France’s ‘pigeon’ problem

As promised, French president François Hollande is following through with his promise to raise taxes on the high income earners. Financially, tax increases have to happen to solve the budget issues and let’s face it. The high income earners such as bankers have had a pretty easy ride, all things considered.

While it’s a lively debate about the practical effectiveness of a 75% tax on high income earners (it’s easy to pack your bags and move in Europe to dramatically change your taxes) the hotter issue today is about the “pigeons”, as the startup community is called. The pigeons are upset over the tax increase and are currently shifting the debate in France.

For days young internet entrepreneurs and heads of web startups have dominated social network sites with a campaign against the French president’s tax rises on small businesses. They call themselves “Les Pigeons” – French slang for mugs or suckers – and use a black and white logo of a frowning bird.

They are protesting against aspects of Hollande’s tough crisis budget for 2013 which, they say, are unfairly skewed against the small business sector and would kill the startup boom, forcing young digital innovators to flee France. They argue that a €2bn (£1.6bn) increase in capital gains taxes on equity sales would force entrepreneurs who sell their new companies to pay up to 58% to the state, discouraging them from getting new ideas off the ground in the first place.

The Socialist government has prided itself on being immune so far to what it dismisses as the grumblings of the mega-rich against the budget. The main focus of complaint was the 75% tax on income above €1m, although the measure is hugely popular among the public.

As someone who has worked in the startup world for over twenty years, I can understand the point that they are making. Unlike those who work a steady job, when you work at a startup, there’s very little stability. Many founders go months without pay in order to get the business going and to pay for the salaries of employees. Even when you do get paid, it’s often a lot less so that investments can be made in the business so you can add more people or buy necessary equipment.

When the company is sold, yes, they can sometimes make a lot of money (I’ve seen plenty of flops as well) but that payout is an aberration, not a consistent trend. Too many people see the few success stories as the reality but that is more the exception than the rule. A banker, on the other hand, will consistently make mega bucks or euros so it’s not really the same and probably shouldn’t be treated in the same way. It’s especially difficult to be an entrepreneur in France (compared to elsewhere in Europe or the US) where the laws and tax codes are written for the giant companies. For years French tech entrepreneurs have moved to the UK or US rather than even try starting in France.

The proposed new tax law is not nearly as bad as some suggest. The capital gains taxes remain relatively low (though much higher than the US rate) and there are plenty of tax incentives for the entrepreneurs provided they reinvest to help create other new businesses. The plan is not that bad as it stands today.

Ultimately, the financial problem is serious enough that everyone needs to pitch in. Hollande is a smart enough person who can find a way to address the budget while encouraging startups. The aim is to raise revenue, level the playing field somewhat with the ultra-rich but still encourage young entrepreneurs to stay at home in France and create new jobs.

One can only imagine the howling if Hollande ignored the problem and the business environment completely collapsed. We all know who would be screaming the most. Again, there is a problem that needs to be solved so everyone is going to have to pitch on, including the entrepreneurs.

An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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