February 28, 2015

The Socialists Have Taken France

I’ve been watching the French election.  Hollande won.  He has promised a 75% income tax on the rich and vows to, “re-negotiate a European treaty on trimming budgets to avoid more debt crises of the kind facing Greece.”

The Socialists Have Taken France - La Dordogne, vue depuis les hauteurs de Domme, Dordogne.

The Socialists have taken France.

Looks like we’re selling the French stocks in the retirement funds.  I’m not dealing with this s**t.  Forgive me the language.  Life is too precious, and too hard, to deal with thugs who don’t understand human nature and the velocity of money.  

A fundamental rule of humanity is that people go where they feel secure and appreciated.  I love the United States.  If the United States took $75 out of every $100 I earned, do you think I would stay here?  If I did, do you think I’d work anymore?

Various states within the United States have tried these policies.  Maryland passed a Millionaire’s tax a few years ago.  The legislature estimated an extra $106 million in tax revenue.  Instead, people changed their behavior.  Roughly 1 out of every 3 millionaires left the state and made their summer vacation homes their primary residences.  The result was a $200 million drop in tax receipts.  The state was poorer.  

Sometimes, I feel like human culture is a war between producers – good, honest men and women who love their job and work very hard being teachers, doctors, lawyers, accountants, business managers, and start-up founders, striving to better the world and create value – and entitled parasites, who think everything should be provided.  These parasites seem to believe that simply by virtue of being born they are entitled to an income, to a secure retirement, to not have to compete.

Every man is equal in human dignity.  Not every man is equal by virtue of our decisions, choices, and actions.  A guy who works his way through medical school, toils nights for decades until he finds the cure to an infectious disease, and licenses the cure to a pharmaceutical company deserves to be obscenely, offensively rich.  He shouldn’t be “equal” with another family practice doctor who has not found a cure to a disease.  He provided so much value to society, he deserves to be driving a $200,000 car and flying around in a private jet.  

Such an outcome is just.  It is right.  That is, thus far, at this juncture in my life, I’ve provided a lot of value to society and received a lot of claim checks on that society in exchange; claims checks we call money.  Steve Jobs provided much more value to society through the products he created at Apple.  As such, he died much richer than I am now.  Such an outcome is good.  It should be this way.  If want to make as much money as he did, I’ll have to find a way to provide more goods and services to people over the next few decades of my life, satisfying their needs and wants.  

Entitlement is a cultural cancer.  To paraphrase Aldous Huxley referencing his watershed work, Brave New Work, freedom is the right to struggle.  Freedom is the right to be broke if you make bad decisions.  It is the right to be fat if you eat poorly.  Freedom is the right to be miserable if you have no self-control.  Freedom is the right to fail.  Freedom is the right to die an abject loser.  Freedom gives life meaning.  Without the possibility of failure, success has no meaning.  As the famous saying goes, no one would enjoy golf if you were guaranteed to hit a hole-in-one every shot.  There would be no point in playing.

I imagine the Germans are feeling more frustrated than ever.  Hollande’s promise essentially boils down to telling the Germans, “We’re sorry.  We live beyond our means.  We aren’t going to cut our budgets.  Give us more money.”  The Euro has been a disaster.  You cannot unite disperate cultures under a single currency unless the budgetary controls are also under the same authority.  

Update: It took less than a few hours for major international newspapers to begin writing stories like, “Will France’s Rich Head for the Border?“.

  • Sindromx

    It’s a sad day for my country…

    We knew the futur wasn’t the brightest, but this just made it darker, by far.

    • Joshua Kennon

      I’m sorry you have to go through this.  France has a great history.  As with all great stories, some chapters are dark, but many of the greatest philosophical, legal, and cultural traditions came from the French people.  Without her help, my country wouldn’t even exist.  It may be painful, but I have faith that she’ll eventually be healthy and prosperous, again.  I just hope I’m still young when it happens.

