France Shows That Taxing Wealth Has Devastating Consequences
Daniel Hannan
British Conservative MEP
January 5, 2015
I was living in Brussels when François Hollande, the President of France, introduced his 75 percent top rate tax in 2012. Immediately, my quartier began to fill with French exiles, who could commute to Paris in just over an hour. One of the few Belgians left in my street, a stern local matriarch, stopped me as I left the house one morning. “You’re in politics, Monsieur le Député, maybe you can tell me something. What kind of hell must these poor souls be fleeing if they see Belgium as a tax haven?”
Three years on, President Hollande is shame-facedly scrapping the 75 percent rate, having forcibly re-learned an ancient truth: Wealth taxes don’t redistribute wealth; they redistribute people. Thousands of well-off Frenchmen made the easy journey north, including the country’s richest man, Bernard Arnault.
Others decided that if you’re going to flee punitive taxation, you can do better than the land of moules frites and speculoos biscuits. Gérard Depardieu, France’s greatest actor — in every sense — went to Russia, where, whatever their other problems, they have a flat rate tax on income of 13 percent (9 percent for dividends).
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. 
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.
Parts of Kensington, an expensive district of West London, are now largely Francophone. London is, on some measures, the sixth-largest French city in the world. It pullulates with French financiers and French footballers and French management consultants and French pastry chefs. They have just two things in common. First, all had the get-up-and-go needed to start a career in a new language and a new country. Second, all are paying their taxes to the British Exchequer instead of the French treasury. Merci, mes amis.
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.
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.
A lot of politicians don’t want to hear this. Instead of accepting international competition, they legislate against it — by, for example, imposing international rules on tax harmonization. The new president of the European Commission, Jean-Claude Juncker, has campaigned all his life for European fiscal integration, including financial transaction taxes, debt pooling and a common EU finance ministry. Amusingly, though, it now emerges that while he was mouthing these platitudes, he was, as prime minister of Luxembourg, wooing multi-nationals with secret tax exemptions.
If there is an American who understands the tax code in its entirety, I have yet to meet him.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.
One way to think of the tax system is as a massive Swiss cheese. Each hole is an exemption created by a legislator in pursuit of good headlines — a hole waiting to be filled by the clever accountants. If we were to compress the cheese, collapsing all the holes, its overall height would fall substantially. In other words, scrap all the special incentives, rebates and waivers, and you can cut the basic rate. Time spent on legal avoidance would instead be spent productively. Revenues would increase. It works every time.
Between 1980 and 2007, the US cut taxes at all income levels. Result? The wealthiest one percent — those chaps that the Occupy crowd keeps banging on about — went from paying 19.5 percent of all taxes to 40 percent. In Britain, after the top rate of income tax was lowered in stages from an eye-watering 98 percent in the late 1970s to 40 percent by 1988, the share of income tax collected from the wealthiest percentile rose from 14 to 27 percent.
In other words, flat taxes don’t just make avoidance pointless; they don’t just boost the economy; they also ensure that the rich pay more. If President Hollande were to embrace them, he might edge even France out of its nosedive.
Dan Hannan is a British Conservative member of the European Parliament.
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