France’s Socialist President, François Hollande, is finally getting negative public pushback for his proposed “supertax.” This central tenet of his 2012 campaign slaps a 75 percent marginal tax on all individuals, working for businesses, who earn over one million Euros ($1.3 million) in salary.
Outrage is not due to respect for economic liberty, or the disincentives to work of higher marginal tax rates. People are angry because the competiveness of French soccer teams will suffer.
Michel Rousseau, President of the Concorde Foundation, a limited government think tank, had this to say about Hollande’s proposal, "It's a symbolic tax he wanted to hold on to at all cost, but this is ridiculous and absurd… He will raise absolutely nothing, people will cheat like crazy.” One result of the supertax Rousseau leaves out is high income taxpayers leaving the country.
Many of France’s top soccer players do not feel deep allegiance to France. If a majority of their earnings are going to be taken to service France’s $2.4 trillion in public debt, 93 percent of its GDP, or pay for its vast entitlement programs, they will simply move. World-class talent is always in demand. Countries that set lower marginal tax rates, such as Germany and the United Kingdom who both have top rates of 45 percent, are poised to benefit from France’s policy.
Zlatan Ibrahimovic, a striker for Paris Saint-Germain, is being paid €14 million in 2013. Ibrahimovic is a Swede and captain of the Swedish national team. What would keep him playing in France if €10 million of his salary suddenly disappeared?
It is possible, but unlikely, that large, world-renowned clubs, such as Paris Saint-Germain, could afford to retain their star players. But what about smaller clubs who cannot pay for the luxury of having multiple stars with inflated salaries on their rosters? French fans realize exactly what would happen to those clubs, hence the uproar over the supertax.
It is not hard to see why the people of France fear for their teams’ competitiveness. This year’s NBA finals featured the San Antonio Spurs and Miami Heat. These two teams are both from states that charge no personal income tax.
On the other hand, the Portland Trailblazers failed to make the playoffs this year—again. Is that really surprising considering that Oregon has a personal tax rate of 11 percent on income over $250,000?
LeBron James probably had a valid economic reason behind “taking his talent to South Beach.” By signing a deal worth $17.5 million a year with the Heat instead of a team like the Sacramento Kings, he saved himself almost $1.8 million in state income tax (ignoring federal taxes). When his estimated $39 million in earnings from endorsements are added, his yearly savings increases to $5.8 million.
The supertax, along with other attempts to “soak the rich,” is largely a symbolic measure—it will only directly affect a little over 1,000 taxpayers. However, far more people are indirectly affected. This is a classic case of what the 19th century French political economist Frédéric Bastiat argued in his essay, “That Which is Seen, and That Which is Not Seen.” A few millionaires (such as soccer stars) being saddled with additional taxes and threatening to leave the country are what is seen. What is not seen are the economic opportunities they forego or take abroad because of the increased tax burden.
A soccer team serves as an informative microcosm of a national economy. Some stars are paid substantial sums. This might seem unfair to back office workers and stadium concession stand employees. While these employees are undoubtedly providing value to the club, they forget that without the stars and club’s executives there would be no club at all. They would be without their job, the country would be out the tax revenue, and fans would lose one of their favorite forms of entertainment.
Basic economic sense has failed to convince our policy makers that taxpayers respond to incentives (and disincentives). Maybe public outrage over sports teams losing their talent and competiveness is the best hope to bring marginal tax rates down in France and the rest of the world. For now, German and British soccer fans rejoice.
Jared Meyer is a research associate for the Manhattan Institute for Policy Research
