The public choice of higher French tax rates

by on March 8, 2012 at 1:36 am in Law, Political Science, Sports | Permalink

Remember last week when Hollande and the Socialists proposed a top marginal rate of 75% and enjoyed a boost in the polls?  Suddenly the idea is meeting with greater public resistance:

Even though the vast majority of earners in France wouldn’t be liable, Hollande’s tax has been a headline-grabber in the presidential campaign, partly because football is proving to be among the most vocal of its critics. Only income above 1 million euros ($1.31 million) would face the top whack of 75 percent. The first million earned would be taxed at lower rates. Just 3,000 of the highest-earning taxpayers in France are likely to be affected.

From French league president Frederic Thiriez down, the refrain is often the same: top players will flee to countries with lower taxes, leaving France — the 1998 World Cup champion — with second-rate football. Thiriez estimates 120-150 players — about one-quarter of those in France’s top division — earn enough to make them liable for Hollande’s tax. In Italy, Germany, England and Spain, which have Europe’s strongest leagues and clubs, top income tax rates range from 43 to 52 percent. The current top rate in France is 41 percent.

“It would be the death of French football,” Thiriez told sports newspaper L’Equipe. To RMC radio, he spoke of a “catastrophe” and of France relegated to “play in the second division of Europe, along with Slovenia or countries like that.”

Michel Seydoux, president of current French champion, Lille, said Hollande’s tax would produce “an impoverished spectacle.”

Still, there is pushback:

He’s thrown back the criticism from football, suggesting it is living too well. Specifically, he cited the multimillion euro salary the Qatari owners of Paris Saint-Germain reportedly pay their Italian manager, Carlo Ancelotti.

“Football administrators need to clean house a bit,” Hollande said. “Does the level of our league justify such astronomic salaries?”

…”When you see their cars in the garage here, it makes you sick,” said Thomas Mascheretti, a fan who approved of Hollande’s proposal.

File under: Ideas have Consequences.

The article is here, and for the pointer I thank Fred Smalkin.

Rahul March 8, 2012 at 2:08 am

>>> Only income above 1 million euros ($1.31 million) would face the top whack of 75 percent. [...] Just 3,000 of the highest-earning taxpayers in France are likely to be affected. <<<

France has only 3000 millionaires? Apparently the US has about three million millionaires. A simplistic population scaling would predict 600,000 for France. Agreed one has to account for $-Euro parity, relative wealth etc. yet, 3000 seems a very low number.

Matt March 8, 2012 at 2:12 am

Not all millionaires earn $1,000,000 per annum.

Rahul March 8, 2012 at 2:15 am

Stupid me.

Matt March 8, 2012 at 2:19 am

Around 400,000 US dollar millionaires in France, it seems.

Rahul March 8, 2012 at 2:49 am

Bases on IRS tables (2009) the number of $1,000,000+ returns filed was 235,000. Not entirely sure I’m reading the complex IRS tables right, especially family versus individual returns.

Yet, France seems to have 10x lower million-income individuals (population adjusted). Could be, yet interesting.

Sam March 8, 2012 at 8:49 am

The proportion of million dollar salaries is limited by the extent of the market

Floccina March 8, 2012 at 11:38 am

Great comment by Sam. Why is it seldom discussed.

dearieme March 8, 2012 at 4:42 am

Everyone is sometimes, R.

Bill N March 8, 2012 at 7:33 am

Scaling isn’t right mathematically. A quick wikipedia search indicates French GDP is around 70% that of the US. However, income is not normally distributed, it is a highly skewed Pareto. the $1,300,000 earners are way out on the tail of that distribution. I cannot tell if 10x is right, but it is plausible.

More likely is that there are, indeed, fewer very high incomes. France is not mineral wealthy and high end wages are probably not quite so lucrative for cultural reasons.

Lou March 8, 2012 at 9:38 am

This is actually an important point. One that is always brought up by the right and ignored by the left. Statistical cohorts and human beings are not the same thing. Even if 3,000 is the right number, the composition of the top 3,000 is always changing, so over ten years you’re likely to have at least 20,000 people who are affected.

And I really doubt 3,000 is really the correct number, unless there’s already a huge amount of income tax avoidance going on.

jdcarpentieri March 8, 2012 at 3:20 am

Or File under: France is already in the 2nd tier of European football leagues, even with a lower tax rate than the top-tier leagues.

French boy March 8, 2012 at 5:47 am

True.
That’s actually an argument in the current debate: France is already not able to win an European championship.
So who cares?

jdcarpentieri March 8, 2012 at 8:50 am

If they raise their taxes, they’ll get so bad that they won’t even be able to beat Cypriot sides.

dearieme March 8, 2012 at 9:00 am

hee, hee.

