Unsurprisingly, French zillionaires are snapping up London estate agents and will soon be hopping the channel to escape the new government. It’s little more than 200 miles from Paris to London, and there is already a large French community and associated amenities in the British capitol. U.S. States face similar problems when they design taxes tailored to soak the wealthy.
Fortunately though, this is far less of a challenge for federal income taxes in the U.S. We have fewer nearby countries relative to Europeans, our citizens are less likely to speak other languages, and our bordering nations (Canada and Mexico) are not seen as enviable places to live by most of our most affluent citizens.
Last year, 1,780 Americans gave up their U.S. passports. Up from 235 in 2008. This year, Facebook co-founder Eduardo Saverin being the most famous one so far.
Good data thanks.
Just FTR Saverin is Brazilian by birth, and has also lived outside the US since 2009.
If this were a problem the French actually wanted to fix, they could certainly do so.
Step (a) — taxation on your world-wide taxation, so merely living in the UK would not help.
Step (b) — make giving up your citizenship to avoid taxes illegal.
Eduardo Saverin can engage in step (b) because he was born Brazilian and held dual Brazilian-US citizenship. I’m not crazy about allowing his exception to slip through the cracks, but it is a smallish exception.
Most countries, of course, don’t have either of these two steps in place, and appear to have little interest in doing so. (Likewise for maintaining BS taxation regions for the Channel Islands and Isle of Mann, allowing huge amounts of money to be hidden in Luxembourg, etc etc).
The point is — for all the faults and corruption of the US, whenever I look at other countries I realize just how much worse they are
A Berlin wall by any other name…
You do realize I’m describing US law as it currently exists, not some construction I’m wishing would happen…
You’re welcome to call that a Berlin wall if you like. I guess it fits into similar rhetoric of “taxation is slavery”.
I’m pretty ignorant on the subject, but is it illegal to renounce your US citizenship? I hadn’t thought so.
Also, it’s probably relevant that the Uzk has insanely generous tax terms for foreigners residing in the UK and earning huge amounts of income elsewhere.
It’s not exactly illegal to renounce your citizenship; more it’s illegal to renounce your citizenship to avoid taxes, or to put it differently, you are expected to pay out the expected loss to the US treasury of your future taxes.
More specifically:
“In 2008, Congress enacted the Heroes Earnings Assistance and Relief Act that imposes a penalty—an “exit tax” or expatriation tax—on certain people who give up their U.S. citizenship or long-term permanent residence.[20] Effective June 2008, U.S. citizens who renounce their citizenship are subject under certain circumstances to an expatriation tax, which is meant to extract from the expatriate taxes that would have been paid had he remained a citizen: all property of a covered expatriate is deemed sold for its fair market value on the day before the expatriation date, which usually results in a capital gain, which is taxable income[21]“
So, the Berlin Wall has a Brandenburg Gate with a toll charge.
“U.S. States face similar problems when they design taxes tailored to soak the wealthy.”
While some individuals clearly change their behavior, I am not convinced that the effect is large.
http://www.stanford.edu/~cy10/public/Millionaire_Migration.pdf
http://www.state.nj.us/treasury/gsef/Tax%20Migration%20Study_with%20tables.pdf
I will concede that the top rate proposed by Hollande (75%) has a much larger impact than the relatively small surtaxes imposed by individual states. However, I found the anecdotes provided by the article a bit contrived for my comfort. This passage made me laugh out loud:
“James Pace, head of Knight Frank’s Chelsea and South Kensington offices, said one French financier told him Hollande’s arrival would mark ‘the third biggest exodus from France – the first being the Revolution and the second when Mitterrand [the last socialist president] got into power’. Having so far rented, this client is now looking to put down more permanent roots in London by buying.”
How do we know the wealthy are leaving? Because a real estate agent Knows-A-Guy who compared the effect of Hollande’s taxes to the French Revolution (in quotes). Second-hand hyperbole is never good journalism.
sven: How do we know the wealthy are leaving?
I would not take the quote as evidence of the move, it’s evidence of an attitude and I am therefore glad it’s in the article. I wonder if you have been to Kensington and Chelsea, the neighborhood described in the article? It’s hard to spend much time there and come away so confident that rich people will not relocate from Paris to London for financial reasons.
Agree with you re: The relative rise in tax being proposed in France versus in US states. What happens in US states of course depends on residency rules. If one owns houses in 4 states, including one with lax residency standards, even a small tax increase may occasion a change in official residency. If the switching costs of residency change are higher, people will probably choose just to eat the typical US-size state tax increase.
Thanks for the links to these white papers.
Sven’s comments nail. This Telegraph story which is the pivot for the post is a bunch of unsubstantiated propaganda. There isn’t a verifiable fact in the entire story.
Although, maybe the point of the post is that American’s mostly ain’t going nowhere.
And, most likely, neither are the French, rich or not.
Color me skeptical, too.
A French citizen living abroad will still pay French income tax on income from French sources (and I don’t think the UK/France tax treaty overrides that). In short, in order to avoid income taxes by moving abroad, not only do you have to be mobile yourself, but your source of income has to be, too.
