Where have all the millionaires gone?
That’s a question many Britons are asking now that new data show nearly two-thirds of the country’s million-pound earners have disappeared not even one year after a tax hike on the nation’s highest earners went into effect.
Britain’s Telegraph newspaper reports that just 6,000 Britons declared income over a million pounds ($1.6 million) to the nation’s tax authority, down from more than 16,000 in the 2009-10 tax year.
Former Labour Party Prime Minister Gordon Brown raised the top rate from 40% to 50% in 2010, shortly before losing the general election to Conservative Prime Minister David Cameron.
The closely watched wealth tax was a disappointment from the beginning, with the first monthly receipts last January bringing a half a billion pounds less than the same month in 2011.
The Telegraph reports the tax increase has so far cost the U.K. Treasury 7 billion pounds.
Seeking to arrest this trend, Britain’s Chancellor of the Exchequer George Osborne announced that the top 50% rate would be reduced to 45% beginning next April. The British newspaper reports the number of Britons reporting million-pound incomes has risen to 10,000 since Osborne’s announcement.
The U.K. Treasury may yet have some extra, unexpected help from millionaires. Not to be outdone, France’s new prime minister, Francois Hollande, has pushed through a much higher wealth tax, with a top rate of 75% on residents of France earning 1 million euros ($1.3 million).
The new rate kicks in in 2013, and already there is evidence that wealthy Frenchmen are fleeing. Switzerland and the U.K., tax havens by comparison, are among the destinations cited by the Wall Street Journal in a recent article noting that French chateaux are being sold at bargain prices to foreigners (who would be unaffected by the new tax).
Similarly, sales of high-end property to French tax exiles are keeping London estate agents in the swank neighborhoods of Chelsea and South Kensington (dubbed the “21st arrondissement” quite busy these days, the Telegraph reported even before Hollande assumed office a week after his election.
The European tax flights will likely get close attention in the U.S., where fiscal cliff negotiations will decide whether a Bush-era tax reduction will be extended. Currently, the top tax rate is scheduled to rise from 35% to 39.6% come January–far lower than British or French rates, though the Obama administration proposes to apply that rate to families earning $250,000 (or individuals earning $200,000).
In addition, taxes on investment income are scheduled to rise sharply in the new year, and two new wealth surtaxes that are part of the health care overhaul take effect in the new year as well.
While many conservatives warn that the increased taxation will suppress wealth creation and bring in less revenue than expected, at least one analyst cautions that the European exodus from high tax jurisdictions may not be a relevant comparison to the U.S.
Forbes contributor Tim Worstall says the U.S. tax system makes fleeing taxes very difficult, since Americans, unlike citizens of the European Union, must file taxes regardless of their residence. Americans’ only recourse is to renounce their citizenship, and even then they must settle with the IRS before taking leave of the U.S. In contrast, a French citizen need only take the Chunnel train to London to be rid of France’s new higher taxes.
As for the British, it remains unclear where their highest earners are fleeing to, though it is possible they are simply working less while remaining in place.