  • Ian Francis

    In the last 5 years Europe has gone from a thriving interconnected economy to a bunch of failed, failing, or about to fail countries. Greece is in pieces, Italy and Spain are seriously struggling, France is potentially headed in a disastrous direction, and I seriously worry about Germany. That pretty covers all the major players in the EU. And it all looked so rosy just a few years ago.

  • Scott Mc.

    The really sad thing about all this for Americans is the continuing strength of the Euro relative to the US Dollar.  12 years ago, the two currencies were at parity.  Yet now, even with the troubles in PIIGS, the Euro is still worth nearly  30% more than the Dollar.  Even the worst sovereign debt crisis to hit Europe in my lifetime hasn’t been enough to reverse the damage that our government has done to our own currency – even on a relative basis.

  • FratMan

    Looks like we’re selling the French stocks in the retirement funds. ”

    Even Total SA?!?!?! Say it ain’t so!

    • JJ


  • JJ

    Looks like it’s a good time to buy the French stocks in my retirement funds.  If everyone else (like you) is selling, that is.  :o)

    • Joshua Kennon

      A stock is only worth its intrinsic value, which is defined the present value of the net discounted cash flows that can ultimately find their way into the owner’s hands. If the money is confiscated along the way, the intrinsic value has changed. It’s no longer cheap, even at 5x earnings. To not include tax rates in the model is an enormous oversight. You could convince yourself a stock is cheap because of a high earnings yield, when in reality, it is just as expensive as one selling at 70x earnings with low organic growth.

      Benjamin Graham talked about this in an essay back in his Columbia days that I have around here somewhere. He was discussing the policies of a few post-World War II countries to announce sudden restrictions on capital so money couldn’t leave the borders; specifically, how such a situation would influence the valuation of a business once an investor were forced to find reinvestment projects within the particular nation in which his money was held hostage.

      Even that type of government restriction is more tolerable than 75% taxation from a valuation standpoint because you have the option to either 1.) move to or visit the country and spend the money, or 2.) someday convert it back to your own currency when times have returned to normal.

      You cannot value assets in a bubble or in academic models. You have to look at the world as it is, not how it ought to be.

      • JJ

        I dunno Josh.  I thought I detected an awful lot of emotion in this post.  To me, that is a sign to buy (if the emotional among us are selling, that is).  Just an opinion.  

        Stocks might sell off due to a rise in taxes, but if the taxes help make the larger environment more stable, then I’m not sure it’s time to sell.  Have enjoyed reading several of your posts.  

        • Joshua Kennon

          The trick, the art part of investing, is to figure out if you are buying a diamond for the price of a rhinestone, or whether you are buying the last piece of real estate in Pompeii before the volcano erupts.

          Buying because other people are selling is just as foolish as buying because other people are buying. Your job is to buy the most value for the lowest price. It is that simple. It doesn’t matter if we are talking about stocks, bonds, real estate, book copyrights, or Star Wars licensing agreements.

          Here is how I would frame the discussion.

          Imagine I walk into your office. I am selling two companies.

          The first, Total, S.A., offers a 14% earnings yield at current energy prices. However, you risk the very real possibility of having 75% of your dividend income taken from you. You might be able to recover some of it, if you don’t hold the stock in a retirement plan, depending on the U.S. Tax treaty with France and your credits but it is complex and you won’t know right now what the final amount will be.

          The second, ExxonMobil, offers a 10% earnings yield, but as an American citizen, you can hold the shares in a shelter such as an IRA or pension plan, keeping all of your dividends. If you hold the stock outright, you might have to pay 15% at current rates.*

          My perspective is that, looking at the mathematical odds, the second option is probably relatively less expensive. You have a higher probability of generating more net cash, meaning the intrinsic value is higher despite a lower earnings yield at present profit and market levels.

          Honestly, I haven’t made any decisions, yet. I’m not even sure off the top of my head what the built-in capital gain on the Total shares are. I’d have to look. We may end up holding them. We may sell them.

          *There is the possibility this rises to personal tax brackets next year but I am cautiously optimistic Congress will intervene due to the current economic climate.

