Tax Break

John Fisher, international tax consultant

Archive for the tag “75% tax”

A dope makes a hash of things

Not funny? Charlie Chaplin was a genuine fan

Not funny? Charlie Chaplin was a genuine fan

Depressingly, whenever I mention British Humour (sic) to an American  I receive the stock response: “Benny Hill!” I used to fight back, arguing that Hill’s humour was cheap smut eventually only permitted for export (to America), while true British Humour was a cerebral affair of the utmost sophistication. Balderdash!  I was kidding myself. Benny Hill was a late 20th century take on the Bedroom Farce genre that had been highly popular since late Victorian times and reached its zenith in the 1960s in the person of Brian Rix and his famously dropping trousers. One of the main ingredients of a Bedroom Farce is that the acting is frenetic with the audience  not given time to think; all laughter is on impulse, à la Benny Hill.

They are generally a lot worse

They are generally a lot worse

The one and only time I attended a Farce was at the impressionable age of 14,  in August 1972.  All I can remember is that “The Man Most Likely To..”  staged that summer season at the end of Bournemouth Pier, involved lots of slamming bedroom doors and Henry McGee, Benny Hill’s long-suffering straight man, displaying his naked derrière to a guffawing audience. On leaving the theatre, apart from a roaring trade in beach balls and rock candy, there was an ample selection of Robert McGill’s saucy postcards featuring cartoon depictions of leering men and buxom ladies from a bygone era – quintessentially British smut. (If you are ever looking for a sure way to get an Englishman to snigger, just say the word “Bottom” in a suggestive tone – disappointed punters guaranteed their money back).

While Lord Rix’s 90th birthday next week would be reason enough to bring Bedroom Farces and Benny Hill to mind, I admit that the recollection  had more to do with the antics of the current hapless occupant of the Élysée Palace. It is apparent that President Wheredidiputmyshoes  has – Ooh La La! – been banging rather too many bedroom doors in the course of his career, and has lately been having acute difficulty  deciding where to wake up. This moral confusion must surely be taking its toll on his already abysmal record in running the country. Take, for example, his New Year speech in which he had an epiphany and all of a sudden said that everyone was paying too much tax. A noble line for any sane Frenchman but, lest we forget, he is actively clobbering high income earners this year with a 75% marginal tax rate (albeit levied on employers) that was finally approved by the Constitutional Court as they kissed goodbye to 2013. This ordinary man  never actually married so, technically free to wander, does not appear to have any guiding star. If France is not careful, he could lead the entire nation into the River Seine (the Left Bank of which God is unlikely to split for those Gitanes-smoking Parisian intelligentsia).

"I said POT Shop!"

“I said POT Shop!”

Across the pond, the Americans are having their own problems with their moral compass. On January 1, Colorado became the first State to permit recreational marijuana. I don’t know whether  weed is a good thing or not (I do really, but I don’t want you to think that I am a narrow-minded tax accountant). What is clear , however,  is that this thing has not been thought through. Because growing, processing and selling pot are still Federal offences, and despite Washington stating that the Feds will hold off – if you are a Coloradoan wanting to feed your habit with a little sideline in cultivation, you will not be able to open a bank account due to federal money laundering rules. If you cannot open a bank account, you will have difficulty running a kosher business in the stuff – meaning that you are unlikely to pay tax. And while we are on the subject of tax, Big Brother has to decide where pot should be classified in the  excise tax hit parade. Does the fact that alcohol leads some people to kill while marijuana leads others to float, mean that it should be taxed more lightly than alcohol, which for some (like me) is a little hard to swallow? At present the state tax on cannabis is much higher than on alcohol. And what about when comparing a joint to a publicly ostracized cigarette?

When I read about Western Government decisions these days – from muted reactions to Syria and Iran to juvenile brawling on Capitol Hill – I  picture the entire Western World on its back  floating calmly down a river late at night, reefer in mouth and girl at each side, not quite managing to focus on the shining stars in the clear night sky and blissfully unaware of the waterfall ahead. There must be a moral in there somewhere, or maybe not.

Shooting at goal

I would have voted for him

I would have voted for him

I love municipal elections. Two weeks ago the incumbent mayor of my sleepy town (population 70,000 – the locals insist on calling it a city even though they would not fill Wembley Stadium) was lawnmowered into political oblivion by his predecessor, who decided to stand for the only apparent reason that he could not think of anything better to do.

