Will Rich People Really Flee France If Taxes Skyrocket?

French President Francois Hollande speaks during a press conference at Maison Jean Vilar (Jean Vilar's House) while visiting the 66th Avignon Theatre Festival on July 15, 2012 in Avignon, southern France.
Patrick Aventurier | Getty Images
French President Francois Hollande speaks during a press conference at Maison Jean Vilar (Jean Vilar's House) while visiting the 66th Avignon Theatre Festival on July 15, 2012 in Avignon, southern France.

What is 75 percent of €0.00?

French president Francois Hollande wants to go back to the future on taxes.

When running for the job he eventually won, Hollande famously proposed a marginal tax rate of 75 percent on income above €1 million per year.

The usual outcry ensued. Progressives argued it was only fair while those on the right — and those who would be impacted — made noise about fleeing France. Despite cries the rich are bluffing on their threat to say ‘au revoir, Paris,’ it appears that may actually happen.

The New York Times details how tax lawyers are becoming inundated with calls from wealthy clients inquiring if they should leave France, and if so, how to do it.

Is it all a bluff to frighten Hollande into backing off? Likely not.

Proponents of higher income tax rates on the uber wealthy use history as a guide, noting that sky-high tax rates on the rich existed decades ago and there was no mass exodus.

History, usually a solid guide, is an untested pilot in this case for two reasons:

  • First, the internet has changed everything.

No longer are the rich tied to a landline phone and telefax machine. High speed fiber lines, video conferencing and document sharing enable most of us to be highly mobile. The rich perhaps even more so, with the added ability to work from anywhere, including yachts and planes. Most working rich live on the road anyway, with multiple houses and domiciles. The idea of ‘home’ has changed massively.

  • Second, there is much greater developed world competition for capital.

Forty or fifty years ago there were far fewer lower tax regimes with decent qualities of life for the rich to flee to. Most developed, business efficient countries had similarly high tax rates. There was nowhere to hide.

Not so today. Many countries dangle low top-end tax rates to reel in human capital. Singapore and Dubai are in competition to cut rates and bring in the rich. Facebook co-founder Eduardo Saverin infamously gave up his U.S. citizenship to move to Singapore. Procter & Gamble announced its intention to move the global headquarters of its beauty and baby-care business to Singapore, and though denying taxes were a part of the decision making process, it’s interesting the company chose that low tax regime versus the higher tax rate in Hong Kong.

Of course, if Mr. Hollande has his way it could be terrific for America, which comparatively would look like a low-tax haven. New York realtors must be salivating.

Even those who consider themselves progressive and willing to do their “fair share” bristle at that ‘soixante-quinze’ tax rate. Watch actor Will Smith’s reaction to that number in this great interview on French television.

Either way, if Hollande gets his wish the world will get to watch a great global dance play out in real-time. We won’t need theories or historical guesses. The French will, or won’t, vote with their feet and shipping containers.

Bon chance, Monsieur Hollande! They have Chanel in Singapore, too.

-By CNBC's Brian Sullivan



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