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French Tax May Hit Only 5,000 Earners and Raise Little

French President Francois Hollande
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French President Francois Hollande

The new 75 percent income tax on the French rich might seem shocking. But French tax lawyers say the levy would likely effect only 3,000 to 5,000 taxpayers because of certain existing tax loopholes.

As part of his budget announced today, French President Francois Hollande made good on a campaign promise to tax France’s top earners at 75 percent. It would apply to taxpayers with earnings of 1 million euros a year.

Early estimates said around 30,000 French taxpayers would be hit by the tax. The tax, combined with a broader tax on people earning €150,000 a year, is expected to raise a half-billion euros.

Yet tax attorneys and other experts in France say that the tax may raise far less – and hit far fewer taxpayers. That’s because the tax does not apply to capital gains, interest income or dividends, which make up most of the income for entrepreneurs, executives and inheritors. (Read more: Do Tax Crackdowns on the Rich Pay Off?)

The tax would only apply to people who earn “activity income,” roughly comparable to ordinary income, or one million euros a year. That might include athletes, artists, celebrities and a smattering of doctors and lawyers.

Wealthy French businessmen and investors have been lobbying the government for weeks to try to make sure the tax would not apply to capital gains and dividends.

“It’s really only going to apply to maybe three thousand to five thousand people at most,” said Vincent Grandil, a Paris-based tax lawyer with Altexis. “It is not a very large number.”

Still, Grandil said many of the French wealthy are making plans to leave the country. He said the tax was less of a concern than the long-term budget situation in France and the declining global competitiveness of the nation's businesses. (Read more: Does QE Mainly Help the Rich?)

He said many younger successful French are moving to the San Francisco area to be part of the tech boom. “It’s not just a tax question for them, they really seem to like it there.”

He said other wealthy people in France are moving to the United Kingdom, Belgium and Portugal. He said Switzerland, while still popular, is not a growing destination because of the quiet lifestyle.

He added that Singapore and Hong Kong are “also still fairly marginal.”



-By CNBC's Robert Frank
Follow Robert Frank on Twitter:
@robtfrank

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  • A reporter and editor, Robert Frank is a leading authority on the American wealthy for CNBC.