Sunday, December 30, 2012


What do Gerard Depardieu and wealthy Californians have in common? Governor Brown is hoping the answer is “very little.” Several anecdotes and a spate of statistics, however, suggest they share more than Sacramento types would like to think.

Monsieur Depardieu, one of France’s most famous actors, has taken refuge in Belgium from President Hollande’s 75% tax on income over a million euros. The Cyrano de Bergerac star, however, is hardly alone in his search for a less taxing environment.

According to a Swiss magazine, 44 of that nation’s 300 richest residents are French and include famous names like Peugeot and Rothschild. Earlier this year London Mayor Boris Johnson, speaking fluent French, encouraged financial workers on the other side of the Channel to move to his city.

With the passage of Governor Brown’s Proposition 30, overall state-federal marginal tax rates for the Golden State’s top earners could exceed 50 percent—depending of the resolution of President Obama’s proposal to tax millionaires, billionaires, and those with adjusted incomes over $200,000.

As a consequence, the somewhat diminished flight of folks out of California could again become frantic—especially on the part of enterprises struggling in a business climate that ranks near the bottom of the Tax Foundation’s list of states. Among recent departures are 800 Chevron and 1000 Comcast jobs that are moving to other states, especially business-friendly Texas.

Ironically, folks in Hollywood are themselves increasingly prone to take productions elsewhere to secure tax breaks that aren’t available under the political regime they enthusiastically support. A double irony is that conservative Riverside County is pondering incentives that might encourage these “runaway” studios to film in the Inland Empire.

Beyond anecdotes, historical statistics suggest that Brown’s new taxes on the somewhat and actually wealthy are unlikely to produce significant revenues. As economist Thomas Sowell has noted, “high tax rates that people don’t actually pay do not bring in as much hard cash as lower tax rates that they do pay.”

The 1920s provide a poignant example. In 1921 a 73 percent tax rate on the wealthy brought in less revenue than a 24 percent top rate in 1925. Similar but less drastic cuts by JFK, Reagan, and George W. Bush produced similar results.

Rich folks, especially in a technologically enhanced economy, have many ways to avoid paying taxes. Tax-exempt bonds, even with low yields, beat paying half one’s dollars to the government. Or consider Google, an Obama-friendly California-based corporation that utilizes a Bermuda company to shelter two billion tax dollars.

Vilifying the rich may be emotionally gratifying, but it’s bad economics and socially destructive—as California, like France, may someday learn.

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