Euro zone's second-largest economy. 

Still, a 75% tax rate on salaries over 1 million euros is nothing to scoff at. It's a bold attempt to rein in excessive salaries. That's what happens when you have a socialist government, I guess. But don't expect anything like that to happen in the U.S. any time soon.