When millionaires were slapped with higher taxes in the U.K., almost two thirds of them simply left.
“In the 2009-10 tax year, more than 16,000 people declared an annual income of more than 1 million pounds to HM Revenue and Customs,” the (London) Telegraph reported last week. “This number fell to just 6,000 after Gordon Brown introduced the new 50 percent top rate of income tax shortly before the last general election.”
The government is mystified at the fact — and the revenue ledgers, which show that increasing the tax rate led to a decrease in revenues.
“It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes,” the Telegraph speculated.
But something even more mysterious is happening now: When the government decided to cut taxes on the rich, they started to return.
“George Osborne, the Chancellor, announced in the Budget earlier this year that the 50 percent top rate will be reduced to 45 percent from next April,” the paper said. “Since the announcement, the number of people declaring annual incomes of more than 1 million pounds has risen to 10,000. However, the number of million-pound earners is still far below the level recorded even at the height of the recession and financial crisis.”
That’s because money — capital — is mobile. And so are capitalists, by the way. We noted in July that the wealthy in Italy were quietly slipping their dock lines, and sailing their yachts to harbors in other countries — just ahead of a big tax hike on luxury items such as yachts.
Italy didn’t just lose the taxes it hoped to collect. It lost much more.
“Around 30,000 yachts have fled Italy this year, costing 200 million euro in lost revenue from mooring fees, port services and fuel sales,” the Telegraph reported at the time.
We see the same thing in Spain, as a corporate tax hike has driven businesses across borders.
Many domestic states have suffered the same fate. Maryland had a “millionaire’s tax” that started in 2007. And it had an exodus of upper-income residents and some businesses that started in 2007, as well.
That “soak the rich” tax hike resulted in a net loss of $1.7 billion in state revenues, according to estimates.
President Barack Obama isn’t paying attention; he’s determined that any legislative measures to avoid the “fiscal cliff” include a tax increase on the “wealthiest Americans.” And very likely, Republicans will agree to at least some measure of this.
But history — and by this we mean “just last week” — shows that’s no guarantee more revenue will be collected.