French economist Gabriel Zucman has come to California bearing a well-recognized French answer to a fiscal downside: one other tax.
As soon as based mostly at UC Berkeley, Zucman is again and campaigning for Proposition 40, which might impose an allegedly one-time 5% tax on the web price of Californians price greater than $1 billion. Zucman, co-author of the proposition, estimates that the tax might increase about $100 billion, and claims that 90% of the proceeds would go to healthcare.
The California Legislative Analyst’s Workplace is way extra cautious, saying it might increase solely “tens of billions” and will trigger a long-term lack of income-tax income as rich folks depart the state with the businesses they created.
I’ve written plenty about why wealth taxes are economically harmful, administratively nightmarish and unlikely to realize something near what their advocates promise. However Zucman’s prescription is flawed for a extra elementary motive, as his (and my) native nation exhibits: Elevating taxes to gas ever-larger calls for for presidency spending is a recipe for catastrophe.
Except you’ve been dwelling in a distant cave just lately, you’ve most likely seen all of the protests and destruction in France. However are you aware why it’s taking place?
As one other economist, Paul Krugman, rightly noted again in 2017, “France presents a social security web past the wildest goals of U.S. progressives: assured high-quality well being take care of all, beneficiant paid depart for brand new dad and mom, common pre-Ok, and way more.”
For many years, France has answered any perceived need with authorities spending, then responded to the ensuing fiscal downside by in search of new income sources. As we speak, French authorities spending consumes roughly 58% of the gross home product.
Krugman gloated that France wasn’t struggling social collapse and speculated that it was because of all of the spending. He definitely can’t say that anymore. In actual fact, he’s now anxious that France could also be on the precipice of a debt disaster. The reality is that France hasn’t accomplished properly for a while, even when Krugman cheered its spending.
One of many teams on the street right this moment, younger folks, has confronted widespread unemployment for a very long time. The youth unemployment price in France (ages 15-24) has hovered between 17% and 27% since 2000. Within the second quarter of 2026, it was 21.6%, towards 14.8% within the Eurozone and 9.9% within the U.S.
French folks additionally pay among the highest taxes within the developed world, they usually’re not proud of the return. The federal government already takes greater than 52% of the nation’s output in income, runs deficits exceeding 5% of GDP and has gathered debt approaching 120% of GDP. Nonetheless, French college students complain that the federal government is shortchanging faculties, whilst everybody sees that it’s shortchanging its military and police.
The scholars aren’t flawed to really feel ignored. On the Two Cents Substack, Hoover Establishment scholar Hanno Lustig calculates that, between 1995 and 2024, spending on social safety and well being (most of which advantages older folks) rose to 58.7% from 53.1% of all French authorities spending. The share dedicated to schooling, protection and public order fell from 15.2% to 13.7%. Transportation fell from 5.3% to three.8%.
In different phrases, France has constructed an unlimited welfare state, a lot of it dedicated to older residents, whereas letting different state capacities and fundamental providers crumble. As transfers of wealth swallow a bigger share of the funds, every thing else will get squeezed.
That’s the fiscal ratchet Californians ought to fear about when Zucman tells them Proposition 40 is critical to “save” healthcare. Proponents declare Washington “cut” Medicaid, however that language is deceptive. California’s deficit began lengthy earlier than any Washington spending reductions. Moreover, federal Medicaid spending isn’t falling — not even shut. The Congressional Price range Workplace estimates it should attain $708 billion in 2026, 8% greater than in 2025. What Washington did within the 2025 funds reconciliation regulation was reduce Medicaid’s future growth relative to previous projections, partly by altering eligibility and enrollment guidelines and financing preparations.
That is how the ratchet works. As soon as the federal government initiatives a spending improve, something much less turns into a lower. And as soon as Washington fails to finance your entire projected improve, Californians are instructed that Sacramento should backfill the lacking cash. And the way ought to it do this? Conveniently, by creating a completely new tax.
France has run this experiment for many years. It has an extremely beneficiant welfare state paid for with very excessive taxes; it’s even tried a wealth tax and has a value-added tax, but someway it’s by no means sufficient. Its welfare state has not eradicated shortage. It has merely transferred the job of rationing scarce sources to politicians.
Zucman appears at California and sees lots of of billions of {dollars} of personal wealth ready to unravel a public-finance downside. Californians ought to look throughout the Atlantic and ask a special query: What occurs after politicians resolve that each spending adjustment might be delayed till tomorrow by discovering one other pot of personal wealth?
France shouldn’t be sending California tax recommendation. It ought to be sending a warning.
Veronique de Rugy is a senior analysis fellow on the Mercatus Heart at George Mason College. This text was produced in collaboration with Creators Syndicate.