          P.S. You are correct; you do detect emotion in my lament for France. One of the reasons I spend so much time writing, when I could be making more money, reading, or playing Civilization V is because I want people to live better lives. I want everyone to be able to have the things they desire, live comfortably, be free from financial stress, and be self-sufficient. I’m an obsessive scholar of history and, particularly, economic systems. I know how this story ends. A society cannot remain productive with high standards of living for long periods of time if it begins to oppress the primary drivers of the economy by punishing work.

          Humans are wired to desire the perception of fairness. If you work harder than everyone you know, study nights instead of partying, and borrow huge amounts of money to get into medical school, the idea that you should be “rewarded” by having most of the payoff taken from you to support those who didn’t put in any of that work will eventually lead you to look for greener pastures or giving up.

          Even the nations that less-knowledgable Americans tend to think of as “socialist”, such as The Netherlands, have very low effective tax rates if you structure your assets well. There is a reason that U.S. corporations sometimes funnel money through Denmark and the like. They aren’t paying the 60% rates. Likewise, when the United States had 90% tax rates following World War II, an enormous portion of all income was exempt from the tax rate, creating an effective rate that was a fraction of that amount. Nobody gave up $90 out of every $100.

          France is flirting with very disastrous policies. I love what France gives the world. My favorite shirt maker is French. My favorite perfume house is French. A few months ago, I called Paris and ordered a couple thousand dollars worth of additional copper cookware from the famous store Dehillerin, which exceed all expectations; so even the food my family eats is cooked in pots and pans from France. My favorite furniture style is French Empire.

          From the introduction of the Napoleonic code to Voltaire, and not least of all the fact that had it not been for her financial support, America would have lost the Revolutionary War, I have a soft spot in my heart for France. She seems to be running away from all that made her great and toward the failed policies of her bankrupt neighbors. That is my fear. Instead of crushing the great artist, merchants, scientists, and engineers that arise in her borders, she should be implementing the Ordoliberalistic philosophy of Germany.

          One thing is certain. If I were a young, college-educated Frenchman, and found myself on the verge of starting a career, I’d be eyeing Switzerland or the United Kingdom. I would not stick around where someone else got to take most of the effort for my labors.

  • FratMan

    Thoughts on Buffett talking about a “logical dividend policy”?

    • Joshua Kennon

      I wonder if they will tend toward something that Charlie Munger said years ago.  Someone, I can’t remember if it were an analyst or regular shareholder, asked about the reinvestment risk after he and Buffett are gone.  With so much cash coming into headquarters, they worried about the psychological forces that would conspire to make the successor portfolio managers do a big deal just to put their mark on the company.  His solution was something along the lines of, “Well, if we immediately declare that 50% of all profits must be distributed to stockholders every year, variable with the results of the enterprise, that solves a huge portion of the reinvestment risk, doesn’t it?  It would be so simple I don’t lose time thinking about it.”  The only reason I remember it was how elegantly simple it was.  

      I have no idea if Buffett would go for it, but it would be an interesting departure from other corporation’s policies.  It would make you feel, in a sense, the ups and downs of the company’s annual earnings.  

      Personally, I wouldn’t mind if, in the next ten years, Berkshire Hathaway began paying a dividend.  In general, and a bit off topic, I think the historical departure from dividend yields that meet or exceed the yield on Treasury bonds is probably a net negative for the average investor.  In the old days, you focused on household income.  You knew you were taking a risk, but if you had $10,000 in savings, you wouldn’t even consider buying ownership in a company unless you added $400 or more in dividend to your household income each year.  To get those checks, the company had to be earning actual, real cash; not made-up accounting games.  It imposed discipline on firms and the management.  

      This is one of those areas where what is best and most rational on paper – putting money to work in the highest returning project – conflicts with what actually *works*, which is the result of human psychological forces.  People are less likely to panic and sell their ownership stake if they still see large, regular checks coming in the mail.  It makes them think like business owners.  Likewise, I think the stock certificate, which is horribly inefficient, is a good thing because of our brain’s need for symbols.  It represents something – ownership – that you can touch, feel, and see.  

