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Policies designed to make the rich pay more

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PARIS — In Washington, Republicans are bashing President Obama for inflicting “European-style socialism” on the United States. Here in Paris, a genuine socialist took the presidential oath in May, and he has wasted no time implementing policies designed to make the rich pay more.

French President Francois Hollande has made good on a campaign pledge to make the wealthiest in France pay up to a whopping 75 percent income tax. The U.S. Congress, meanwhile, is debating an Obama proposal to allow the top tax rates to rise from 35 percent to nearly 40 percent.

Although the new taxes will not make a major dent in France’s budget, they have delighted the country’s labor unions and others who thought that former president Nicolas Sarkozy, nicknamed President Bling-Bling, gave the wealthy a pass as he called for deep cuts in government spending on the poor.

But the rapidly rising tax rates have some businesses and investors saying that economic growth, forecast at a catatonic 0.2 percent this year, will further suffer.

The debate echoes the one playing out in Washington but also illustrates the deep divide — both in policy and politics — between the United States and Europe as the countries struggle to crawl their way out of a slowing global economy. Policies that would be considered laughably extreme on the campaign trail in Ohio or Florida have found a champion here in the Elysee Palace.

Hollande’s balancing act will test whether higher taxes can work in an age when money hops borders with the click of a mouse and nervous investors display little allegiance to individual countries. Many of France’s neighbors are focusing on cutting spending to balance their budgets rather than raising taxes. Hollande plans a mixture of both, and his aides are gambling that growth will result.

Constrained by a bad economy and commitments to balance the French budget by 2017, the plans are far from the rallying cry of stimulus-led growth on which Hollande based his campaign.

Many of the 17 countries that use the euro are fundamentally reevaluating the sustainability of their model. British Prime Minister David Cameron, whose country uses the pound, has said he would welcome investors and wealthy French people taking flight from Hollande’s taxes.

Hollande’s advisers say new taxes won’t scare away investors if the government follows up with convincing plans for how it will shrink spending, open up the labor market and implement other business-friendly measures. In doing so, the advisers say, they hope to reduce France’s 10.2 percent unemployment rate while being fairer to the most vulnerable parts of society by putting the weight of service cuts and tax increases on the wealthy.

“If it’s necessary to have reforms, we will do them . . . based on fiscal elements that are just,” Hollande said in a recent television interview. – WPost