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The Depardieu Lounge… France’s wealth exodus has begun and we must take note

    One of France’s most recognisable actors, Gérard Depardieu, has left his mother country for new dwellings. No, he’s not off to marry Andie McDowell to get an American Green Card, this is real life and the Cyrano de Bergerac actor has moved to a Belgian town 800 metres from the French border to escape Socialist President Francois Hollande’s new punitive tax regime.

    He is not the first by any means, with even the prospect of the President’s action having been enough to convince many of the need to leave. While Socialist rhetoric portrays these ‘deserters’ as Capitalist leeches, the truth is they are the wealth creators and high tax payers that France needs in order to battle against its own economic nightmare.

    As economist Art Laffer has famously noted, the 'rich' have a range of options open to them when faced with high taxation rates – they can choose to leave the country for a destination with a more competitive tax rate as Depardieu has done, or they can afford the means to find ways to legally hide their income from the taxman, through the hiring of lawyers, accountants, etc.

    The result of such an exodus is the loss of the highest source of tax revenue the government is anticipating – either to another jurisdiction or to efforts to hide income – resulting in a revenue loss. As Laffer told an IEA audience last yearWhen you raise taxes on rich people, you collect less revenue. When you lower tax rates on rich people, they give up their lawyers or accountants, their programmes, and they actually pay their taxes on their income.”

    We have seen the effects of such moves here – Labour’s politically motivated 50p tax brought in during the twilight days of Gordon Brown’s administration saw a fall of 10,000 people declaring a high income – almost two thirds! Evidently some of this was forestalling, but no doubt a chunk of this would have been permanent loss of revenue.

    In 1974, Harold Wilson’s Labour government increased the top rate of tax to its highest post-war level – 83% on incomes over £20,000. And as Sky’s Economics Editor Ed Conway tweeted yesterday, the only reduction in UK population over the last century took place between the census of 1971 and 1981, a brain drain that coincided with one of the darkest period’s in the UK’s economic history.

    The behavioural effects of high tax rates can be observed here and around the world. Allister Heath has pointed out that the high-end property market (£2m-£5m) has collapsed by over half since the Chancellor’s introduction of a 7% stamp duty rate (no doubt a concern to Mayor Boris Johnson as he seeks to lure unwanted French and Indian millionaires to his city). We have a petri dish experiment unfolding before our very eyes across the English Channel.

    When will politicians learn that it’s not just a simple case of going to the well once again for a top up? Such punitive taxation costs us the very taxpayers that CPS research has shown we have (rightly or wrongly) come to rely on for the benefits of the state. Net tax revenue increased every year Margaret Thatcher was in office – despite both the top and basic rates consistently falling throughout the same period. Everyone hates paying tax – our politicians would do well to remember that evidence shows sometimes less is more. 

    Lewis joined the Centre for Policy Studies in April 2011 with responsibility for social media and digital engagement.

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