Wealth taxes rarely work

MEP Daniel Hannan writes:

I was living in Brussels when François Hollande, the President of France, introduced his 75 percent top rate tax in 2012. Immediately, my quartier began to fill with French exiles, who could commute to Paris in just over an hour. …

Three years on, President Hollande is shame-facedly scrapping the 75 percent rate, having forcibly re-learned an ancient truth: Wealth taxes don’t redistribute wealth; they redistribute people.

The same goes with corporate taxes. Many companies can now choose which country to be based in for tax purposes. Of course they will avoid the high tax rate countries.

Hollande’s tax, levied on incomes above one million euros, has been a miserable failure. Over its lifespan, it raised around $500 million, a tiny fraction of the original projections. Why? Well, the Paris bureaucrats who made those projections overlooked something rather important. Rich people don’t sit around waiting to be taxed. They have all sorts of ways of beating the system, not necessarily involving accountants. The two most straightforward forms of legal tax avoidance are earlier retirement and emigration, and wealthy Frenchmen have made ample use of both.

The same happened in New Zealand. When Cullen’s envy tax of 39% on incomes over $60,000 came in, it didn’t actually increase the tax take. Research shows, it reduced it, as people made moves to avoid it.

The best way to maximize your tax revenue, though, involves neither harmonization nor secrecy. On the contrary, it involves lower, flatter, simpler taxes.

The complexity of a tax system is every bit as damaging to competitiveness as the overall tax rate, yet we take it almost for granted. If there is an American who understands the tax code in its entirety, I have yet to meet him.

NZ does well with a relatively simple tax system. The rates are still too high though, and should come down further.