French boy March 8, 2012 at 11:08 am

Once you’re out of the championship, you’re out.
It doesn’t matter if you’re out in the first or second round.
At least it shouldn’t matter enough to impact a whole fiscal policy.

happyjuggler0 March 8, 2012 at 6:45 pm

Well, it depends on what tax rate you are talking about. How many of the top tier countries have a wealth tax? You have to take it all into account when figuring out individual incentives.

8 March 8, 2012 at 4:44 am

I’m not full up on European football rules since I couldn’t care less about it, but don’t the countries limit the number of foreign born players anyway? The NHL, to my knowledge, may be the best example of cross-border tax and currency rates affecting the ability to pay top talent.

Emanuele March 8, 2012 at 6:22 am

Only players coming out of the EU-zone can be, and usually are, limited. Doing otherwise would be an infringement of free-to-move labor among countries signing the Schengen treaty.
For example in Italy you can hire at most one extra-EU player per trading season, but in the market a French player is equal to an Italian one.

dearieme March 8, 2012 at 4:44 am

Interfering transparently with Bread and Circuses is a dangerous game.
P.S. Do footballers in Italy actually pay much income tax at all?

Doc Merlin March 8, 2012 at 5:25 am

This is why many european countries exempt income gained from art in taxable income.

byomtov March 8, 2012 at 5:13 pm

So good accountants are tax-exempt?

Emanuele March 8, 2012 at 6:30 am

To allow for easy comparison among offers in different countries, usually top-contracts are made on the net amount, with clubs paying taxes for them.
To pay a player a 5M€ wage, in Italy costs to the club around 10M€.
This was often a debate argument in Italy, since players in Spain had* advantageous rates, while in England taxation is generally lower, allowing unfair competition among top-clubs, clubs with European competitions as their main target.

* that was true only before the crisis. One of the “austerity” measures of Rajoy was to remove those advantages. I think now taxation is similar to Italy, if not greater.

Kevin March 8, 2012 at 5:28 am

”When you see their cars in the garage here, it makes you sick,”

My my, what naked jealousy.

French boy March 8, 2012 at 5:46 am

According to Tocqueville, it is called French passion for equality.
In the US the default is to believe that rich people deserved it.
In France the default is to believe that rich people stole their wealth.
Neither of them being entirely true of course.

Steve Sailer March 8, 2012 at 5:38 am

Most American professional golfers live in Texas or Florida to avoid paying state income tax. For example, Tiger Woods legally moved from his native California to Florida on the day he turned pro.

Mike March 8, 2012 at 7:27 am

I’m sure that’s a significant piece of it, but in Isleworth, Tiger can play year round.

And “legally moved” comes across as if you question whether he really moved (vs. changing his driver’s license and few other technicalities). I’m sure California would have made him pay taxes there if he hadn’t really moved (NY does this to people who try to claim vacation homes in Florida as their “residence”, so I assume California does too).

Urso March 8, 2012 at 2:39 pm

California charges income tax on any income earned in the state no matter where you live. So when Tiger plays the course in Monterey, he has to pay CA earnings on whatever winnings he gets.

Slocum March 8, 2012 at 5:54 pm

Right, but he doesn’t have to pay CA income tax on his non-golf (e.g. endorsement) income.

Andy March 8, 2012 at 7:58 pm

That’s true of essentially every state.

Paul Zrimsek March 8, 2012 at 7:35 am

I’m a bit surprised that the footballers’ argument is getting any traction at all. After all, pretending to be injured is what they do for a living.

anon March 8, 2012 at 8:28 am

pretending to be injured is what they do for a living

Then you are watching the wrong games.

Football = soccer = the beautiful game

Never cared about sports until about 5 years after one of my children started playing competitive soccer. Then he had a coach from Spain who loved the game and who was happy to talk about the game with people like me who thought it was a stupid sport. As I learned more, I started to see how beautiful a game it really is. My friends and family think it is hilarious that in my late 40s I became a huge soccer fan. I love the Spanish teams. So does the economist Xavier Sala-i-Martin:

http://www.columbia.edu/~xs23/Indexmuppet.htm

dearieme March 8, 2012 at 9:03 am

Ah, but have you played it? It makes a difference, you know.

dead serious March 8, 2012 at 9:12 am

I, too, love soccer – watching and playing – but you have to admit that flopping (looking at you, Italians) can really sour a game.

Or a World Cup.

dearieme March 8, 2012 at 12:54 pm

It didn’t happen In My Day. If anyone had tried that in my Scottish youth, they’d probably have received a kicking from both opponents and teammates. Autre temps…..