The local political scene is the crucible of pork belly politics – nothing, but nothing, gets done for four and a half years of a five year term and then, miraculously, the new kindergartens appear, the children’s playgrounds swap dooda infested sand for state-of-the-art rubber and the garbage collectors start churning the rubbish three times a week instead of two.

Years ago I went to my one-and-only parlour meeting. To the abject horror of the assembled Ra Ra girls and their compliantly docile husbands, I dared to ask the ineffable: “Why did you not deliver on your promises in the last election?” Without flinching, the porcine head of the party we were expected to vote for looked me straight in the eye and retorted: “Because I am a politician”. A liar who had the honesty to tell the truth. I voted for him.

Mr Magoo

Mr Magoo

I do wish President Popularity-Disappearing-Up-His-Derrière had a little more guile. I don’t think the actions of France’s First Citizen are the result of unswerving honesty; rather, they fuel the suspicion that he is Forrest Gump, Mr Magoo and Chance the Gardener rolled into one.  His latest gaffe was to persist with his election-promised  75% marginal tax rate for the wealthy  even after the courts had deemed it unconstitutional. Any normal human being not desperately chasing a single digit approval rating would have grabbed the chance to dump the idiotic proposal and blame the judiciary. Not Francois the Great. Similar to the Irish prisoner who showed his executioner why the guillotine was jamming, he curved the ball around the constitution and proceeded to pronounce that, subject to parliamentary approval,  the  two-year 75% tax rate on the estimated 1,500 individuals earning more than a million euros still left in France will now be levied on the companies paying the salaries. Plus ça change, plus c’est la même chose.

Income taxes should achieve one of two things – either be neutral in their effect on the economic decision-making process, or redistribute income to the less well-off. President Einstein’s plans boldly seek to achieve neither. Many wealthy individuals have buggered off to Belgium (one or two via Russia) while even a 110% tax on the earnings of 1,500 individuals does not a balanced budget make.

To add insult to injury, it turns out that an awfully disproportionate share of the 75%  burden will fall on the unavoidably labour-intensive football league. The soccer supremos  had been keeping schtum since the announcement of the revised tax back in March because they assumed that they would be exempt (this was, after all, a tax aimed at fatcat businessmen). It now transpires that the major clubs will need to pump-up their already obscenely high salary costs since the players cannot realistically kick off to Bruges. The threat of a weekend-long shut-down (not a WHOLE weekend, surely?) at the end of November has failed to move the tumbrel chasing population of France who still remember the last time French football closed down – on the pitch at the 2010 World Cup.

Trawling the Parisian sewers  of the internet (even the stuff in French, in case there was information hiding there) I could not find a single explanation of exactly how this bombshell of a tax is to be calculated. My hunch (and it is no more than a hunch) is that the employer will simply make up the difference between the employee’s marginal rate (currently an effective 49% including surcharge) and the 75% rate. If that is the case, the damage is a hell of a lot less than 75%. For example, take a fictitious player – Xenophobia Burka of FC Beaujolais in Ligue 1 who gets €2 million a year for kicking a leather-encased pig’s bladder around a large, enclosed garden which does not even have a flower-bed.  His second million is currently liable to 49% tax (for simplicity, let’s call it 50%) , which means he currently takes home € 500,000. If his employer, FC Beaujolais, is required to pay 25% (the difference between 75% and 50%) on the second million, that is an additional € 250,000. This implies an effective marginal tax rate to the employee of 60% (his net pay of € 500,000 is 40% of € 1,250,000)  although, in this case, the entire burden falls on the employer – an approximate 16% penalty after expensing for corporate tax purposes – a lot less frightening than the 75% headlines.

Alternatively, if under their contract the club could pass the tax cost on to Burka, the second million would come down to € 800,000 (the employer would pay 25% tax on that bringing the cost up to a round million) and Burka would take home € 400,000 – effectively 60% marginal tax again. Given that the enhanced tax rate is only to apply for 2 years, this is hardly a reason to sell the Ferrari.

Is the Great French Football Tradition about to be consigned to the history books?

Is the Great French Football Tradition about to be consigned to the history books?

If I have got this wrong and President We-Will-Never-Win-Another-World-Cup-As-Long-As-I-Can-Help-It really does intend to put the boot in with full gross-ups for the 75% calculation, assuming player contracts are sacrosanct, it looks like the teams of the Ligue really might have to hang up their boots. That would be yet another magnificent Own Goal for the President of the Fifth Republic. Keep ’em coming, Frankie.

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