The Atlanticist

France’s economy is stalled. Europe’s second largest economy had zero growth in the second quarter. With a sluggish economy the government reduced its 2011-growth forecast to an anemic but nonetheless still unlikely to be achieved 1.75%.

Growth matters enormously. Growing the pie means life isn’t a zero-sum game. It improves people’s standard of living, and creates jobs and tax revenue. Growth is driven by billions of individual decisions to work, produce, hire, invest, sell and buy, or not, all of which are critically affected by the tax and regulatory burden.

President Sarkozy however appears to have abandoned his idea of reconciling France with the idea of success and incentivizing investment and work.

Faced with a stagnant economy and burgeoning budget deficit, Sarkozy and Prime Minister François Fillon propose growth-suppressing tax hikes. Their austerity program is austerity for the citizenry not the bloated state. Instead of putting a hatchet to government spending, most of their projected €12 billion in budget deficit reduction stems from increased taxes.

Government consumes a whopping 56.2% of GDP in France, more than every major Western economy. If French politicians need an aspirational benchmark, why not Switzerland where government consumes 38.3% of GDP, or better yet Hong Kong where it’s only 18.6%? Does anybody even a committed French étatiste – whether Socialist or notionally Conservative, seriously believe politicians and fonctionnaires are better stewards of his resources than he is?

France’s super-rich provided Sarkozy and Fillon with political cover. L’Oreal heiress and billionaire Liliane Bettencourt and 15 of her kindred guilt-ridden buffetistes français wrote an open letter calling for higher taxes on France’s most affluent. Publicis Chairman and CEO Maurice Levy said it was “only fair that the most privileged members of our society should take up a heavier share of this national burden” and “… right now this is important and just.” Au contraire! there is no worse time to increase taxes than in a an economic downturn. France’s affluent have caught the same guilt bug that’s infected the sage of Omaha multibillionaire Warren Buffet who’s been sanctimoniously clamoring for higher taxes on America’s rich. If Madame Bettencourt and her peers want to assuage their guilt they could write the government a check. They would however do more good investing the money in wealth-producing activities in the private sector.

Given a 2011 budget deficit of €96 billion, the government’s plan delivering only €12 billion in putative savings in 2012 is not serious deficit reduction.

Sarkozy and Fillon’s plan is anti-growth. Channeling America’s chief job destroyer President Barack Obama they’ve announced they want to increase marginal personal income tax rates 3% for those earning over €500,000, to hike certain capital gains taxes to 13.5% from 12.3%, and to cap tax exemptions for overtime pay. They also seek to increase taxes on tobacco, soft drinks, liquor and amusement parks, as well as eliminating a variety of deductions.

Whatever you tax you get less of and whatever you subsidize you get more of. France subsidizes indolence and taxes wealth, work and wealth creation. Raising capital gains and personal income taxes on the rich is exactly the wrong policy in an economic downturn. The dastardly rich create jobs. Reducing marginal personal and corporate income taxes would spur growth. Capital gains taxes are harmful. They tax wealth creation and inhibit capital mobility. Eliminating them would give the French economy a testosterone booster shot.

The Heritage Institute’s 2011 Index of Economic Freedom ranked France as the world’s 64th freest national economy , as only “moderately free.” That’s less free than every major EU economy except Italy and less free than such worthies as Georgia, Uruguay, Oman, Armenia, Jordan, Saudi Arabia, Jamaica, Bulgaria and Romania.

While given the huge number of Frenchmen who are employees or wards of the state correcting course would be politically difficult, great leaders lead. Sarkozy and Fillon should sell their countrymen on and adopt pro-growth economic-freedom-enhancing policies. Making France a high-growth free economy would be an historic accomplishment, benefiting the Gauls, Europe and indeed the world.

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