France’s Wealth Tax Experiment Shows What California Could Be Walking Into
As Californians prepare to vote this November on a proposed tax targeting billionaires, a look at France’s past offers a timely and cautionary lesson. Long before Silicon Valley tycoons began threatening to pack their bags, France experimented with a sweeping wealth tax that reshaped its economy, politics, and relationship with the ultra-rich. The results were complicated, controversial, and still debated today.
California’s proposal is framed as a bold move to tackle inequality and fund essential public services. But France’s experience shows that taxing extreme wealth is rarely as simple as it sounds.
California’s Billionaire Tax Explained
In November, voters in California will decide whether to approve a one-time wealth tax aimed at the state’s richest residents. The proposal would impose a 5% levy on individuals with a net worth exceeding $1 billion.
Supporters argue the tax would generate billions of dollars to support Medicaid, public education, and food assistance programs. According to the proposal, 90% of the revenue would go toward healthcare, with the remainder split between education and nutrition initiatives.
Critics, however, warn that the tax could backfire. They argue that the wealthiest individuals are the most mobile and that a sudden tax hit could encourage them to relocate, taking their investments, businesses, and future tax contributions with them. Some high-profile billionaires, including tech founders, have already hinted at moving operations or residences out of California.
To understand whether these fears are exaggerated or realistic, it helps to look at France’s long-running experiment with a similar idea.
France’s Wealth Tax: A Long Political Tradition
France’s wealth tax, officially known as the Solidarity Tax on Wealth, was introduced in 1982 under President François Mitterrand. The goal was straightforward: reduce inequality by taxing the nation’s wealthiest households.
The tax applied to all assets above a certain threshold, including real estate, financial investments, and even art collections. Over the years, the threshold shifted, but by the 2010s it targeted households with assets worth more than 1.3 million euros.
The tax became a symbol of France’s political identity, which has long been skeptical of elites and concentrated wealth. It was abolished briefly in the mid-1980s, only to be reinstated a few years later. For decades, it remained a fixture of French fiscal policy.
But behind the symbolism, the economic impact of the tax was far less clear.
The Cost of Capital Flight
One of the biggest criticisms of France’s wealth tax was its effect on capital flight. Between 2000 and 2017, an estimated 60,000 millionaires left France. Many moved to neighboring countries with lighter tax burdens, such as Belgium, Switzerland, or the United Kingdom.
Economists estimate that between 1988 and 2007, France lost around 200 billion euros in capital due to wealthy individuals relocating. That loss didn’t just affect the wealth tax itself. It also reduced income tax revenues, consumer spending, and value-added taxes.
Some studies suggest that the economic drag from capital flight shaved an average of 0.2% off France’s annual GDP growth during certain periods. While that number may sound small, over decades it adds up.
The wealth tax was meant to make the system fairer, but critics argue it ended up shrinking the overall economic pie.
Macron’s Decision to Scrap the Tax
When Emmanuel Macron took office in 2017, he inherited an economy struggling with low growth and high unemployment. A former investment banker, Macron campaigned on pro-business reforms and promised to modernize France’s economy.
In 2018, less than a year into his presidency, he followed through on a controversial pledge to abolish the wealth tax. The move shocked many voters and earned him the nickname “president of the rich.”
Macron argued that the tax discouraged investment and pushed wealth out of the country. His government replaced it with a narrower tax that applied only to high-value property, excluding financial assets like stocks and business investments.
The idea was simple: encourage wealthy individuals to invest in companies and innovation rather than parking money in real estate or leaving the country altogether.
Did Abolishing the Wealth Tax Work?
By some measures, Macron’s gamble paid off. After the reform, the number of wealthy individuals returning to France increased slightly. Business investment also showed modest improvement.
French officials argued that removing the tax sent a signal that France was open for business. Finance Minister Bruno Le Maire said that overtaxing capital had driven away investors and entrepreneurs, and that reform was necessary to reverse that trend.
However, the broader benefits of the reform remain disputed.
Rising Inequality After the Reform
While the wealth tax’s removal may have helped investment, it also widened inequality. A 2020 report by France Stratégie, an independent government advisory body, found that the richest households benefited disproportionately from the reform.
The wealthiest French households saw their incomes rise by more than 27%, while the median income increased by just 2.5%. At the same time, low-income earners faced higher social security contributions, effectively increasing their tax burden.
Other studies found similar patterns. Employed and wealthy taxpayers gained the most, while retirees and unemployed individuals saw fewer benefits or even losses. Social services did not expand significantly enough to offset these effects.
Today, roughly half of France’s total wealth is concentrated in the hands of the richest 10% of the population.
The Political Backlash in France
As Macron approaches the end of his presidency, France faces rising debt, political instability, and growing public frustration. In just one year, the country has experienced multiple government collapses.
Against this backdrop, calls to reinstate a wealth tax have resurfaced. Members of the Socialist Party argue that inequality has worsened and that the country needs a stronger tool to redistribute wealth.
What once seemed politically impossible has become part of mainstream debate again. France’s wealth tax experiment, far from being settled history, continues to shape its political future.
What California Can Learn From France
California’s proposed tax differs from France’s wealth tax in one key way: it is designed as a one-time levy, not an ongoing annual tax. Supporters argue this reduces the risk of long-term capital flight while still generating significant revenue.
Still, critics warn that even a one-off tax could prompt wealthy individuals to move preemptively, especially if they fear similar measures in the future. California already has some of the highest income and capital gains taxes in the country, which adds to concerns about competitiveness.
France’s experience shows that taxing wealth can have unintended consequences, particularly when it comes to investment behavior and economic growth. At the same time, scrapping such taxes can worsen inequality if not paired with strong social policies.
The Voters’ Dilemma
California faces a difficult choice. The state has one of the highest levels of wealth inequality in the nation, and many residents struggle with housing costs, healthcare access, and education funding.
The proposed billionaire tax promises immediate funding for critical services. But France’s experience suggests that policymakers must weigh short-term gains against long-term economic effects.
The question voters must answer is not just whether the wealthy should pay more, but how to do so without undermining the broader economy.
As history shows, taxing the ultra-rich is as much about political judgment as it is about economics. France tried one approach, reversed course, and now debates going back again. California may soon find itself navigating the same complex terrain.
