France’s Brain and Wealth Drain

by Veronique de Rugy

The outrage from the political class in France over the decision by Gerard Depardieu to move out of France for tax reasons is entertaining. Dan Mitchell posted this quote from the French prime minister:

“Those who are seeking exile abroad are not those who are scared of becoming poor,” the prime minister declared after unveiling sweeping anti-poverty measures to help those hit by the economic crisis. These individuals are leaving “because they want to get even richer,” he said. “We cannot fight poverty if those with the most, and sometimes with a lot, do not show solidarity and a bit of generosity,” he added.

Jean-Marc Ayrault also called the actor’s decision to move to Belgium “pathetic.”

Did the Socialists really believe that they could impose a 75 percent tax rate, add many more tax hikes on top of that, call it patriotic, and suffer no consequences? If so, that’s strange. Let’s recap what’s happening in France

After the adoption of many new taxes, hikes of several existing taxes, and the promise of more tax increases to come, France is suffering from a massive brain drain. According to Jean-Philippe Delsol, now that the richest Frenchmen have left, it’s the turn of young entrepreneurs to take off. He writes:

On a national scale, it was previously estimated at some 1,000 exiles per year; today, this number should be multiplied by 5. It’s like repealing once more the Edict of Nantes in the sense that these departures will impoverish France in terms of business and industry.

The profile of the people leaving has completely changed. We still deal with aging entrepreneurs who would like to sell their business and retire without being soaked too much by the government. But this number is no longer increasing, in particular since the Exit Tax was introduced on capital gains (19 per cent plus 15,5 per cent in payroll taxes).

However, we are seeing a lot of young entrepreneurs, not necessarily wealthy, but who would like to get rich and will not hand over their wealth to the government. The hopeful tax exiles are therefore getting younger: today they are aged between 35 and 50, and not as before between 55 and 70. The granddad fiscal exodus is over! 

As I have mentioned before, many French people in exile end up in England, though higher-income French citizens seem to favor Belgium these days. According to various reports, there are 500 wealthy French citizens waiting for Belgian citizenship. That’s a 15 to 20 percent increase over the beginning of year. Further, of the 2 million French citizens living abroad, some 100,000 of them left for tax reasons. That’s over €10 million that the government won’t collect, and the opportunity cost for the French economy is said to be roughly €50 million. 

No one on the left seems willing to acknowledge yet that maybe these new taxes are counterproductive and should be repealed. Instead, the left-wing newspaper Liberation is now calling for tax harmonization to put an end to the bleeding, while Jean-Luc Melenchon, the leader of France’s Left Front, demands the implementation of a new law that would tax rich French citizens who have moved out of France for tax reasons (sadly, the U.S. has such a law in its books). 

To his credit, Hollande ran and got elected on this 75 percent tax rate. Maybe there is a lesson for Obama here. The American president, too, ran on raising taxes and got elected. But that doesn’t mean people will accept to pay higher taxes. And even if they don’t change their labor supply at first, there will be some long-term consequences for our economy. 

I was on Fox Business with Stuart Varney this morning to talk about Depardieu’s exit from France; Varney and I both left Europe years ago, so it was interesting to talk about this with him. 

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