In soccer (or football/futbol, depending on your nationality), an “own goal” occurs when a player scores a goal against his or her own team on accident. It’s widely considered one of the most embarrassing sports blunders there is—right up there with fumbling the snap in (American) football, missing a slam dunk in basketball or striking out on a bunt attempt in baseball. And for France’s footballers and their fans, President Francois Hollande committed an own goal this week after revising his “tax the wealthy” plan.
Recall, Hollande made a 75% tax on annual incomes over €1,000,000 a cornerstone of his 2012 presidential campaign, arguing the well-off should do their part to get France back on its feet and reduce the budget deficit. Hollande’s government managed to pass a bill that would enact the tax late last year, however the French constitutional council shot it down in December on the grounds it would have applied to individuals and not households—the basis for France’s income-tax code. (For example, an individual making €1,100,000 a year would be subject to the tax, but a couple making €600,000 and €700,000 individually would not.) Prime Minister Jean-Marc Ayrault subsequently attempted to revise the legislation, however France’s constitutional council again opined any personal income tax above 66% would amount to confiscation. (What the difference is between 66% and 67%, I couldn’t say.) So Hollande and Ayrault found a loophole, announced late last week. France will apply a 75% corporate surcharge to salaries above €1,000,000. What’s more, although many originally thought the bill would only apply to very large firms, in a press statement this week, Ayrault confirmed small and medium businesses—football clubs included—would be subject to the surcharge (on top of the 50% payroll tax rate many already pay).
So, should this iteration of the tax stand, France’s football glory days might be behind it (never mind, for now, the broader economic impact). Looking forward, France’s football clubs likely find it difficult to woo top-tier talent with their pockets a little lighter. Then too, football players might still seek to avoid the wrath of French taxes altogether. After all, tax something and you get less of it. Many football players are already taxed at France’s top marginal rate of 49%, effective at €500,000 a year. But that doesn’t mean the French government actually collects a big chunk of their earnings. English footballer David Beckham, who signed with French club Paris Saint-Germain earlier this year for a hefty sum, decided a local children’s charity will make better use of his earnings and opted to donate his entire salary to it. No soup for you, France. Many more of France’s other high-earning sons and daughters have chosen a different route and have already decamped the country for tax-friendlier shores—“tax something and you get less of it” at work.
Of course, it’s always possible businesses impacted by the tax just pass along the extra cost to customers. In the case of football clubs, fans could get hit by higher ticket and concession prices. Probably not Hollande’s aim.
The share of taxes that should be shouldered by the rich is a debate for the ages, and I’ll not attempt to settle that now (or perhaps ever). And heavy taxes on the rich is certainly an easy sell politically. But from an economic standpoint, success is less certain. Hollande’s stated aim—to reduce the budget-deficit—seems unlikely via this tactic. As is, the tax is only expected to raise €210 million per year over the two year period it’s supposed to be in effect and impact a relatively limited number of businesses. (There aren’t many businesses out there doling out million euro salaries, but there are certainly a few.) With France’s budget deficit sitting at 4.8% last year and expected to be around 3.5% this year (higher than the EU’s maximum of 3%), Hollande’s tax plan appears mostly political gamesmanship. But what Hollande fails to realize is he’s dribbling toward his own goal. High income often comes with great skill (see: Lionel Messi), talent, knowledge and/or entrepreneurial spirit (which is why the very talented Mr. Beckham has always commandeered a premium). With French GDP expected to rise nary 0.1% this year, that all seems something France could use more of. So if Hollande’s aim is for less skill, talent, knowledge and entrepreneurial spirit in France, he’s about to put one right into his own net.
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