The Fat Tax and Nutella Tax

There seems to be an international flavor to our blog this week. We last discussed the Carrot Rebellion. Let’s now discuss the “Fat Tax” and “Nutella Tax.”

Truly, I am not making this up.

About a year ago Denmark implemented a tax on all foods with saturated fat content above 2.3 percent. Its intent was to reduce the consumption of unhealthy foods; you know, like butter, sausage, cream and cheese. Apparently mankind has been on a one-way road to health perdition since we domesticated animals.

The tax didn’t go particularly well. While it did raise over $210 million, many Danes took to lower-cost alternatives or simply crossed the border into Germany. An additional advantage to Germany was that prices are approximately 20% lower.

This past Saturday Denmark announced that it was abolishing the tax, since it was having the negative consequences of inflating food prices and putting jobs at risk. The government further announced that it was cancelling its plans to further tax sugar.

Do you ever wonder how much ideological kool-aid one must drink to not have seen this coming?

That brings us to France.

Have you heard of a product called Nutella? It is made of chocolate and hazelnut, not a personal favorite. Senators in France have called for a major tax on palm oil (think 300%), which is a principal ingredient in Nutella. The tax has become known as the “Nutella Tax.” There are some bad things associated with palm oil, including deforestation pressures in Borneo and Indonesia. I agree – deforestation is a bad thing. So are droopy pants in public. Neck tattoos. Loud vulgar music. Inane cell phone calls in the grocery aisles.  

I am thinking palm oil doesn’t even make the top 300 list.

France’s New 75% Tax Rate

I do not recall ever talking about French taxes on this blog, but this morning I saw something that stunned me.

France has announced a 75% income tax rate.

Now, think about that for a moment. You would be giving-up 75 cents on the dollar, just for the privilege of setting an alarm clock, cutting sleep short, incurring dry cleaning, sitting in traffic and – finally – stressing at work. This move is driven by economic pressures in the European Union. We are familiar with the debt crisis of Greece, but Spain is also facing difficult times. Italy is hot on their heels. Germany is pulling this sled, and France likes to think that it is closer to the lead dog than the rear. Germany allows France to think that.

The EU has restrictions on allowable member deficits, and France is looking to narrow its deficit from 4.5% to 3% next year. It is doing this by raising 30 billion euros. Unfortunately, it seems to have escaped French President Hollande that one way to save money is to spend less of it. Hollande has announced that the money will be used for – among other things – thousands of new civil servant jobs. Brilliant!

The French government has softened the blow by announcing that the tax will be in effect for only two years.

On the other hand, for two years France will have the world’s highest tax rate.

French income tax applies on worldwide income for individuals who reside in France. The key word here is “reside.” Nonresidents are generally taxed only on French-source income. This is not the U.S. system, where a U.S. citizen is taxed on worldwide income, irrespective of where he/she lives. A U.S. expat living in Thailand for the last twenty years is still required to file an annual U.S. income tax return. On the other hand, a French citizen can avoid French tax by not residing in France, although I anticipate that the French tax authorities would aggressively dispute the issue of residence, where possible.

Seems to me that – if I made enough money to be subject to this new tax – I would have enough money to leave France for a couple of years. Why would I work for twenty five cents on the dollar? Short answer: I wouldn’t.