The rich are smarter than you and me. At least in France, anyway.
Perhaps fearing another Paris Commune – or worse, a Socialist rout in next year’s elections – they asked President Nicolas Sarkozy to soak them. Well, not so much soak as sprinkle “in reasonable proportions” with a special tax until Mr. Sarkozy’s centre-right government tames its deficit.
These 16 beneficent big shots led by L’Oréal heiress Liliane Bettencourt have been dubbed les buffetistes français in honour of Warren Buffett, who got the ball rolling outre-Atlantique last month when he called on U.S. politicians to stop “coddling” the super-rich like him.
Thanks to derisively low levies on dividends and capital gains, Mr. Buffett surrendered only 17.4 per cent of his taxable income to the government in 2010. His salaried back-office employees paid twice that rate.
The Oracle of Omaha provoked no similar outpouring of magnanimity among his billionaire buddies in the U.S. Instead, he earned the wrath of The Wall Street Journal, which suggested he “simply write a big cheque to Uncle Sam and go back to his day job of picking investments.”
He at least took the second part of that advice. On Aug. 25, he plowed $5-billion (U.S.) into Bank of America preferred stock. His Berkshire Hathaway will pay an effective tax rate of barely 10 per cent on the $300-million in annual dividends on the shares.
Would Mr. Buffett have made the investment if he and Berkshire were more heavily taxed? He would probably answer yes. But it’s not clear whether most other investors would have made the same decision.
Tax rates do influence behaviour. The slopes of Switzerland are proof enough of that, littered as they are with the villas of French citizens who have fled the higher income and wealth taxes of la patrie.
Indeed, bureaucrats might be able to come up with an efficient tax system – one that raises the maximum amount of revenue without encouraging investment flight – but only society can decide what’s fair. And the French notion of fairness is unlike the American one.
Mr. Sarkozy discovered that belatedly. He took office in 2007 promising to “reconcile France with the idea of success.” But his introduction of a “fiscal shield” to spare the wealthy from paying more than half of their income in taxes has been a public relations boondoggle, with people such as Ms. Bettencourt getting tax refunds.
So, instead of telling his middle-class countrymen to eat cake, Mr. Sarkozy decided to eat crow. On Aug. 24, he imposed a 3-per-cent surtax on those earning more than €500,000 until at least 2013. The new levy will bring in €200-million in 2012, or a mere drop of the government’s €12-billion in deficit reduction measures over two years, though higher taxes on capital gains and second residences will also hit the rich more than others.
Still, proportionally, the poor will pay more. The package introduced by Mr. Sarkozy’s government includes about €1-billion in new levies on cigarettes, hard liquor and soft drinks, the most regressive taxes of them all.
If this is illustrative of anything, it’s that, while there’s no limit to using the rich as a political punching bag, there’s a limit to taxing them.
So, perhaps the debate on both sides of the Atlantic should focus on political influence. There, the rich really are different from you and me.
Barack Obama rails against George W. Bush’s tax cuts for “millionaires and billionaires,” but the 44th President has outdone his predecessor in courting them for campaign donations. He has held dozens of intimate fundraisers for the Democratic National Committee that provide a wealthy few with access to the President for $35,800 a ticket.
Instead of taxing Mr. Buffett more, maybe he should just lose some of his deductions for charitable giving. Mr. Buffett has made a big deal about the Giving Pledge, a vow taken by him and other like-minded people to give away most of their wealth. But isn’t what passes as philanthropy often just a way for the rich to advance their pet political causes?
The hottest cause among Wall Street hedge-fund managers these days is not financial reform. It’s education reform. They have plowed millions into promoting charter schools and got a fat tax deduction for it. But there’s evidence that such institutions skim off the most motivated students, leaving underfunded public schools with the most hard-to-educate ones.
Who says the “causes” of the wealthy are always the best ones for society? The rich may be smart. But the rest of us should not be that dumb.