Then last week Mr. Macron proposed eliminating France’s wealth tax, which many blame for driving millionaires from the country. As this was also a campaign promise, you’d think it would come as no surprise.
You’d be wrong. There was quite an uproar, with opponents saying the move showed Macron was indeed a “president of the rich”.
The rationale behind eliminating the wealth tax is simple. People (and companies) with money tend to go to places where they can keep their money. Or, to put it in a politically very incorrect way, people with money tend to go somewhere that their money isn’t taken or taxed away. This isn’t a new thing. You may recall members of The Beatles moving from England due to high tax rates in Great Britain. Or, US corporations such as Apple establishing headquarters in Ireland to evade US taxes on international sales.
In response to the uproar over eliminating the wealth tax, Macron’s party proposed adding new taxes on yachts, supercars, and precious metals to the already-proposed tax on real estate. Sounds innocuous, right?
Richard Ferrand, leader of the Republic on the Move party (that’s not made up, welcome to French politics), recently told Ouest France “The idea of the wealth tax reform was that there should not be a brake on contributors to economic production, that we suppress taxes that deter investors…Taxing real estate wealth is compatible with this, but goods such as yachts, luxury cars or precious metals do not contribute to the productive economy either”.
Right now it’s not quite clear exactly what would be included in the “precious metals” category, and the ambiguity makes future gold prices uncertain. Is it just gold bars? What about jewelry? What about silver? Palladium? And is the tax applied on sales only? Or is it an annual tax where you’d have to report your inventory of gold chains and pay a tax on its value? If so there may well be a rapper exodus from France in the near future. (Would they qualify as political refugees?)
We’ll have to wait to see if the new tax proposal passes. French politics are notoriously hard to predict. What is included and whether there will be a minimum amount test remains to be seen. But it could put a damper on trading in France by raising gold prices.
There’s another bit sticking in your friendly Gold Enthusiast’s craw. And it’s a rainy Monday, so a good day for a minor rant.
Specifically, that building yachts and high-end cars is not part of “the productive economy”. Really? Just exactly what is “the productive economy”? Excuse me for asking this, but don’t the companies that build these things employ workers, buy raw materials from other companies (who also employ workers), pay unemployment and health care benefits, and pay business taxes if they’re in a country with such things? Those seem like traits of members of “the productive economy”.
Your friendly Gold Enthusiast is far from inclusion in the rich people’s club. And he is certainly not against some additional taxes on ultra-high-end items like yachts and supercars, as those are clearly luxuries.
But he attempts to function on a consistent set of principles, which often require uncomfortable questions about loose political statements like “the productive economy”. If we’re going to talk about “the productive economy” then surely we would want to examine things like $1000 cell phones – after all, a $50 Flip phone makes actual phone calls just as well, and a $150 tablet takes pictures and posts on social media. And what about movies or concerts – how are they productive? Gambling – doesn’t that result in addictions that require millions in health care money every year for addiction therapy?
Yes, there are illegal parts of the economy. Drug trafficking is possibly the most prominent example. To these eyes, the general test for whether something is in the legal economy is whether you report it on your taxable income. If you do, it’s probably legal. If you don’t, well…
In the opinion of this Gold Enthusiast, profits are what should be taxed first. Then tax “activity”, which means transactions where things are bought and sold. Those are the places where price is determined. Taxing stores of wealth such as women’s earrings and necklaces is problematic at best. And companies that employ workers, pay taxes, and build products people want to buy, are most definitely “productive”.
The problem facing governments almost everywhere is that they spend more than they take in. People complain that they pay too much in taxes, so squeezing the revenue side is not going to fix the problem. What governments need to do is swallow the hard pill that they’re spending too much and fix that problem. After all, we elect politicians to address problems bigger than we can take care of individually.
Let’s try to keep our focus on what we’re working for, and who the good guys are.
Signed, The Gold Enthusiast
DISCLAIMER: No securities were mentioned in this article. The author does own a gold high school class ring, and a gold bracelet he received as a wedding present.