March 28th, 2013
02:42 AM ET

Do high taxes prompt millionaires to flee?

By Global Public Square staff

It's not every day you see Russia's Vladimir Putin receiving a bear hug from a Frenchman, but the actor, Gerard Depardieu is no ordinary Frenchman. In fact, he may not even remain French for very long in some sense.

You see, Depardieu has been threatening to give up his French passport, especially now that Putin has handed him a brand new Russian one. But why on Earth would he or anyone, for that matter, want to leave France? Think of the food, the wine, Paris, the countryside. Well, for Depardieu, it comes down to taxes.

Under President Francois Hollande, France has been weighing a proposal for a 70 percent marginal tax rate on millionaires. Russia, on the other hand, offers a flat, 13 percent tax.

Now, moving to tax havens is not new and it's not a foreign concept. Here in America, a number of high earners move between states to save on taxes. The golfer, Phil Mickelson, for example, recently threatened to leave California after the Golden State raised its top income tax by 3 percentage points. Tiger Woods already did that years ago, moving to Florida.

In fact, many American retirees move to Florida or Texas, neither of which get more snow, but perhaps even more enticing, neither collect state income taxes or estate taxes.

So is it counterproductive to raise taxes on millionaires? Does it drive high-earners away? A number of new studies actually address the question.

Two economists, Cristobal Young of Stanford and Charles Varner of Princeton, recently examined the case of New Jersey, which raised its top tax rate in 2004. Anyone who was making more than $500,000 was subjected to an extra 2.6 percent in taxes. So what happened? Well, as you would expect, there was an increase in the number of millionaires who left the Garden State.

In 2006, that loss ended up costing New Jersey a grand total of $16.4 million in foregone levies. But, get this, the overall gains from higher taxes on the rich came in at 65 times that number, more than a billion dollars. Why?

Well, in part, the sheer number of millionaires increased and the vast majority of high-earners did not leave. Many of them had jobs or businesses that were tied to the state. Other studies on California and Maryland show similar findings.

Now, to be clear, we are not recommending higher taxes on rich people. But it's important to examine the facts. We tend to think California or New Jersey made a mistake simply because high-profile celebrities threatened to leave the state. But the facts show that this is more complex. You can question the policy, but not the numbers. Taxing the rich, so far at least, clearly has generated more money than produced losses. This is true up to a point, of course.

What about taxes around the world? Do people move from high tax to low tax areas? Well, the data is more difficult to glean there. But we couldn't help but wonder though, watching Gerard Depardieu show off his new passport in the Russian Republic of Mordovia, he would need to spend six months of the year in Russia to qualify for its 13 percent tax rate. To do that, he would have to deal with Russia's frigid winters, battle with the culture that is not always friendly to foreigners, trade French food for Russian food, but, most importantly, he'd have to give up what is surely one of life's greatest treasures – living in Paris.

Would you make the trade?

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Topics: Economy • France • Russia • What in the World?

soundoff (10 Responses)
  1. matslats

    > Now, to be clear, we are not recommending higher taxes on rich people.
    Is that because recommending things is not your work, as journalists, or because you know your readership is rich?
    Why would I care if rich people emmigrate? Do you think I enjoy being their slave?

    March 28, 2013 at 3:01 am | Reply
  2. 100 % ETHIO

    "Do high taxes prompt Millionaires to flee?".

    Good to know. Millionaires are always escaping the hard times.
    They never send their Children into war zones. They let the poor Americans to die for them.
    America's Military (the poor Men and Women who serves in war times), are the real backbones of America and its millionaires.

    Millionaires without the safe Country, are the house of cards. They will crumbled easily.

    Will Bill Gate Children serve America as Soldiers? Or they keep waving their hands through the Microsoft Windows, to other American Servicemen and Women?

    March 28, 2013 at 1:34 pm | Reply
  3. j. von hettlingen

    It wouldn't surprise me that in the case of Gérard Depardieu, the bear hug he gave Putin and the Russian passport he showed served them both as a publicity gag. No doubt this highlighted also the grievances of the rich in France, yet many of them leave quietly.

    March 29, 2013 at 6:53 am | Reply
  4. rightospeak

    It is nothing new.Charlie Chaplin went to Europe to avoid paying US taxes. We do not know the real reason. With so much propaganda by the media it is hard to fugure what is truth and what is b.s. Most is b.s.

    March 29, 2013 at 6:35 pm | Reply
  5. Thinkitout

    "But we couldn't help but wonder though, watching Gerard Depardieu show off his new passport in the Russian Republic of Mordovia, he would need to spend six months of the year in Russia to qualify for its 13 percent tax rate." This is really not the case by giving up his French Passport or decision not to live in Paris, or getting another passport "and having to live someplace for 6 months to qualify for 13%..... The fact that an EU passport, where taxation is becoming increasingly more aggressive, the issue is to get out of the EU tax system, get an outside passport where there is no world wide income requirement to file tax or inter – EU..... With a Russian Passport, he WILL NOT go and live in Russia as you suggest to lower his tax rate to 13%, which if he did liv in Russia for6 months, he would, but the simple truth by having his Russian Passport, he can go live in France for 175 days and not be required to pay taxes as he is not a resident. He might even have a cottage in the Cotswold's or small villa in Italy to spend another 175 day, clearly staying off the radar screen and not require to pay taxes, but he lowers his income tax to zero. As EU countries tighten tax treaties, instead of Italy, he may go to Miami and live there for 175 days provided he complies with the 90 day max rule for a stay.... And still pay no tax. So your statement above on giving up his French Passport an 75% taxes for a Russian one is not really to lower it to 13% and live in the god awful country just to lower taxes, but his total ability with his money to avoid all taxes and live in 2 or 3 countries as he choses during the year, providing he follows the residency aspects on foreign visitors.... And when he gets sick, he can travel to the USA and live there until he dies with a waiver on the 90 day min stay.... What Gerard Depardieu is really doing is avoiding paying all taxes, and as a citizen of Russia, may be able to secure non recourse funding from the govt for films etc Life is a big bowl of cherries.

    March 30, 2013 at 8:39 am | Reply
  6. whilesleeping

    Why don't you do a show on the Russian tax system, and go into depth as to how they can be at 13%, while Western Europe and the US at at such higher rates?

    April 1, 2013 at 5:42 am | Reply
    • russoPhobia

      Russias debt is also at 10%, Russia refuses to privatize its energy and banks, that is the reason.

      April 2, 2013 at 5:56 pm | Reply

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