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Trump Shouldn’t Gloat Over France's Yellow Vests

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(Bloomberg Opinion) -- Donald Trump is enjoying Emmanuel Macron’s struggles with the gilets jaunes. In a tweet this week, he said the French had come around to his skepticism about the Paris climate change agreement and the cost of fighting global warming.

The billionaire U.S. president should be less smug. What started as a howl of anger about fuel duties is fast morphing into a broader movement to get the rich to pay their fair share of taxes overall. The same forces that are now pressuring Macron to reverse his tax breaks for the wealthy – which he’s resisting – could easily take root in Trump’s America or Brexit Britain. Justifiably so, if inequality is any guide.

Support for more taxes on the rich is growing, and not just in France, which is one of the few developed economies to still have a wealth tax. According to recent polls, three-quarters of Americans favor higher taxes for the rich, as do Brits. As the yellow jackets have shown, this impulse for a fairer social contract goes way beyond the political left. The idea of taxing top earners’ capital as well as income is becoming more palatable, according to a 2017 paper for the Washington Center for Equitable Growth based on U.S. surveys. This is new.

The paper found that American attitudes lean toward a wealth tax of about 1 percent, similar to French academic Thomas Piketty’s call for a 1 or 2 percent tax on global wealth. Piketty has criticized Macron’s bid to ease the load on his richest compatriots, but he also acknowledges that demands for a fairer distribution are a global phenomenon and need to be tackled as such. If that's the case, it’s not just French politicians who should fret. Trump’s own tax reforms have done little for American workers.

Indeed, it’s the U.S. that’s experienced the most remarkable rise in developed-world income inequality over the past 35 years, according to OECD data, with the top 1 percent now taking home about a quarter of the pay. It was less than 10 percent in 1980. Over the same time-frame, the U.K.’s richest saw their income share rise about 10 percentage points to nearly 15 percent. The same measure in France has barely budged from less than 10 percent.

Wealth inequality is harder to measure, but it has narrowed in France since 2000 while increasing rapidly in the U.S, according to the OECD. The top 1 percent of rich Americans now have about 40 percent of the country’s net wealth.

The tough thing about tackling this is making sure wealth taxes don’t just become an expression of the “politics of envy.” We need incentives to create riches. But we also need to put them to productive use, rather than hoarding assets in the assumption they’ll rise in value. If I own land or property that’s not being used and not generating income, a wealth tax of 1 percent might encourage me to use it to generate returns above this level, or sell it to someone who will. 

This, in his defense, is what Macron has tried to do. France’s old wealth tax brought in more revenue but there were myriad carve-outs, opt-outs and exemptions. It also acted as an incentive for people to take their assets abroad. By narrowing the tax to just property, Macron has stuck to things that can’t be moved out of the country in the same way as stock and bond portfolios and other investments. That’s a spur for wealthy individuals to consider repatriating to France, a serious consideration as Paris tries to seize advantage of the City of London’s Brexit wounds.

As clumsy as Macron’s tax reforms have been, it’s hardly as if he’s suddenly embraced a tax-light economy or a sudden conversion to “trickle-down” economics. France remains a big taxer, a big spender, and a big redistributor.

Macron may well end up being the latest resident of the Elysee Palace to fail to water down his country’s wealth taxes. But whereas in the past this might have been viewed as a peculiarly French thing, this time around the implications are global.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering finance and markets. He previously worked at Reuters and Forbes.

©2018 Bloomberg L.P.

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