That does work for some individuals (witness the number of non-French Formula I drivers living in Monaco [1]), but for most, it’s not really an option.
Also, if both you and your income are that mobile, you will probably already have taken up residence in a nice French-speaking Swiss canton so that your marginal income tax rate (federal + canton) is somewhere between 11.5% and 20% rather than the 40% you’re subject to in France.
[1] French citizens still have to pay French income tax when moving to Monaco and do not get to enjoy the 0% Monégasque income tax.
“… snapping up London estate agents …”
Why should they buy the estate agents?
I second Katya on the taxes. We can be sure that very few of the French super-rich will end up paying Hollande’s headline rate, even if they have to domicile themselves on Mars.
The UK top rate has just been lowered, but to a nontrivial 45%.
It’s probably worth noting that France (like all the EU countries if I recall correctly) taxes French-source income of citizens living abroad, while the US taxes global income of citizens living abroad.
The relative ability to move to reflect relative tax and service levels is one of the major reasons I favor maximizing the amount of policy-making, and tax collection and service provision, done at the state level.
The US taxing global income is largely theoretical for most people because of the Foreign Earned Income Exclusion and tax treaties that prevent double taxation. Living in the UK and having no income from US sources, I haven’t owed a cent in US income tax in years. I still have to file a tax return every year, of course (and one that’s still annoyingly complex — for example, as an expat you can’t use a 1040-EZ form, because forms 2555 and 2555-EZ for the Foreign Earned Income Exclusion require a full 1040).
In short, it’s mostly a convenience in that you don’t have to file an unnecessary tax return (for example, even though I’m a dual American-German citizen, I don’t even have to file a German income tax return because I don’t live in Germany or have income from German sources).
Would you please stop introducing reality to our discussions?
MKthxbye
I agree. It’s as irritating as sourced pedantry!
I don’t think it’s as minor an issue as you make it out to be.
Suppose there were no US global taxation regime. In THEORY one’s taxation would not change because you’d still have to report US income to US authorities and German income to German authorities. In practice, I suspect it opens up a lot of latitude for a dishonest individual to shift around whence income is supposedly sourced in such a away that both US and German authorities see less of it. As far as I can tell this was rife in the 70s, and is still common among a certain class of Europeans.
In other words, for an honest person, it makes no difference. For an outright criminal it makes no difference. But for a borderline honest person, it acts as a pair of eyes looking at them and reminding them “you probably want to be honest here because, chances are, we have a wide net out there and will catch you if you lie”.
I would agree that it’s theoretical for most people; I’m thinking that the people who would consider moving from France to the UK due to relative taxes are wealthy enough that they aren’t average in that respect.
Fortunately though, this is far less of a challenge for federal income taxes in the U.S. We have fewer nearby countries relative to Europeans, our citizens are less likely to speak other languages, and our bordering nations (Canada and Mexico) are not seen as enviable places to live by most of our most affluent citizens.
This is a problem for the U.S., given that the self-exile of the super-rich in response to high marginal tax rates is, so I’ve long believed, a feature not a bug.
The point of high taxes is to reduce the oversized political power of the rich. Let them go.
I know this will look bad to many, but we need some solutions to our money distributions. I think every executive and board member of aa “American” company that either lives overseas or stashes money overseas should be put on some patriot Act power that puts them on a ‘no-fly’ list. Nail them down to hamper their abilities. That includes their immediate familiies. Cause every one of them that cross our borders. in either direction, to spend 24 hours naked in an exam room. Nail them down – hinder their lives. Then we need tariffs that encourage domestic jobs. Multi-level tariffs that can be more severe the more damage they do to America.
Every BMW/Lexus/Mercedes imported is approx 1/10th of an American job lost.
It should look bad to everyone.
A tax on everyone to benefit a few.
I’m not so sure Crews is completely wrong. If someone who grew up here in the US renounced citizenship just to save a few bucks, I for one would want them barred from ever stepping foot on US soil again. People literally kill themselves to get here and if it means so little to them, then let them go without. No Mayo Clinic if you get sick. No visiting your sick rels. No Disneyland. (To be nice, you can re-fuel your jet if necessary, but you’re staying on it the whole time.) Marcel is right. Get the bleep out.
Also, we shouldn’t sell citizenship to rich people from abroad either. Believe it or not, but $$$ are not the national religion.
We always get stories like this, but they never amount to much. The wealthy and privileged just like to whine. Most of them hold wealth in the form of government backed currency and financial instruments, shares of government chartered collectives and government administered real estate, but they loathe the idea of paying taxes. They’re like old fashioned aristocrats. They have no problem taking the merchandise, but are insulted when the petit bourgeous behind the counter expects to be paid.
The US can afford to lose lots of millionaires. It’s not as if they offer the nation anything. If you haven’t noticed, the U.S. and its government are great at making new millionaires, though we’ve been falling behind on the requisite infrastructure as of late.
And when we redevelop the infrastructure, and even when we just start it, lots of foreign millionaires will move here to get in on the money to be made–even when we are raising our tax rates a lot.
I fully agree Kaleberg. Let’s see how many French millionaires leave due to an increase tax on the margin.
Whine, whine, whine, indeed.