It's not every day you see Russia's Vladimir Putin receiving a bear hug from a Frenchman, but the actor, Gerard Depardieu is no ordinary Frenchman. In fact, he may not even remain French for very long in some sense.
You see, Depardieu has been threatening to give up his French passport, especially now that Putin has handed him a brand new Russian one. But why on Earth would he or anyone, for that matter, want to leave France? Think of the food, the wine, Paris, the countryside. Well, for Depardieu, it comes down to taxes.
Under President Francois Hollande, France has been weighing a proposal for a 70 percent marginal tax rate on millionaires. Russia, on the other hand, offers a flat, 13 percent tax.
Now, moving to tax havens is not new and it's not a foreign concept. Here in America, a number of high earners move between states to save on taxes. The golfer, Phil Mickelson, for example, recently threatened to leave California after the Golden State raised its top income tax by 3 percentage points. Tiger Woods already did that years ago, moving to Florida.
In fact, many American retirees move to Florida or Texas, neither of which get more snow, but perhaps even more enticing, neither collect state income taxes or estate taxes.
So is it counterproductive to raise taxes on millionaires? Does it drive high-earners away? A number of new studies actually address the question.
Two economists, Cristobal Young of Stanford and Charles Varner of Princeton, recently examined the case of New Jersey, which raised its top tax rate in 2004. Anyone who was making more than $500,000 was subjected to an extra 2.6 percent in taxes. So what happened? Well, as you would expect, there was an increase in the number of millionaires who left the Garden State.
In 2006, that loss ended up costing New Jersey a grand total of $16.4 million in foregone levies. But, get this, the overall gains from higher taxes on the rich came in at 65 times that number, more than a billion dollars. Why?
Well, in part, the sheer number of millionaires increased and the vast majority of high-earners did not leave. Many of them had jobs or businesses that were tied to the state. Other studies on California and Maryland show similar findings.
Now, to be clear, we are not recommending higher taxes on rich people. But it's important to examine the facts. We tend to think California or New Jersey made a mistake simply because high-profile celebrities threatened to leave the state. But the facts show that this is more complex. You can question the policy, but not the numbers. Taxing the rich, so far at least, clearly has generated more money than produced losses. This is true up to a point, of course.
What about taxes around the world? Do people move from high tax to low tax areas? Well, the data is more difficult to glean there. But we couldn't help but wonder though, watching Gerard Depardieu show off his new passport in the Russian Republic of Mordovia, he would need to spend six months of the year in Russia to qualify for its 13 percent tax rate. To do that, he would have to deal with Russia's frigid winters, battle with the culture that is not always friendly to foreigners, trade French food for Russian food, but, most importantly, he'd have to give up what is surely one of life's greatest treasures -- living in Paris.
Would you make the trade?