French court rejects 75 percent millionaires' tax

France's President Francois Hollande speaks at a news conference at the end of the first session of a two-day European Union (EU) leaders summit in Brussels October 19, 2012.

Credit: Reuters/Christian Hartmann

By Emile Picy and Catherine Bremer

PARIS | Sat Dec 29, 2012 11:25am EST

PARIS (Reuters) - France's Constitutional Council on Saturday rejected a 75 percent upper income tax rate to be introduced in 2013 in a setback to Socialist President Francois Hollande's push to make the rich contribute more to cutting the public deficit.

The Council ruled that the planned 75 percent tax on annual income above 1 million euros ($1.32 million) - a flagship measure of Hollande's election campaign - was unfair in the way it would be applied to different households.

Prime Minister Jean-Marc Ayrault said the government would redraft the upper tax rate proposal to answer the Council's concerns and resubmit it in a new budget law, meaning Saturday's decision could only amount to a temporary political blow.

While the tax plan was largely symbolic and would only have affected a few thousand people, it has infuriated high earners in France, prompting some such as actor Gerard Depardieu to flee abroad. The message it sent also shocked entrepreneurs and foreign investors, who accuse Hollande of being anti-business.

Finance Minister Pierre Moscovici said the rejection of the 75 percent tax and other minor measures could cut up to 500 million euros in forecast tax revenues but would not hurt efforts to slash the public deficit to below a European Union ceiling of 3 percent of economic output next year.

"The rejected measures represent 300 to 500 million euros. Our deficit-cutting path will not be affected," Moscovici told BFM television. He too said the government would resubmit a proposal to raise taxes on high incomes in 2013 and 2014.

The Council, made up of nine judges and three former presidents, is concerned the tax would hit a married couple where one partner earned above a million euros but it would not affect a couple where each earned just under a million euros.

UMP member Gilles Carrez, chairman of the National Assembly's finance commission, told BFM television, however, that the Council's so-called wise men also felt the 75 percent tax was excessive and too much based on ideology.

FRANCE UNDER SCRUTINY

Hollande shocked many by announcing his 75 percent tax proposal out of the blue several weeks into a campaign that some felt was flagging. Left-wing voters were cheered by it but business leaders warned that talent would flee the country.

Set to be a temporary measure until France is out of economic crisis, the few hundred million euros a year the tax was set to raise is a not insignificant sum as the government strives to boost public finances in the face of stalled growth.

Hollande's 2013 budget calls for the biggest belt-tightening effort France has seen in decades and is based on a growth target of 0.8 percent, a level analysts view as over-optimistic.

Fitch Ratings this month affirmed its triple-A rating on France but said there was no room for slippage. Standard & Poor's and Moody's have both stripped Europe's No. 2 economy of its AAA badge due to concern over strained public finances and stalled growth.

The International Monetary Fund recently forecast that France will miss its 3 percent deficit target next year and signs are growing that Paris could negotiate some leeway on the timing of that goal with its EU partners.

The INSEE national statistics institute this week scaled back its reading of a return to growth in the third quarter to 0.1 percent from 0.2 percent, and the government said it could review its 2013 outlook in the next few months.

Saturday's decision was in response to a motion by the opposition conservative UMP party, whose weight in fighting Hollande's policies has been reduced by a leadership crisis that has split it in two seven months after it lost power.

The Constitutional Council is a politically independent body that rules on whether laws, elections and referenda are constitutional.

($1 = 0.7564 euros)

(Reporting by Emile Picy; Writing by Catherine Bremer; Editing by Alison Williams)

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U.S. activist Norquist blesses Boehner's tax plan, conservative group rejects it

By Thomas Ferraro and Rachelle Younglai

WASHINGTON | Wed Dec 19, 2012 5:52pm EST

WASHINGTON (Reuters) - Leading U.S. anti-tax activist Grover Norquist gave his blessing on Wednesday to House Speaker John Boehner's plan to avert the "fiscal cliff," concluding that despite complaints to the contrary, it would adhere to Republican lawmakers' pledges not to raise taxes.

But more than a dozen other conservative figures and groups, including the Tea Party Express and the Heritage Foundation, disagreed.

They urged lawmakers to oppose the plan when it comes up for a vote on Thursday in the House of Representatives.

Some even warned that legislators who back Boehner's plan, risk being voted out of office in 2014.

Technically, Boehner's proposal, which has been dubbed "Plan B," does not include a tax increase. What it does is prevent any tax hikes on annual incomes of up to $1 million, thus permitting tax increases on higher incomes.

That seemed to be enough of a distinction for Norquist's Americans for Tax Reform to say the plan does not violate its anti-tax pledge.

"Having finally seen actual legislation in writing, ATR is now able to make its determination," Norquist's group said in a one-page statement. "ATR will not consider a vote for this measure a violation of the Taxpayer Protection Pledge."

The Club for Growth read the bill differently.

"On the substance, this bill is anti-growth," said Andy Roth, the group's vice president for government affairs.

"It increases tax rates for those making over $1 million while also raising taxes on capital gains and dividends," Roth said. "We don't buy into the Washington-speak, suggesting that these are actually tax cuts."

Brent Bozell, president of ForAmerica, a conservative advocacy group, said: "Fiscal conservatives will not stand for this. If Republicans support the tax increase, they will lose control of the House in 2014."

The conflicting conservative assessments will complicate efforts by Boehner to defy a White House veto threat and get his plan through the House and to the Senate for consideration.

House Republican leaders have voiced confidence that their chamber will sign off on Boehner's plan, cranking up pressure on Obama and fellow Democrats in the Senate to make concessions.

But Democrats have denounced the plan, portraying it as a misguided distraction from on-again, off-again talks between the president and the speaker.

Boehner's "Plan B" would shield more than 99 percent of Americans from a tax hike. But it would let tax rates automatically rise on annual incomes of more than $1 million, as scheduled, on January 1.

Obama has proposed a threshold of $400,000 a year in income, up from an earlier $250,000. Any tax increase would be part of a long-sought deal to reduce the U.S. budget deficit.

Unless the White House and Congress reach agreement by the end of the month, a crush of tax hikes and spending cuts are set to take effect, threatening to push the United States over the so-called "fiscal cliff" and back into a recession.

Boehner and fellow Republicans had long demanded that all tax cuts signed into law by Republican President George W. Bush be extended before they expire next month.

But Boehner caved, noting that Obama had won re-election last month promising to raise taxes on the wealthy and thus had the upper hand.

Norquist began circulating his anti-tax pledge to members of Congress in 1986. Over the years, it has been signed by most Republican, helping block countless efforts by Democrats to raise taxes and expand government.

The assessment of Boehner's plan by Norquist's group was quickly circulated by the speaker's office.

"This legislation ... permanently prevents a tax increase on families making less than $1 million per year," ATR said in its analysis.

"Republicans supporting this bill are this week affirming to their constituents in writing that this bill — the sole purpose of which is to prevent tax increases — is consistent with the pledge they made to them," ATR said.

Roth denounced the bill, however, and said lawmakers' votes on it would be used in his group's annual "scorecard" of members of Congress.

Representative Tim Huelskamp, a Kansas Republican, said he would vote against the bill but declined to predict how many of his colleagues would oppose it. Republicans recently stripped Huelskamp of a committee assignment amid complaints he was uncooperative.

(Editing by Sandra Maler and Christopher Wilson)

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