Weekend Question 2: Why Are Many of the Wealthy French Voting with Their Feet — And Leaving France?

Answer: Because the country’s hideous wealth tax makes it unattractive, and sometimes nearly impossible, to stay.

From last Sunday’s Washington Post (bolds are mine; HT Don Luskin):

Old Money, New Money Flee France and Its Wealth Tax
Sunday, July 16, 2006; A12

PARIS — Denis Payre, a self-described French jet-setter, built a successful high-tech company from scratch, then decided to quit at age 34 to spend more time in France with his wife and young children.

Instead, Payre said, he was pushed into exile by the French government, which sent him a tax bill of nearly $2.5 million on paper assets he couldn’t cash in.

“They were asking me to pay taxes on money I didn’t have,” Payre said. “I had no choice but to leave the country.”

Payre, who moved his family to neighboring Belgium eight years ago, is today part of a sizable community of rich expatriate French driven out by the world’s highest tax bills on wealthy citizens. The exodus continues: On average, at least one millionaire leaves France every day to take up residence in more wealth-friendly nations, according to a government study.

At a time when France is struggling to stay competitive in an increasingly integrated world, business leaders say the country can’t afford to make refugees of some of its most established business families. They include members of the Taittinger champagne empire, the Peugeot auto magnates and leading shareholders of dominant retailers Carrefour and Darty. Also going are members of a new generation of high-tech entrepreneurs.

Socialist leaders and some government officials argue that the rich are merely trying to shirk their social responsibilities by fleeing the country with their millions.

“France is penalizing success in a big way,” argued Payre, who is now 43 and has started a new company in Brussels that he said did nearly $32 million in business this year. “The loss in income for the government is the smallest part. The big issue is the loss of all that creative energy this country is dying for.”

Payre said that when he decided to leave his high-tech company, Business Objects, in 1997, he owned shares that were worth $110 million — on paper. French tax authorities required Payre to pay a wealth tax of 2.2 percent on the shares, based on what the shares would have been worth had he sold them at the market’s highest point.

But Payre said that he didn’t have access to them because of stock market regulations that limited his ability to sell and that, in any case, a market dip had devalued the shares below that peak.

The wealth tax — officially called the solidarity tax — is collected on top of income, capital gains, inheritance and social security taxes. It’s part of the reason France consistently ranks at the top of Forbes magazine’s annual Tax Misery Index — a global listing of the most heavily taxed nations.

Wealthy citizens’ tax bills can be higher than their incomes, according to tax analysts.

….. “This tendency to take from the rich and give to the poor which is supposed to solve all the problems in France is ruining the country,” said Alain Marchand, who left France six years ago and now has a London-based consulting business that helps relocate French business leaders and entrepreneurs in England and other countries. “That’s an incredibly stupid and narrow-minded vision of economic life.”

Eric Pinchet, author of a French tax guide, estimates the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998.

Business organizations and financial consultants say members of the new generation of business school graduates and high-tech entrepreneurs — who see the tax structure as penalizing not only individuals but also companies’ ability to compete — are especially likely to flee the taxation.

In France, employers are required to pay social security taxes equal to 48 percent of each employee’s salary. Labor laws make it difficult and costly to fire incompetent workers. “The way the French state is organized makes it impossible for big family corporations to stay on French soil,” said 44-year-old Virginie Taittinger, who moved to Brussels two years ago. “If you add up all the taxes an employer has to pay — social taxes, employee taxes, the wealth tax, taxes on profit — even a successful business has a hard time surviving.”

The French seem congenitally unable to do anything about this financially suicidal situation, even in the face of clear evidence of huge tax revenue losses from those fleeing.

Remind me again: Why should our country, newer EU members, or anyone else in the developed world for that matter be interested in imitating this colossal socialist nightmare?