By David Henry
The bear hugs on the Black Sea didn't mask the irony of the moment. A wealthy Hollywood actor from France embraces the onetime secret-police agent of the former Soviet Union. Who would have thought only 20 years ago that Gerard Depardieu would find refuge in a country once renowned for destroying the hope of its citizens?
"I love your country, Russia -- its people, its history, its writers,'' the "Green Card'' actor wrote in an open letter to Russian President Vladimir Putin. Nobody doubted that Depardieu's decision to accept Putin's offer of Russian citizenship stemmed from French President Francois Hollande's plan for a "rich tax'' of 75 percent for residents earning more than 1 million euros ($1.3 million). The French government has said it intends to revise its draft legislation after the country's top court struck down the proposed law last month. Russia's personal tax rate is 13 percent for most income, hardly comparable to Hollande's punishing levy for the rich.
Depardieu is just the latest in a series of high-profile figures fleeing the tsunami of higher taxes engulfing indebted Western nations. Billionaire Facebook Inc. co-founder Eduardo Saverin renounced his U.S. citizenship last year after taking up residency in Singapore, where the top tax rate is 20 percent. British Formula 1 driver Lewis Hamilton caused a stir last year after he carried the Olympic torch in London, though he had lived in Switzerland and Monaco since 2007, partly -- by his own admission -- due to taxation. The top rate of income tax in the U.K. is 50 percent, and the country only provides major tax relief to those residents not domiciled in the country, a rule that doesn't apply to natives such as Hamilton. Monaco levies no income tax from its residents.
The loss of tax revenue from the French actor, and other high-net-worth individuals who vote with their feet when tax rates climb, is negligible to the overall cause of replenishing state coffers. Still, France, the U.S. and the U.K., which are all struggling to contain public spending and government debt, should consider whether there is a broader lesson to be learned from their old Warsaw Pact foes and the tiger economies of Asia on how low taxes can make economies more dynamic.
Hollande's appeals for patriotism to expat Frenchmen ring hollow when the incentive to get ahead financially is undermined by punitive tax rates. Only by providing an attractive investment environment and the opportunity to keep the bulk of one's earnings will Western nations finally stem the outflow of citizens who are supposed to be their best, brightest and most admired.
(David Henry is a Frankfurt-based editor for Bloomberg View.)
Read more breaking commentary from Bloomberg View at the Ticker.-0- Jan/07/2013 17:32 GMT