On Friday September 28, French President Francois Hollande officially rolled out his plan to trim the national debt by getting increased revenue from high-income earners. This is a plan that he consistently lobbied for on the campaign trail, and it continues to be controversial. The French President's 2013 budget includes a tax of 75% on all income over one million euros, in an attempt to reduce France's budget deficit without implementing austerity or hurting the purchasing power of low-income families.
In previous decades, the tax rate on the highest income bracket(s) were shockingly high in many countries, but the more modern understanding of how tax burdens hurt economic growth has caused such policies to be considered essentially obsolete. Some people believe the top taxes rates should be quite low to facilitate maximum economic growth, while others believe it should be higher, but very few would advise that the tax rate increase that far above the average in the western world.
The fact is that trying to rely on crazy tax increases or devastating budget cuts are both similarly bad ideas. On paper, they might not seem like awful ideas, but the fact is that both fail to account for the effects on investment, consumer spending, and business development and growth. Massive budget cuts will hurt the demand for goods and services, leaving little reason for many businesses to expand and create jobs, while these tax increases will hurt consumer spending and investment.
There is an argument to be made that in the midst of a struggling world economy is not the ideal time to handle the budget, but if deficit reduction is going to happen, lopsided solutions like this are ill-advised.