      • FratMan

        Thanks, Joshua. That’s one thing I’ve been curious about–you’ve mentioned before that you have a lot of Berkshire in retirement accounts, and I was wondering if you’d be open to sharing your rationale there. I mean, wouldn’t it be much better tax-wise to load up something like Conoco Phillips in a tax-deferred account and let that $2.64 annual payment compound and grow tax free over time as opposed to waiting for Berkshire to pay out a dividend? I suppose the capital gains on a Berkshire investment over decades could be huge (and you’re probably assuming higher tax rates in 2030 or 2040 or whatever), but does it bother you being patient waiting for a Berkshire dividend in a retirement account? That’s something that would personally frustrate me to no end, but I was wondering how you view it since I’m sure your perspective picks up on something that I’m missing. 

        Also, what do you think about Buffett being so cryptic about Procter & Gamble? He sounds to me like he’s selling P&G in this interview:


        You mentioned it would be one of your five “Hold Forever” stocks, but Buffett is most likely selling it, and plus, he never really bought it–he just inherited it from Gillette and has been trimming it steadily since then. And plus he said something odd about knowing insider information (P.S. isn’t that illegal–knowing insider information and then selling a stock?). I found that whole segment of the interview with Becky Quick bizarre. Sorry for my ramble–I guess my question is this: What did you think of Buffett’s comments, and do you consider the current knocks against P&G part of the vicissitudes that come with long-term investing, or something more? 

      • FratMan

        “You knew you were taking a risk, but if you had $10,000 in savings, you wouldn’t even consider buying ownership in a company unless you added $400 or more in dividend to your household income each year. ”

        Do you think that partially explains what drives you towards companies like Total, BP, and Shell? The high starting dividend yield, that is.

        I know you focus more on intrinsic value and future earnings in relation to price paid, but I was curious if the high starting dividend yield has driven part of your decision making. If BP, Total, and Shell were only paying out half as much in dividends as they are now (but offered the same earnings yield), would you be as excited about your energy portfolio if the initial starting dividend yield was that much lower?

        • http://www.joshuakennon.com/ Joshua Kennon

          The answer is … going to seem nuanced but it’s not.

          I am solely interested in intrinsic value. However, there are very few growth opportunities for energy assets. That means that the most rational use of the surplus cash generated each year is distribution to the owners.

          I think some of the energy companies are undervalued right now. The dividend policy is rational and the best choice in most cases. Thus, yes, the dividend is appealing and what attracted me, but it is because the underlying businesses appear cheap. It just so happens I would demand a near total dividend distribution policy from an energy firm with few exceptions, one of them being Exxon Mobil, which opts for buy backs more than dividends. My faith is not misplaced because the executives at Exxon are as good at allocating money as Warren Buffett is or Sam Walton was. They know their industry. They play the capitalization structure like a fiddle and they take advantage of market conditions beautifully. They do not overpay for their stock.

          That is, I love the high yield, and it is attractive to me, but it is because I believe the intrinsic value is higher than the current market price for companies like Royal Dutch Shell and BP. There are plenty of assets that yield more – REITs at 5% or MLPs at 7% – but I think they are overvalued and so they have no inducement to me at all.

          So no. And yes. And no.

          Got it?

        • FratMan

          Ha! Thank you for your time and clarification on that. I did have one follow up question. You mentioned about Exxon:

          “They play the capitalization structure like a fiddle and they take advantage of market conditions beautifully. They do not overpay for their stock.”

          Most stuff I had read about Exxon’s buyback program has been critical of the company’s timing.

          Liam Denning of the Wall Street Journal pointed out that Exxon’s “buybacks have been pro-cyclical, peaking in intensity in 2008, just as oil prices hit an all-time high.”


          There’s also a chart pointing out that the company seems to buy back more shares as oil prices rice, and buy less as oil prices fall (which generally translates into a higher repurchase amount when the price is high, and lower repurchases when the price is low).

