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Welcoming Higher Taxes, but Not That High

Paris - A little over a year ago, some of the most prominent and wealthy executives in France signed a petition seeking higher taxes on themselves. Yes, higher taxes.

“We are conscious of having benefited from a French system and a European environment that we are attached to and which we hope to help maintain,” wrote the group, which included the chief executives of Air France-KLM and Société Générale, and the billionaire heiress to the L'Oréal fortune, among others. “When the public finances deficit and the prospects of a worsening state debt threaten the future of France and Europe and when the government is asking everybody for solidarity, it seems necessary for us to contribute.”

You may know what happened next: François Hollande, the country's socialist president, proposed a 75 percent marginal tax rate on all income over $1.3 million. (The highest marginal tax rate on the first $1.3 million would be 45 percent, up from 41 percent.) Marginal tax rates on capital gains would rise to as much as about 60 percent.

Now many of the nation's wealthiest executives - including some who signed the original petition - and entrepreneurs, private equity managers and others who are millionaires, or want to become millionaires, are crying foul. In a sign that executives are moving, or threatening to move, to lower-taxed countries, high-end real estate in Paris is being thrown on the market.

Jean-Paul Agon, chairman and chief executive of L'Oréal, who signed the original petition, has been decrying the new tax rates, saying they are significantly higher than he expected and would damage the country's economy. Stephane Richard, the chief executive of France Télécom, who also signed the petition, and François-Henri Pinault, the chairman and chief executive of PPR, which owns brands like Gucci and Yves Saint Laurent, sounded off against the tax, too.

Last week, Pierre Chappaz, a French entrepreneur, wrote on line, “I do not know a single start-up founder who accept the idea that creating a company, in which it will invest all his savings and years of effort often without a salary, must then give to the State 60.5 percent of gain when he sells his company if he succeeds.” The statement went viral. An online group calling itself Les Pigeons - slang for sucker - has more than 63,000 “likes” on its Facebook page.

The private equity industry is similarly up in arms. The 60.5 percent rate would help perpetuate “the image of a country that does not like achievement and success, and that strikes a confiscatory tax,” an industry group said in a statement.

And then there is Bernard Arnault, the chief executive of LVMH, one of France's wealthiest men. He recently said he was applying for citizenship in Belgium, setting off a firestorm, including a headline in the left-leaning newspaper, Liberation, that mildly translated as, “Get lost, you rich idiot!”

Mr. Arnault, who is suing the newspaper for “extreme vulgarity and the violence of the headline,” has insisted he is not leaving the country over the new tax regime. He said he would “fulfill my fiscal obligations” to France as a resident, saying that “Our country must count on everyone to do their bit to face a deep economic crisis amid strict budgetary constraints.”

Still, all the anger and angst appears to be pushing Mr. Hollande and his administration to back down, at least slightly. The 75 percent tax will now be effective for only the next two years. And last week, a budget minister, Jérôme Cahuzac, perhaps bowing to pressure from Les Pigeons, said the capital gains treatment on start-ups was “a mistake” and said the government would seek a remedy.

The purpose of the tax is more populist than mathematical: the marginal income tax increase is estimated to raise only about $300 million.

The debate in France raises an important question am id the election campaign in the United States about whether the wealthy should pay more - and by how much. The American billionaire Warren E. Buffett, like some of the French, called for higher taxes on the rich, but he never sought rates at the levels being discussed here in France.

Under President Obama's proposed Buffett Rule, the wealthiest Americans would have paid no less than 30 percent of all income.

Marginal tax rates in the United States were as high as 94 percent during World War II in 1944 and 1945, but there were so many loopholes that few people paid anything close to that rate. For now, it is capped at 35 percent, unless the Bush tax cuts expire.

So where is the line?

The reality in Europe is that moving from Paris to London may not be that big of a deal, so extreme tax rates could be a deciding factor in where a person or business decides to locate.

But Thomas Piketty and Emmanuel Saez, two French economists who influenced Mr. Ho llande, have said that the country's economic growth won't be hurt unless the marginal rates on the highest incomes exceed 83 percent.

The idea of soaking the rich is often a popular one. But if there is lesson in the French experience, despite the economic models, it is that there are limits.