Obama Take Note: Here’s What Happened When France Raised Taxes on the Rich

NiceIn 2012, President Francois Hollande of France put into effect his 75 percent top tax rate. What happened then, and has happened since, should be instructive to President Obama and Democrats who think the answer to budget woes is to raise taxes on the rich.

Immediately, wealthy families began leaving France. Some of them went to Belgium, from which they could commute to Paris in an hour. Gerard Depardieu, the great French actor, went to Russia, where there is a flat 13 percent tax rate, and only nine percent on dividends.

Many people moved to London, particularly to the pricey neighborhood of Kensington. London is now often described as the sixth-largest French city in the world. French financiers, French chefs, and French football players are now all giving their tax moneys to the British Exchequer rather than the French treasury.

Dan Hannan, a British Conservative member of the European Parliament, writes in the Washington Examiner:

Not since the expulsion of France’s Protestants in 1685 has there been such an exodus of entrepreneurs to the Anglosphere; and this wave, like that one, has been a transfusion of talent, leaving the English-speaking world more energetic and France more anemic. Nicolas Sarkozy, well understanding where the relatively small free-market-minded section of his population could be found, launched his presidential election campaign in London.

Hollande’s tax, levied on incomes above one million euros, has been a miserable failure. Over its lifespan, it raised around $500 million, a tiny fraction of the original projections. Why? Well, the Paris bureaucrats who made those projections overlooked something rather important. Rich people don’t sit around waiting to be taxed. They have all sorts of ways of beating the system, not necessarily involving accountants. The two most straightforward forms of legal tax avoidance are earlier retirement and emigration, and wealthy Frenchmen have made ample use of both.

When rich people emigrate, they leave others to pick up their share of the tax bill. Even in 1685, the loss of revenue hit the French state badly, setting it up for a series of defeats in the wars with the English-speaking peoples that were to follow over the next century. These days, friendlier tax jurisdictions are a Gulfstream flight away, and financiers can often open their businesses abroad simply by opening their laptops…

The best way to maximize your tax revenue, though, involves neither harmonization nor secrecy. On the contrary, it involves lower, flatter, simpler taxes.

The complexity of a tax system is every bit as damaging to competitiveness as the overall tax rate, yet we take it almost for granted. If there is an American who understands the tax code in its entirety, I have yet to meet him.

The super-rich, who can afford ingenious tax advisers and high upfront fees, turn complexity to their advantage, sheltering their assets in various pockets unintentionally created by government schemes. Again, the rest of us then have to cough up to cover their portion.

Three years later, President Hollande is now getting rid of the 75 percent rate. He has learned what Conservatives have always known: taxes on the rich do not redistribute wealth; they redistribute people. The very best thing a country can do is to simplify tax rates and let wealthy people do what they do best, generate money for the economy.

You may also like...