          I’ve also read with some regularity pieces like this that are critical of Exxon’s buybacks:


          My impression has been that Exxon generates more money than it knows what to do with, and it buys back more shares when profits are higher (and also, share prices are higher), and buys back less when profits are lower (if you look in the chart of the WSJ article I sent you, you’ll see how the buybacks cratered at the end of 2009 and into 2010).

          Anyway, I apologize. I didn’t bring this stuff up to be obnoxious and question you, but I was hoping you could point out to me what impresses you about Exxon’s buyback timing.

        • http://www.joshuakennon.com/ Joshua Kennon

          The reason the Exxon repurchases are pro-cyclical is because the business is the very definition of a cyclical enterprise. It drills oil and natural gas out of the ground, in boom and bust cycles, and sometimes sees dramatic increases and declines in results as energy prices fluctuate. Investors would not tolerate it building a war chest that, if left unchecked for even 3-4 years, could come to represent a massive part of the overall capitalization structure, dragging down returns on equity.

          In the past ten years, the company has earned $591.984 billion. After paying taxes, and some other small items, it was left with net income of $349.243 billion.

          It returned $320.507 billion of those net profits to the owners – $228.071 billion in the form of buybacks, which reduced shares outstanding by more than 35%, and $92.436 billion in cash dividend checks sent to owners.

          The company is currently $90.02 per share. Over the past decade you’ve received $14.81 per share in cash dividends, for a total of $104.83. Averaging the high and low prices for ten years ago, you would have paid $36.35 for your shares, so you have a a profit of $68.48 on your stock assuming no reinvestment.

          All else equal, if the company hadn’t bought back any stock, the share price today would be $59.70 instead of $90.02, so we know $30.32 of the current stock price comes from the increase in intrinsic value per share due to repurchases.

          Had Exxon repurchased no stock, and stuck to dividends, instead, the stock price would be $59.70, but you would have received cash dividends of $48.85 for a total return of $108.55.

          Thus, the two figures are off by $3.72. However, Exxon now has a lower p/e than it has in the past as the market is less optimistic than it was in 2003 so that the oil shares are now slightly undervalued, plus when you factor in that you would have paid an extra $5.11 in dividend taxes in a regular brokerage account using the dividend-only method, the buy back approach comes out barely ahead on a net-of-tax basis even accepting the the fact the stock is now undervalued (a condition that cannot persist indefinitely).

          Exxon passes the $1 in market value for $1 of cash retained or used in buy backs test. It’s more tax efficient for non-retirement investors. It’s let Exxon grow the dividend by 6% compounded per annum for 30 years as there are fewer shares competing for a chunk of the dividend pie year after year.

          I’m not sure what anyone could expect, especially in a decade where, even without dividend reinvestment, Exxon turned $100,000 into $257,642 while the same amount in the S&P 500 would have become $158,766. That’s not an insignificant difference.

        • FratMan

          Thanks Joshua! That helped a lot.

          I was mostly curious if there was wisdom in stockpiling cash, waiting for the bust cycles (and lower prices) to make heavy buybacks…but I guess shareholders couldn’t handle seeing $200 billion in cash sitting there on the balance sheet as you point out.

          Thanks again.

        • http://www.joshuakennon.com/ Joshua Kennon

          No problem.

          You almost might want to think about the math. Say you owned a highly cyclical business worth $400 billion. You decide to start stockpiling cash. You get $200 billion in the bank … and then oil prices fall so the value of the enterprise itself falls by 50%, turning your $400 billion oil company into a $200 billion oil company.

          Only now you have the $200 billion in cash you’ve built up so you are still worth … exactly $400 billion because the market will likely give credit to your shares for the money on the balance sheet.

          The crash came and you’re going to have to pay the exact same price for the stock you would have otherwise. It’s a logistics problem unique to cyclical industries.

          It sounds great to say “build up the money” but it would only work if the market became widely inefficient for some period of time on the downside so that you could buy back as investors ignored your huge cash hoard, which clearly has value. Even then, those repurchases would come from essentially screwing the owners who had to sell in the downturn for the sake of making the owners rich enough to hang on even richer than they already are, which presents a moral problem.

