Yes Virginia, People DO Vote With Their Feet to Escape Onerous Tax Regimes

by Pejman Yousefzadeh on May 13, 2012

To wit:

As summer draws near, thoughts of the well-heeled Parisian turn to Le Grand Départ.

The annual mass exodus from the French capital sees the city’s inhabitants while away the August heat in the countryside.

But this week many of the biggest earners across the Channel have been mulling a départ which could be rather more permanent.

The toppling of Nicolas Sarkozy by François Hollande, the first socialist president to lead the country in 17 years, has sent ripples of fear through the wealthier arrondissements of Paris.

Their new president may block the eurozone austerity advocated by Germany’s Angela Merkel, but he is not opposed to his richer citizens feeling the squeeze.

Mr Hollande plans to implement a 75pc tax rate on earnings over €1m (£800,000), on top of a 45pc rate for people making €150,000 or more. He is also expected to raise “wealth taxes” on property assets and end his predecessor’s tax incentives to lure bankers back home.

In addition, France’s high earners feel increasingly unwelcome in a country now led by a man who has admitted: “I don’t like the rich.” So where are they looking? London. It comes as no surprise – while Hollande prepares to raise taxes, over here David Cameron is cutting the 50pc tax rate for income above £150,000 to 45pc. “I have already worked in London and lived in South Kensington,” said one French banker who expects to return to the UK over the next three months. “The question is how much of Hollande’s rhetoric will materialise into policy.”

Few are keen to find out. Private equity firms and American banks in Paris have already begun making arrangements for their top executives to set up office in London, amid widespread concern about changes to the French income tax regime.

High-earners are changing their behaviour so they appear safely based in London before any painful crackdown. “Partners are coming over to establish a track record of behaviour that is outside tax, from an early stage, so that they can respond quickly to what is coming down the track,” said a senior source at one private equity firm.

“The exodus will mean a lot of France’s biggest earners relocate to London,” said a hedge fund manager. “It won’t be possible for everyone, but those who can make the switch will definitely be working on a contingency plan.”

I like the typical response that one gets to these kinds of stories from advocates of higher taxes. Their usual reaction is to claim that the rich won’t be missed if they leave. “Good riddance,” some of them even reply. It doesn’t seem to occur to them that (a) a number of the rich are actually job-creators, and that an onerous tax regime will miss out if they decide to go and create jobs elsewhere, and (b) the onerous tax regime in question will miss out on tax revenue if the rich decide to leave.

Oh, and if Hollande really dislikes the rich, then he must loathe himself.

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