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Paris Diary: The Mobility of Capital

capflight.jpgFrance is about to receive a sharp lesson in modern economics. The new Socialist government has raised the top income tax rate to 75%, and the upper rate on capital gains is now 62.2%. My prediction, and I am certainly not alone in making it: the French state will take in less money as a result. Why? Because the government does not recognize that many professionals and senior managers can now do their work anywhere.

In my circle of acquaintances alone, my longtime Paris lawyer will head to Hong Kong before the end of the year; a good friend who is a senior partner at another firm here is relocating to London; the head of marketing at one of the world’s largest luxury purveyors is moving to Italy; and the guy with the Ferrari 458 Italia who rents a parking space near me is off to Belgium. The head of our kids’ school reports that at least a half dozen parents have already signaled to him their intention to move out of the country at Christmas, too. To those figures, we might add all of the highly paid managers who will no longer move here in the first place, and the head offices that will choose another domicile.

Not only will France be deprived of their tax revenues, but all of the money that these folks would have spent on day-to-day living, too.

Of course, most of these people will still do a great deal of work in France. They’ll fly in once a week to see clients or have meetings. But with legal research being done from a terminal, and communications almost free via video-conferencing, living away from Paris is not a hardship, at least from a business point of view. They just won’t pay taxes here.

You can add to the above tax rates the fact that most corporations pay out payroll taxes that add another 50% to their wage bill. And to top things off, when people finally get what’s left of their money, they pay a value added tax on retail purchases on most things of 19.6%, and 5.5% on food and items like children’s clothes.

The old joke in Paris is: everyone works for the government, at least among the people who still live here. The United States would do well not to go down the same road.

Addendum: My own saying about France: Despite the unstinting efforts of the government, this is a wonderful place to live.

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