        • FratMan

          Joshua, is there any good central source that explains foreign taxation on dividends for companies like Total SA or Nestle? I’ve been curious to know the pros and cons of owning them in an IRA, taxable account, etc. I called a guy at Schwab last night and asked him what the costs of owning something like Total SA in a retirement account would be, and he said, “0.2% of 1%.” I don’t know what the dividend taxation is, but I’m pretty sure the information he gave me was wrong.

          For instance, I think you recently poked fun at investors that own MLPs in Roth IRAs. Without hiring an accountant or tax guy, what’s a free online source where you can learn this stuff? I’ve done some diverse google searches, and I haven’t found anything satisfactory. I’m curious how to look this kind of stuff up.

        • FratMan

          Thoughts on Berkshire’s foray into Exxon rather than Chevron? I’d be curious as to your thoughts on this one, mostly because it would help me explain my own actions–I’ve been buying Exxon and not Chevron for the past two years, even though I would guess Chevron will have a higher earnings per share growth rate over the next 10 years. Can’t figure out the irrationality there, but something keeps drawing me to Exxon’s business model as best-in-class. Any impressions? Would it bother you if your energy portfolio consisted mostly of a giant block of Exxon stock?

        • http://www.joshuakennon.com/ Joshua Kennon

          As long as it wasn’t 1.) my only energy holding, or 2.) more than 10% to 20% of my overall securities portfolio, I’d be perfectly happy to own a huge block of Exxon Mobil, stick it in a bank vault, and never think about it again, enjoying the ever-rising checks it mails to owners.

          As a matter of fact, I had my brother’s retirement accounts pick up a stake back on 01/18/2013, set to auto-reinvest the dividends, and I had my mother-in-law buy some shares through one of her retirement accounts on 08/13/2013 (I also had her pick up some Chevron, as well, on that same date). In her case, the dividends don’t auto-reinvest, they are pooled together, combined with the interest on the bonds, then once a year I give her a shopping list from which she can pick a new position that is paid for from all of those cash deposits.

          Exxon’s on my list of things I’d likely add to my energy holdings when surplus cash becomes available (my focus at the moment is expanding one of the private businesses, which is getting all of my excess funds – I want to get everything in place before 2014), but I find myself inevitably buying more Royal Dutch Shell, instead, for my own accounts.

        • FratMan

          Thank you. That’s what I would’ve guessed.

          One last question. I was wondering if you had any advice on how to think about stock spinoffs. Almost all literature that I have ever read on the topic is short-term in nature; it discusses which stock (parent or new) will pop in the coming days, weeks, or months after a spinoff, but little attention is given to investors with 10+ year time horizons that want to buy a business interest that is being spun off.

          For instance, Kimberly-Clark recently announced the spinoff of its health care division, which is about 7% of the company, both in terms of sales and earnings. My conclusory hunch about the company overall is that it is probably a $90-$95 stock trading for $110, but I have no idea how to evaluate the upcoming stock spinoff of the health-care division.

          If I wanted to acquire that skill set, how would I proceed? It’s been difficult for me to locate useful material on the subject within the context of truly long-term investing.

  • Jacek Janiszewski

    I wholeheartedly support the decision to impose this kind of income tax. In part of spite, in part of some sense of justice, in part because of simple logic.

    No, I don’t understand the velocity of money. I’ll be honest saying I don’t understand money at all. All those nested layers of abstraction, derivatives and what not are alien to me. But I do see the potential consequences of this decision – rich people will either leave the country or pay huge taxes. The resurgence of socialism seems to be a global trend – even if leaders realize the decision to impose such taxes is toxic for the economy it’s still what voters demand. There will be fewer and fewer countries where a rich person can go to – at least until the socialist trend regresses. Not to say tax havens will disappear – should socialism spread they’ll flourish like never before. The important thing is I won’t have rich people in a 100 kilometer radius!

