Exceptionally in this post, I will go outside my comfort zone. It’s a widely held conviction that France is a socialist state, an assumption that while not backed up by facts, causes some to hold a prejudice against the country.
As a native Frenchman who’s spent four years in California, I see the two countries as a bit more alike in how much money they demand from their people, while the spending habits of the country vary wildly. Perhaps the US is more like “socialist” France than most Americans would like to believe.
Instead of relying on assumptions and prejudice, I set out to compare the two tax systems by modeling how five different levels of income would fair in the two systems. Here’s what I found:
Methodology & assumptions
Tax modelisation is extremely sophisticated, and embraces thousands of specific cases. To simplify it, I took some basic assumptions: a) 100% of the incomes are wages, b) I didn’t apply any exemptions in either country, c) I do not apply any taxes linked to real estate, d) I included state tax, e) I took an exchange rate 1:1 dollars to euros.
Also, as I’m not a tax advisor, I used two tax simulators available on the web:
To cover a broad range of situations, I selected 2 marital statuses: single, or married with 2 kids. I took 5 levels of incomes: ten thousands dollars per year, fifty thousands dollars per year, one hundred thousands dollars, two hundred thousands dollars, and five hundred thousands dollars.
In both countries, the tax system is very complex. In no way this simulation is 100% accurate. Tax experts will tune it with very relevant rational. The objective here is to give a global high level view of two tax systems and draw bold lines.
The first striking element is that in the $10,000 income scenario, a Californian will pay more taxes than a Frenchman. The second outcome, is that if both tax systems are correlated to the income, the difference in the tax vary a lot from one country to another. In the specific case of two kids married with a $50,000 income, a tax payer in California will pay 200% more tax than a tax payer based in France. On the other hand, a single with $200K wage will pay almost the same amount of tax in both countries.
But where does the money go?
The purpose is not to say one country is better than another (I definitely enjoy my life in San Francisco), but to challenge some prejudices with facts. France offers a series of social services that we do not have in California. Indeed, any French citizen has automatic health coverage, unemployment insurance for 18 months, free education system including college, state financed pension fund… If in California the sum federal taxes and states tax is higher, none of this service is included on the same scale (except the recent health insurance since Obamacare). Federal budget is almost $4 trillion, with $12,000 dollars per US citizen, including kids. So where does the money go?
Here again the answer is as complex as the system is. In both countries, States (or Regions in France) have particular budgets that go on top of the federal/national one. Social security in France is not part of the national budget, but separated and managed by independent organizations who run a budget almost as big as the national budget! Whereas in US, it is part of the federal budget and represents “only” 24% (social security + medicare). So any comparison in terms of percentage will be inappropriate. I picked 3 specific budget functions to show different policies between France and USA. As a reminder population in US is 5 times France with 323 millions habitants.
US is spending almost 15 times more for its Defense than France, and almost three times more per inhabitant. Worldwide domination has a cost. On the other hand, despite spending 8 times less per inhabitant in education, France barely beat the US in education rank, with France holding the 23rd spot and the US in the 29th. 1)
Behind the ideology
But behind the ideology of some of the politicians from both countries, checking the facts, the importance of tax in the economy is significant in both side of the Atlantic. In opposition with most of the prejudices, tax pressure in California is slightly higher than in France. Not only is the way the money is spent very different, but the contribution of national and local administration in the US is bigger than in France. On this basis, if France is a socialist country, than California is even more socialist.
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Regarding France finance:
Regarding US finance: