You can tell a lot by a country by how it deals with a new world of a plutocratic elite for whom national boundaries are but arbitrary lines on a map. And you can tell a lot about individual members of that elite by how they choose to deal with a world in which countries compete for their affections with low taxes.
Several news items have brought these issues to the fore recently. John Paulson, the New York-based hedge fund giant who made billions betting against subprime mortgages (but has had a spottier record more recently), is said to be considering moving to Puerto Rico to take advantage of the U.S. territory’s zero capital gains tax rate for people who move there—a deliberate effort to become a haven for the ultra-rich.
Eduardo Saverin, one of the co-founders of Facebook, renounced his U.S. citizenship before the company’s initial public offering, his Singapore residency thus assuring him a top tax rate of only 20 percent even as he reaped hundreds of millions of dollars from the company’s initial public offering.
And Gerard Depardieu, the French movie star, last year moved just over the border to Belgium to escape the French government’s planned 75 percent tax on income over 1 million euros, and is now reportedly heading to Russia (despite that country’s lack of decent frites). According to anecdotal reports, scores of high-paid French citizens have been taking up residence in London or other European capitals in advance of the implementation of the tax.
For nations, the sheer mobility of the ultra-affluent creates a dilemma that can almost be viewed as referendum on how the nation views itself. Puerto Rico, with a dismal economy and 14 percent unemployment, is trying to do whatever it can to coax investment dollars to the island territory. If that means offering the wealthy a tax haven so long as they go there, build big houses and hire lots of servants, so be it. Bloomberg cited a senior Puerto Rican official saying that 10 wealthy Americans have taken advantage of the offer of zero capital gains tax by relocating there thus far; Paulson would presumably be No. 11.
Contrast that approach with France, where Francois Hollande’s socialist government that took office last year is plugging ahead with its millionaire’s tax, despite being overturned in a legal challenge in December. The French bet essentially is that national pride runs so deep among Frenchmen that they would not consider leaving their home country to escape the taxman.
Gallic pride aside, that seems like a particularly risky bet. French citizens can move to any European Union country without limitation. For those who don’t like the three hour train ride to London, there are even French-speaking options, such as the Belgian town where Depardieu located (“Our geographic situation makes us very attractive,” the mayor of Nechin, Daniel Senesael, told the New York Times in December. “Nobody should be astonished that big fortunes have found a certain fiscal advantage” to the town.
For the individuals making these decisions, it boils down to the flip side of the same question: How much loyalty do you have to the place where you live. The Brazilian-born Saverin, who founded Facebook with his Harvard roommate Mark Zuckerberg, has cast his decision to live (and be taxed) in Singapore as being about seizing entrepreneurial opportunities in Asia, among other factors, rather than about avoiding taxes on his IPO haul. Still, there is no way around the fact that he decided that for all the opportunity he found in the United States, it is not something he seeks to repay by spending the remainder of his career here.
Paulson, a lifelong New Yorker, has shown some public commitment to his hometown, pledging $100 million to the Central Park Conservancy (though a cynic might note that he lives next to the park, so the gift slightly resembles pledging that much money to maintain his own lawn). Puerto Rico is, of course, part of the United States, so the patriotic issues are a little different from those facing Saverin. But it remains the case that if Paulson elects to make the move, he will be inevitably viewed as a billionaire who abandoned the place where he made his billions to avoid sending some of it back to the public purse. He will have to live with that call.
Here’s an important thing to remember, though: There is, in these debates, nothing new. There once was a group of popular British musicians who chafed under Labour prime minister Harold Wilson’s 95 percent tax on the wealthy. Fortunately, the Beatles were able to lodge their displeasure in music: “If you drive the car I’ll tax the street/If you try to sit, I’ll tax your seat/If you get to cold I’ll tax the heat/If you take a walk, I’ll tax your feet. . .. Cause I’m the taxman.”
The question for the world’s governments as they look to reduce budget deficits is whether today’s millionaires will do more than lodge their protest through snappy pop songs– particularly when there is a private jet always gassed up and ready to go, and nations ready to host them at favorable rates.
Correction: An earlier version of this story incorrectly gave Saverin’s first name as “Edward.” It is “Eduardo.”