    It doesn’t mean I won’t have teachers (~950 USD/mo) – even professors (~1350 USD/mo), doctors (~1480 USD/mo) or lawyers (~1100 USD/mo) and highly successful, talented business owners (~3970 USD/mo) around me. I’ll have accountants, engineers, productive people of all creeds. Around me I’ll still have people whose fruits of effort I see and benefit from every day.

    You certainly aren’t a naïve person so I’m guessing you yourself are aware that your example with the new wonder drug isn’t very likely to happen in real life. Such wonder stories can and do happen in relatively unexplored branches of science/culture/human achievement – like IT – minecraft or facebook being examples. But with well-known disciplines involving hard cash for equipment and testing the credit will most likely end up with the company you’re working for – and you’ll get a raise, maybe a free vacation and some bonus.

    • Joshua Kennon

      Would you like to know how the velocity of money works? Economists like to make it complicated but it’s not. I think I could probably give you a fairly good working knowledge in under ten minutes. I’d be happy to reschedule one of my nights later this week and write a post about it, if you’re interested.

      • Gilvus

        Please sir, I want some more.

        • Gilvus

          Note to self: use square brackets next time.

      • Jacek Janiszewski

        I’d be grateful if you could explain it, yes. I’m always interested in learning new things.

  • Nameless On An Odyssey

    I don’t study French tax codes because I have no investments that are significantly influenced in France, so forgive me if I blunder on the structure of French tax codes as I’m only barely able to comprehend the basics of the American tax code, let alone another country’s. That said:

    I’ve heard a lot of fiscal conservatives blow up at the idea of a high tax rate “on the rich” but there’s been a counter argument that I have never heard refuted, only dodged or waffled on.

    Assuming France has a progressive tax code, and the socialists advocate only a top marginal tax rate of 75%, then the effective tax rate is significantly less. It also depends on what is taxed (is this a direct income tax, or corporate tax?).

    In cases where there is a high top marginal rate on personal income tax, companies are discouraged from paying excessively high dividends and instead are incentivised to expand their business operations in order to keep the wealth compounding without taking that huge tax hit first. In general, this is good for the majority of people because the expanded operations almost inevitably work out to be increased demand both in the aggregate (more material to build factories, new equipment to improve efficiency, ect) and specifically in the job market (construction workers, researchers/engineers, respectively). Companies will also spend more of their money buying other companies, which under the right circumstances can give promising startups the capitol they need to get booming. In general, the effects are almost positive across the board, EXCEPT that the very highest of earners effectively have a ceiling placed over their head. (I’ll talk about this later).

    We have seen similar conditions in the United States during the 1950’s, 60’s and early 70’s and they were by NO MEANS a disaster… Investors did not flee the country in droves, and quite to the contrary the US economy exploded during these periods. That explosion shifted from a general increase in the wealth and wellbeing of the population to extreme wealth concentration when these policies stopped under Reagan.

    Since I care about people, even those who aren’t as capable as I am (I rarely disagree strongly with you, but calling them parasites is a disgusting world view that I personally would be ashamed to espouse), I view the goal of a society as being to benefit everyone, because we all feel pain when stung.

    This is my understanding, but I will readily admit that this is more a study of this sort of thing in the US (where I’m familiar with the data) than France. There are a lot of conditions that would have to be true in France for any of this to hold water. Two pressing ones spring to mind:

    1) The ceiling I mentioned can’t be too low. If you’re taking 75% of a “rich” person’s income who only makes $100,000 annually, you’re insane. I would only advocate such a high marginal tax rate after at least the first $1,000,000, and possibly higher. The definition of “rich” must be very clear, and pretty darn high.

    2) Again, if it’s a 75% corporate tax – not income tax – then none of that is ever going to get reinvested into the economy (either in the form of stock purchases or equipment upgrades) unless through government spending. The liberal inside of me is squealing and dying at my uttering this, but high corporate taxes don’t actually make any sense. And there are legitimate concerns with excessive reliance on government spending (pork barrel, to name one).

    You’re obviously a capable, rational person. I would love to hear your response to this position.