November 29, 2012
Two-Thirds of Millionaires Left Britain to Avoid 50% Tax Rate
In the 2009-10 tax year, more than 16,000 people declared an annual income of more than £1 million to HM Revenue and Customs. This number fell to just 6,000 after Gordon Brown introduced the new 50p top rate of income tax shortly before the last general election.
The figures have been seized upon by the Conservatives to claim that increasing the highest rate of tax actually led to a loss in revenues for the Government.
It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes.
George Osborne, the Chancellor, announced in the Budget earlier this year that the 50% top rate will be reduced to 45% from next April
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Where did they go?
Posted by: Anon | Nov 29, 2012 6:17:49 AM
Gee, who'da thunk?
Posted by: CatoRenasci | Nov 29, 2012 2:58:52 PM
I know Switzerland was actively trying to lure them away when the rates went up.
Posted by: HP | Nov 29, 2012 3:06:24 PM
I'm so out of date. "Millionaire" once meant one whose total net worth exceeded one million pounds (or dollars). Now it refers to those whose annual income is that big.
A million pounds (or dollars) just ain't worth what it used to be.
Posted by: Micha Elyi | Nov 29, 2012 3:22:46 PM
I'm sceptical that all or most the decrease from 16,000 to 6,000 is a result of people physically moving. Note that the article says, "It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes." I think the latter is more common.
Posted by: Natalie Solent | Nov 29, 2012 3:23:40 PM
"Where did they go?"
Australia, Spain and the USA are chief destinations for economic refugees from the UK. I suspect the wealthy go more likely to go to the USA, and more specifically to Florida and Texas.
Posted by: Edward Sodaro | Nov 29, 2012 3:30:10 PM
Escape hatches will be used. No voice, then you exit. The lower classes will exit in their own way also. I'm not going to work when not working gets me a bigger benefit. That's just, rational. But go on with your bad selves, technocrats, there's always a limit to the effectiveness of the use of force!
Posted by: destroyers | Nov 29, 2012 3:34:11 PM
Where ever they wanted to.
But I"m betting that the lure of 5% drop is not going to attract them back. Once bitten, twice as shy.
Posted by: Anon2 | Nov 29, 2012 3:36:32 PM
Where will they go to escape the predators? The US where they charge you a percentage of all your assets when you decided to escape, more than the Soviets levied on the Jews for their exit? France, 75%.
Canada, probably; Hong Kong, Singapore, too small, too crowded; Australia, New Zealand, too quiet...
Where should the poor dears take refuge from the tax predators who are multiplying astronomically all over the world?
They should refuse to make more taxable money. Close up shops, layoff workers, sail around the world a few more times...
Posted by: elkh1 | Nov 29, 2012 3:42:09 PM
The journalism in the article is bad.
Now, income is a definition of 'millionaire'? Not net worth? The GBP vs. USD issue aside, this is extremely ignorant of the original journalist.
Who is a 'billionaire' then? When Obama says 'millionaires and billionaires', is he adding $1M/year income earners with $1B Net Worth people?
Posted by: TTT | Nov 29, 2012 3:42:52 PM
The Sage of Omaha has assured us that, in his long experience, no one changes economic behavior in response to marginal tax rates. This story is therefore entirely in error. No one (including reality) is allowed to contradict Warren Buffet.
Posted by: sumomitch | Nov 29, 2012 3:44:35 PM
I recall reading that many of the former Eastern European nations have relatively low tax rates and costs of living.
Posted by: Kevin Baker | Nov 29, 2012 3:58:25 PM
Yes, where did the go?
Posted by: Ann K | Nov 29, 2012 4:16:51 PM
Both in government and in business I am continually astounded and amused that people are surprised when other people behave in ways that maximize their personal gain. What, people don't want to pay 50% of their income to the government and will take steps to avoid it? Who knew?
Posted by: Hamlet's Fool | Nov 29, 2012 4:24:27 PM
I wonder how long 'safe havens' will last though? Millionaires usually know the right people who'll help them 'hide' their money, but it seems that confiscatory governments are working ever harder to make even that impossible. Witness our own government's attempts to pressure the Swiss to 'open' their banking practices to scrutiny. Of course, the little guy, like you or I, have even poorer choices.
Posted by: Valerie | Nov 29, 2012 4:52:11 PM
"George Osborne, the Chancellor, announced in the Budget earlier this year that the 50% top rate will be reduced to 45% from next April"
Oooh. That'll change everything.
Good luck on THAT!
Posted by: Orson | Nov 29, 2012 5:28:07 PM
I'd like to see a comparison of US overall tax burden (Fed, State, payroll, property tax, estate, sales, etc) for a high tax state like CA (my situation) compared to these European High Rates. I wager we are paying higher at the top. I know I've paid well above 50% for many years, even with the Bush cuts.
Posted by: Jimmy Doolittle | Nov 29, 2012 5:39:30 PM
Down to 45%? Ooh, that'll fix everything.
Posted by: wagnert in atlanta | Nov 29, 2012 5:51:45 PM
They went, well,pretty much anywhere else has a less than 50% rate so that decision was easy.How long will they stay gone is the real question.And with how much in assets.
Posted by: Rich K | Nov 29, 2012 5:56:53 PM
For what it's worth...The British tax year runs April to April (from a quick google). The Dow went from around 8k to 11k from April 2009-April 2010(around 37%). For April 2010-April 2011 it went from like 11k to 12.5 (a rise of 14%) If all your income were from the market, you'd have made something like 2.6x as much in 09/10. I doubt this accounts for all of the difference, but it could account for a chunk.
Posted by: Tom | Nov 29, 2012 8:46:17 PM
I have to imagine that most of these people didn't repatriate, but just didn't reach the 1 million pound threshold (either intentionally or not). It wouldn't surprise me to learn that some actually did repatriate -- but surely not 10,000 of them.
Either way, the effect is the same for the British Treasury. And it just goes to show that tax policy changes need to be scored dynamically. You can't confuse variables for constants. People react, and usually in ways that best benefit them. That's just human nature. We've seen similar effects take place in a few states which have tried to fill their budget gaps with tax hikes -- Maryland and Illinois come immediately to mind. California will be seeing it next.
That's not the answer. Policymakers need to figure out ways to get government outlays in line with reasonably reliable and sustainable levels of taxation....rather than trying in vain to lift taxation to meet the outlays.
Posted by: Scott | Nov 30, 2012 11:58:56 AM
We often forget that the Berlin Wall wasn't built for 15 years after the city was divided. And the reason they built it was because some 1.5 million East Germans had defected. They built the wall to keep East Germans *in* East Germany, not as a fortress to protect it from outsiders.
You know you're doing something wrong when people start fleeing for greener pastures (even if, as I suspect, these high-income Britons didn't actually leave the UK, but merely shifted things around to avoid the tax bite) and you have to start taking steps to force them to endure what you've constructed.
I imagine that most of the 1.5 million East Germans who had defected to the West between 1945 and 1960 were highly productive people who knew that living in servitude to the Soviet Bloc was a worse deal for them than would be living in the West.
While I don't expect the UK, or US, or France, etc. to literally erect physical walls, I fully expect to see them taking more and more measures to force high income people and their money to stay put.
Posted by: Scott | Nov 30, 2012 12:26:15 PM
Tennessee would be a good choice--nice Southern weather, no state income tax. Nashville MSA or the lakes, Smokies area. Oregon/Washington state border yields a unique opportunity: one state has no income tax, the other state has no sales tax. You can seriously reduce your tax spending there. :-)
Posted by: kentucky___liz | Nov 30, 2012 10:12:52 PM