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Posts Tagged ‘Exit Taxes’

Assuming elected officials care about the consequences of their actions, the obvious answer to a question isn’t always the right answer.

  • Q: Why should a (sensible) politician oppose the minimum wage, especially since some workers will get a pay hike?

A: Because the bottom rungs of the economic ladder will disappear and marginally skilled people will lose a chance to find employment and develop work skills.

  • Q: Why should a (sensible) politician oppose so-called employment-protection legislation, especially since some employees will be protected from dismissal?

A: Because employers will be less likely to hire workers if they don’t have the freedom to fire them if circumstances change.

  • Q: Why should a (sensible) politician oppose class-warfare taxation, especially since they could redistribute money to 90 percent of voters?

A: Because the short-run benefits of buying votes will be offset by long-run damage to investment, competitiveness, and job creation.

Many politicians are not sensible, of course, which is why bad policy is so common.

So it’s worth noting when someone actually makes the right decision, especially if they do it for the right reason.

With that in mind, President Emmanuel Macron deserves praise for gutting his country’s punitive “exit tax.” The U.K.-based Financial Times has the key details.

French president Emmanuel Macron said that he would remove the so-called exit tax as it was damaging for France’s image as a place to do business. The tax requires those entrepreneurs or investors who hold more than €800,000 in financial assets or at least 50 per cent of a company to pay capital gains up to 15 years after leaving France.  …A finance ministry spokesperson on Saturday confirmed “the removal of the exit tax as it existed.” …”The exit tax sends a negative message to entrepreneurs in France, more than to investors. Why? Because it means that beyond a certain threshold, you are penalised if you leave,” Mr Macron had said… “I don’t want any exit tax. It doesn’t make sense. People are free to invest where they want. I mean, if you are able to attract [investment], good for you, but if not, one should be free to divorce,” added the French president.

Kudos to Macron. He not only points out that such a tax discourages investment and entrepreneurship, but he also makes the moral argument that people should be free to leave a jurisdiction that mistreats them.

To be sure, the proposal isn’t perfect.

Mr Macron has now decided to introduce a new “anti-abuse” tax targeted at assets sold within two years of someone leaving the country. …“The new system will henceforth target divestments occurring shortly after leaving France — two years — to avoid letting people make short trips abroad in order to optimise tax efficiencies,” added the spokesperson.

This is why I gave the plan two-plus cheers instead of three cheers.  Though I understand the political calculation. It would create a lot of controversy if a rich person moved for one year to one of the several European nations that have no capital gains tax (Netherlands, Belgium, Switzerland, etc), sold their assets, and then immediately moved back to France the following year.

The right policy, needless to say, is for there to be no capital gains tax, period.

But let’s not get sidetracked. Here are a few additional details from Reuters.

France imposed the so-called “Exit Tax” in 2011 during the presidency of Nicolas Sarkozy. …Its aim was to stop individuals temporarily changing their tax domicile in order to skirt French taxes but pro-business President Emmanuel Macron says it damages France’s attractiveness as an investment destination.

Yes, you read correctly, the class-warfare policy wasn’t imposed by the hard-left Francois Hollande, but by the Nicolas Sarkozy, the supposed conservative but de-facto leftist who preceded him.

What’s particularly bizarre is that Macron was a senior official for Hollande, yet he is the pro-market reformer who is trying to save France.

P.S. I’m embarrassed to admit that the United States has a very punitive exit tax (which Hillary Clinton wanted to make even worse).

P.P.S. Since one of my three examples at the beginning of today’s column dealt with the perverse consequences of “employment-protection laws,” I suppose it’s worth noting that’s another area where Macron is trying to reduce government intervention.

P.P.P.S. While Macron is a pro-market reformer at the national level, he advocates very bad ideas for the European Union.

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Some of the world’s most disgusting and evil regimes restricted the right to emigrate, including the imposition of exit taxes designed to fleece those who did want to escape.

Given the evils of communism, you won’t be surprised to learn that the Soviet Union had such a policy. Here’s an excerpt from a 1972 story in the Palm Beach Post.

…citizens have been refused permission to leave the Soviet Union unless they pay a new tax… Nearly 500 Jews signed a letter to U.N. Secretary General Kurt Waldheim calling the tax an illegal “ransom” and an extreme injustice. Jews trying to emigrate to Israel have been the main victims of the new tax imposed by a decree… However, the tax is applied to anyone trying to emigrate from the Soviet Union.

Not surprisingly, the Nazis also used the same approach. Here are the relevant passages from a report by the World Jewish Congress.

… nearly a third of the German war effort was paid for with money stolen from Jews according a new study about the role of the German Finance Ministry during the ‘Third Reich’. …Ministry officials robbed an estimated 120 billion reichsmarks [the equivalent of nearly US$ 20 billion today] by looting and through stringent confiscation laws. …Tax laws discriminated against Jews from 1934, while some who managed to leave Germany before the Holocaust had much of their wealth seized through an ‘exit tax’.

Unfortunately, exit taxes still exist, and I’m embarrassed to say that the United States is one of the few countries to impose such a levy.

There’s no anti-Semitic motive for the tax. Instead, politicians have imposed exit taxes because some Americans decided to emigrate to jurisdictions with better tax law.  And rather than interpret this as a sign that the tax code was too onerous and should be replaced with something like a flat tax, they decided to enact a law to ransack people as they crossed the border.

But even this reprehensible policy isn’t enough for some of the clowns in Washington. Senator Barbara Boxer, the empty suit from the formerly Golden State, has decided that basic liberties such as the presumption of innocence are an impediment to tax enforcement. As such, she’s attached an odious provision to a transportation bill that would restrict the right to travel.

"Ihren papieren, bitte?"

A bill…that could potentially allow the federal government to prevent any Americans who owe back taxes from traveling outside the  U.S. is one step closer to becoming law. Senate Bill 1813 was introduced back in November by Senator Barbara Boxer (D-LosAngeles)… Section 40304 of the legislation states that any individual who owes more than $50,000 to the Internal Revenue Service may be subject to “action with respect to denial, revocation, or limitation of a passport”. … there does not appear to be any specific language requiring a taxpayer to be charged with tax evasion or any other crime in order to have their passport revoked or limited — only that a notice of lien or levy has been filed by the IRS.

The good news, at least relatively speaking, is that Boxer is only motivated by greed and statism. But the end result is still a reprehensible restriction on the liberty of people disfavored by the ruling elite.

If Barbara Boxer is any sort of example, no wonder California is such a mess, losing jobs and investment to other states.

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