Yes, tax levels make a difference where people live…

by Barry M-C on June 23, 2011

Monaco1

Driving along the southern coast of France, from Nice towards the Italian border, one finds that, yes, tax levels do make a difference where people choose to live.

The Cote D’Azur is beautiful, basking under a clear blue sky and glorious sunshine.  The hills above the numerous bays are dotted with isolated but lovely villas, overlooking a Mediterranean Sea that is so inviting that one could wish for nothing more.

Yet, as one drives through this idyllic part of the world, one comes across a rather crowded stretch of tower blocks rising swiftly towards that wide blue sky, jostling with one another from the water’s edge far up the steep hillsides.  This being France, this is hardly surprising… after all, they do things differently here, not least, driving on the wrong-side of the road and eating pastries for breakfast, and speaking French and all that…

Except, this place isn’t France.  And that, rather, is the point.

This is Monte Carlo, set in the Principality of Monaco, and it is one of the world’s premier tax havens.

With no income taxes levied on individuals, Monaco is especially attractive to international sportsmen and women, business leaders and entrepreneurs who want to escape the burdens that their governments would place upon their achievements.  (Unless you happen to be French; since 1957, French residents of Monaco have to pay French income taxes and can’t escape.)

(According to Wikipedia, hiring staff to cater to the rich and famous is another matter, with firms paying 28%-40% of gross salary and benefits and employees around 10%-14% as part of Monaco’s social insurance scheme – effectively meaning a 50% tax rate.)

The surge in high-rise apartments neatly demarcate Monaco's low tax regime from that of France...

The surge in high-rise apartments neatly demarcate Monaco’s low tax regime from that of France…

But it is the lure of escaping their own government’s income tax demands that lures so many foreigners to Monaco – and has led to the world’s highest population density of over 16,000 residents per square km.

This image, looking back westwards over Monaco from France, clearly captures the sense of a border running right across the land… the low rise buildings of France jut up against a different tax regime and financial freedom does the rest!

Perhaps something is lost to the human experience in living so closely-packed together.  Yet, if some of the richest people in the world would prefer a small apartment on a crowded piece of rock to living under the burdens of taxation elsewhere, perhaps it’s time that those countries’ governments reconsider their policies on taxation and started cutting them.  Doing so would undoubtedly lure back more of the talent that looks to flee high tax regimes for the sanctury of low tax regimes… and that would also boost growth in those economies.

If so many talented individuals are willing to sever (or substantially weaken) ties to friends and family to escape high taxes, then those taxes are not only too high for these high-net-worth individuals but necessarily too high for everyone else – in fact, especially so for those millions of modest means who can only dream of escaping to a place in the sun.

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