2013-01-08
The last time I was in Europe, it was Spain’s miners who were protesting government austerity measures that would help Madrid cut €65 billion from its budget by 2015. Today the protest is on the tax side of the aisle. French film icon Gérard Depardieu — in protest over the 75% income tax he must pay — sought and was granted Russian citizenship.
The UK and European papers are covered with the story that the Depardieu has taken exile in Russia. He is the flip side of the saga of the tax hikes and spending cuts that citizens of the United Kingdom and Europe will have to endure as their governments dig their way out of the mountains of debt. The Spanish miners were mad that they would face wage and benefit cuts. Depardieu has left his native France to avoid paying France’s progressive income tax under which the top marginal rate is 75%.
The irony of Depardieu’s flight to Russia has not been lost on the students of the Bolshevik Revolution, which led to the establishment of the first large-scale socialist state. Russian president Vladimir Putin, who extended Depardieu the passport in an obvious rebuke of French socialist president François Hollande’s tax policy, stands behind the 13% flat tax paid in his country.
Liberté, égalité, fraternité
It was the motto of the French Revolution. But as we have seen through the 200 plus years since Marie Antoinette lost her head, the three conditions don’t always co-exist, especially when you are debating a tax law.
Depardieu is not the first tax exile the world has seen. There was a virtual exodus of musicians from the United Kingdom in 1973, when the government raised its income tax to 83% for top earners. According to some reports, the Rolling Stones have managed to pay only 1.6% of their income in taxes over the past 20 years.
The United States Congress, which just agreed to increase taxes on Americans earning over $400,000, has been split by the same arguments, which have divided government, perhaps since the Age of Enlightenment.
Indeed this is a battle that many countries will face as they seek to balance growth and austerity, productivity and job security and essentially the old ways with the new. Who will be asked to accept responsibility for the functioning and well-being of a society? The government or the individual?
It is a question that many countries will have to confront if they want to pull their economies out of recession and remain competitive. Labor costs and benefits, which were at the heart of the miners’ battle, are a major part of the problem and most likely part of the solution, if they can take the medicine, for all Europeans. These types of costs will have to be cut. Those cuts will not be popular among those affected by the cuts, like the Spanish miners. But the United States cannot look on this spectacle with any disdain or comfortable distance. What will it be like, on that day, which must surely come to the United States, when Medicare, Medicaid, and retirement benefits must be cut? How does a government renege on promises made to its people? Who marches in the streets then? And how is the suffering distributed? These questions are alive and in vivid color today in Europe. As the US Congress continues to kick its own can down the road, they will undoubtedly grow louder in the United States.
No forecasts can be guaranteed.
The views expressed are those of James Swanson and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation or solicitation or as investment advice from the Advisor.
24070.58
To Russia with love and tax receipts
The last time I was in Europe, it was Spain’s miners who were protesting government austerity measures that would help Madrid cut €65 billion from its budget by 2015. Today the protest is on the tax side of the aisle. French film icon Gérard Depardieu — in protest over the 75% income tax he must pay — sought and was granted Russian citizenship.
The UK and European papers are covered with the story that the Depardieu has taken exile in Russia. He is the flip side of the saga of the tax hikes and spending cuts that citizens of the United Kingdom and Europe will have to endure as their governments dig their way out of the mountains of debt. The Spanish miners were mad that they would face wage and benefit cuts. Depardieu has left his native France to avoid paying France’s progressive income tax under which the top marginal rate is 75%.
The irony of Depardieu’s flight to Russia has not been lost on the students of the Bolshevik Revolution, which led to the establishment of the first large-scale socialist state. Russian president Vladimir Putin, who extended Depardieu the passport in an obvious rebuke of French socialist president François Hollande’s tax policy, stands behind the 13% flat tax paid in his country.
Liberté, égalité, fraternité
It was the motto of the French Revolution. But as we have seen through the 200 plus years since Marie Antoinette lost her head, the three conditions don’t always co-exist, especially when you are debating a tax law.
Depardieu is not the first tax exile the world has seen. There was a virtual exodus of musicians from the United Kingdom in 1973, when the government raised its income tax to 83% for top earners. According to some reports, the Rolling Stones have managed to pay only 1.6% of their income in taxes over the past 20 years.
The United States Congress, which just agreed to increase taxes on Americans earning over $400,000, has been split by the same arguments, which have divided government, perhaps since the Age of Enlightenment.
Indeed this is a battle that many countries will face as they seek to balance growth and austerity, productivity and job security and essentially the old ways with the new. Who will be asked to accept responsibility for the functioning and well-being of a society? The government or the individual?
It is a question that many countries will have to confront if they want to pull their economies out of recession and remain competitive. Labor costs and benefits, which were at the heart of the miners’ battle, are a major part of the problem and most likely part of the solution, if they can take the medicine, for all Europeans. These types of costs will have to be cut. Those cuts will not be popular among those affected by the cuts, like the Spanish miners. But the United States cannot look on this spectacle with any disdain or comfortable distance. What will it be like, on that day, which must surely come to the United States, when Medicare, Medicaid, and retirement benefits must be cut? How does a government renege on promises made to its people? Who marches in the streets then? And how is the suffering distributed? These questions are alive and in vivid color today in Europe. As the US Congress continues to kick its own can down the road, they will undoubtedly grow louder in the United States.
No forecasts can be guaranteed.
The views expressed are those of James Swanson and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation or solicitation or as investment advice from the Advisor.
24070.58
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