Yancey Ward March 8, 2012 at 3:10 pm

Bravo! Wish I had thought of that one.

@jdcarpentieri March 8, 2012 at 8:57 am

Given the French public’s current disgust with the national side members (who almost all play in countries with slightly higher tax rates), and the consistently rubbish performance of the top French clubs (Apoel Nicosia, anyone?), I can’t see the public getting on the side of the footballers in this one.

File under Failure Has Consequences?

Explanatory links:
consistently rubbish performance : http://en.wikipedia.org/wiki/UEFA_Champions_League_clubs_performance_comparison
Apoel: http://www.guardian.co.uk/football/2012/mar/07/apoel-nicosia-lyon-champions-league

Bender Bending Rodriguez March 9, 2012 at 2:53 am

At least they have rugby. Should be no problem for them to beat up a little country like New Zealand… Oh, wait. Sorry, got that backwards.

Colin March 8, 2012 at 9:18 am

Cato expert commentary on taxes and soccer:

http://www.cato-at-liberty.org/an-uneven-playing-field/

JohnGalt March 8, 2012 at 9:23 am

Clearly what France needs to do is pass this law with a “Football exemption” and then raise the marginal to 85% to make up the difference.

happyjuggler0 March 8, 2012 at 6:38 pm

Shhhh!

Lou March 8, 2012 at 9:40 am

Imagine if French people were capable of generalizing this principle to all industries. Baby steps, I guess.

Jamie_NYC March 8, 2012 at 10:50 am

+1

axa March 8, 2012 at 2:19 pm

winner!!!!!

Rahul March 8, 2012 at 9:45 am

The nations cannot discriminate against non-citizen Schengen nationals. But does the rule apply to private employers too? Maybe a language fluency requirement could be a workaround.

Rahul March 8, 2012 at 9:51 am

Could it be that France has generous deductions?

Million earners much greater than million earners for taxation purposes? Alternatively, how serious is the millionaire bleed to rich-friendly neighbors? Belgium, Luxemburg, Switzerland, Monaco: quite a convinient hop away.

Chris F. Masse March 8, 2012 at 10:50 am

Top soccer players are promised by contract a net salary. Taxes are paid by the clubs. That’s why soccer club bosses are whining.

Slocum March 8, 2012 at 5:59 pm

That’s a distinction without a difference — the club can afford only so much payroll. If they’re making ‘net salary’ offers, then ceteris paribus those offers will have to be lower in high tax countries in order to pay the tax.

alex March 9, 2012 at 4:07 am

The thing is that, in France, income taxes are based on your net salary (why is it called net salary then? nobody really knows). So players who have already signed a contract will effectively pay the tax, unless they renegociate.

Willitts March 8, 2012 at 10:56 am

Bread and circuses.

R. Richard Schweitzer March 8, 2012 at 11:26 am

Among socialists, and other social constructivists, the perversion of taxation from the singular purpose of providing revenues for the functions of governments to the implementation of other objectives arbitrarily selected for other purposes, is seen as a crucial element of policy – through its coercive force.

Jim Timmy March 8, 2012 at 1:29 pm

There is an excellent paper on this from Henrik Kleven, Camille Landais, and Emmanuel Saez. Here is the abstract:

“This paper analyzes the effects of top earnings tax rates on the international migration of top football players in Europe. We construct a panel data set of top earnings tax rates, football player careers, and club performances in the first leagues of 14 European countries since 1980. We identify the effects of top earnings tax rates on migration using a number of tax and institutional changes: (a) the 1995 Bosman ruling which liberalized the European football market, (b) top tax rate reforms within countries, and (c) special tax schemes offering preferential tax rates to immigrant football players. We start by presenting reduced-form graphical evidence showing large and compelling migration responses to country-specific tax reforms and labor market regulation. We then set out a theoretical model of taxation and migration, which is structurally estimated using all sources of tax variation simultaneously. Our results show that (i) the overall location elasticity with respect to the net-of-tax rate is positive and large, (ii) location elasticities are extremely large at the top of the ability distribution but negative at the bottom due to ability sorting effects, and (iii) cross-tax effects of foreign players on domestic players (and vice versa) are negative and quite strong due to displacement effects. Finally, we estimate tax revenue maximizing rates and draw policy conclusions. ”

In other words, high tax rates do repel football players. It’s funny how the only time I’m interested in sports is when it involves tax policy.

Here is the link:

http://www.nber.org/papers/w16545

gasb March 8, 2012 at 5:27 pm

“There is an excellent paper on this from Henrik Kleven, Camille Landais, and Emmanuel Saez”

These guys have entirely too much time on their hands…

jorod March 9, 2012 at 12:14 am

Being in socialist paradise is hell.

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