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This summer, a report by consulting firm Henley & Partners estimated that the UK will lose $3,200 millionaires in 2023. Taxes were cited as one of the reasons.
Britain is not the only country where the wealthy feel unloved. Earlier this year, California introduced a proposed wealth tax. Among other things, this would impose a 1% tax on household assets over $50 million and a 1.5% tax on assets over $1 billion. The proposed tax would apply to net worth worldwide and would also apply to people who do not reside in the state full-time.
A recent analysis by US financial intelligence firm SmartAsset found that the two US states experiencing an exodus of wealthy young professionals were high-tax California and New York. Their favorite destination? Florida and Texas have no personal income tax. Norway also saw an exodus of billionaires after the introduction of a wealth tax.
Naturally, there was some backlash. This usually involves wealthy people (and their defenders) saying that if a country or state raises taxes, they will take their money (and precious tax revenue) and walk away. This raises an obvious question. Should we be concerned? Or should we call their bluff?
The starting point for wealthy people here is that they usually pay a lot of taxes. That means they pay much more in taxes than other people. This is mostly correct. Researchers at the London School of Economics wrote in 2021: The top 1 percent pays 30 percent of all income tax receipts.
“In other words, £3 out of every £10 of income tax received by the government is paid by just over 300,000 individuals.”
The case is solved, right? Not completely. The researchers also found that the amount of tax paid varies widely depending on how compensation is generated (i.e., income vs. capital gains). Around one in four people with an annual income of more than £1m paid too much tax. However, 1 in 10 he paid only 11%. This is the same rate as someone who earns him £15,000. “It appears that not all wealthy people are equal,” the researchers said.
It is worth noting that studies that examine income tax rates and economic growth tend to find that the effects are negligible, and that many of the highest growth periods in developed countries were also periods of high tax rates. It is. In fact, a number of studies suggest that lowering tax rates will only increase the burden on those at the top.
This is part of the story behind runaway executive compensation (salaries have declined with income levels but have remained stagnant). It's also worth remembering here that billionaires don't exist in isolation. There is an argument that billionaires should pay more taxes because they are dependent on society in many ways, but sometimes they would like to think they don't pay taxes.
Loud voices should not be misunderstood as being entirely representative of the wealthy. Katharina Hecht, Visiting Researcher at the LSE International Inequality Institute, said: “When we interviewed people in the top 1% and top 0.1% of income earners in the UK, around a third of participants suggested that inequality should be reduced further, and many said that They supported the idea of raising taxes on people like them to give them more opportunities, and highlighted the need for public funding, especially for the NHS and the education system.”
Finally, it may be fair to ask yourself whether the threat of retirement is really that real. In his book The myth of tax avoidance by millionairesCornell University sociologist Cristóbal Young writes, “People rarely move at an advanced stage in their careers, when they are most likely to face millionaire taxes.”
He explains that most people have reached their peak incomes, started families, and put down roots in one area. They have business and social connections and are connected to networks. “In other words, high-income earners often accumulate significant human, social, and cultural capital where they live.”
In fact, one of the comments often made about people who actually follow the threat of tax exile is that they give up so much in order to save a little bit of what they already have more than enough. There is.
So should we be concerned about wealthy people threatening to leave because of tax increases? Maybe a little bit, but probably not as much as they think we should.
Rymer is reading . . .
Feed Nelson's Navy Written by Janet McDonald. This is an interesting account of how she fed her 150,000 people while being frequently out at sea for many months. Not only is it an incredible exercise in logistics, but what they ate was better than the common imaginary rotten meat and weevil-ridden biscuits, and the average ration was he He was a whopping 5,000 calories.
Follow Rymer on Twitter @rhymerigby
This article is part of FT Wealthphilanthropy, entrepreneurs, family offices, alternative and impact investing.
