France Abandons Tax Ceiling: High Earners Can Now Pay Over 50%

PARIS (AP) -- In a major turnaround, French President Nicolas Sarkozy and his indebted government are abandoning a tax ceiling for big earners he once hailed as key to modernizing France and luring investors.

Critics say the cap, which ensures that no one pays more than 50 percent of annual earnings in tax, is a sop to the rich at a time of belt-tightening across Europe.

Prime Minister Francois Fillon said in a speech Thursday that the tax cap had been "an imperfect remedy" for the heavy tax burden on the rich and will be abolished in a sweeping tax reform this year.

The reform will maintain a wealth tax that has also come under fire, Fillon said. The wealth tax is based on overall assets, and rising property prices have pushed some middle-income families over its threshold.

Tax reform is a top government priority this year and may serve as an awkward bookend to Sarkozy's presidential term. This tax reform may be the last big initiative by Sarkozy before presidential elections next year.

He pledged the tax ceiling while campaigning for the presidency in 2007, and it was among the first measures passed after his election. The reform resulted in euro30-million ($41.5-million) tax rebate for L'Oreal heiress Liliane Bettencourt, Europe's richest woman, drawing criticism from oppposition parties.

It became a symbol of his efforts to energize and open up France's economy at a time when Britain and other rival economies were roaring ahead and France's was stagnating.

But since then, a global financial meltdown and European debt crisis intervened and Sarkozy's rhetoric shifted.

"Since 2007, we have had the courage to reform, but we should also have the courage to adjust our assessment and listen to public opinion," Fillon said.

The tax ceiling drew criticism from the opposition left and even members of Sarkozy's conservative party.

It only affected a small percentage of taxpayers - 234,000 at the time it was passed - but was seen as symbolic of Sarkozy's efforts to lure rich taxpayers back to French soil away from tax havens.

French rock legend Johnny Hallyday, a friend of Sarkozy's, disappointed fans when he moved to Switzerland in 2006 to escape high taxes.