Last week, almost every elite men\u2019s tennis player skipped one of London\u2019s marquee tournaments. Only one of the world\u2019s top 10 showed up at Queen\u2019s Club, the traditional Wimbledon warmup; stars including Alexander Zverev, Daniil Medvedev, Taylor Fritz and Ben Shelton were playing 300 miles away in Halle, Germany. A culprit was likely Britain\u2019s tax code, which doesn\u2019t stop at taxing prize money earned on British soil.<\/p>\n
It also taxes a slice of a player\u2019s global endorsement income, prorated by how many days of the year they happen to spend in the UK. Fail to advance far enough in the tournament, and the tax bill on your sponsorship deals can exceed your payout. So, the players who get to choose where they compete are now choosing somewhere else.<\/p>\n
\u201c[I]t\u2019s not about the money for playing,\u201d retired superstar Rafael Nadal once explained. \u201cThey take from the sponsors. … This is very difficult. I am playing in the UK and losing money.\u201d<\/p>\n
File this story under \u201chow people dodge taxes by leaving.\u201d Evidence for the phenomenon was piling up long before California billionaires began their high-profile relocations to Nevada and Florida ahead of a proposed wealth tax on the ballot this November. And it\u2019s not the only reason these taxes disappoint.<\/p>\n
When Norway raised its top wealth-tax rate by just one percentage point in 2022, economist Christine Blandhol documented a wave of business owners leaving for Switzerland, helped by a treaty between the two countries that precluded being double-taxed during the move. Norway lost tax revenue while the firms that business owners left behind, now run from a distance, saw their outputs decline.<\/p>\n
Switzerland\u2019s own cantons \u2013 26 subdivisions that have taxed wealth since the 1800s at rates from about 0.1% to 0.9% \u2013 give researchers a natural experiment. The wealthy move steadily from high-rate Bern to low-rate Lucerne.<\/p>\n
The people pushing California\u2019s wealth tax know this. Gabriel Zucman of the University of California, Berkeley \u2013 a frequent coauthor with fellow French economist Emmanuel Saez, whose revenue estimates underpin the campaign \u2013 has spent the past couple of years engineering around it.<\/p>\n
Zucman wants a coordinated global minimum tax on billionaire wealth, designed explicitly so that there\u2019s nowhere left for the superrich to move. He admits frankly that the whole point of his international coordination plan is to defeat the mobility problem. If wealth taxes are global, the thinking goes, they finally work as intended.<\/p>\n
Not so fast. It\u2019s easy to count up lost tax revenue after taxpayers move away. There is also a less visible, but no less real, behavior change from people who stay home (by choice or because there\u2019s no better option).<\/p>\n
The effect showed up in Denmark, where decades of tax records \u2013 covering people who by and large stayed put during its wealth-tax era \u2013 show dwindling levels of wealth accumulation when more of it is taxed away. Nobody had to leave the country for the effect to show up; the incentive to save and build wealth in the first place had simply shrunk.<\/p>\n
Inside the businesses of the wealthy, there\u2019s an avoidance channel that requires no moving van. When a wealth-tax bill comes due, the owner of a closely held company will often pull out a larger dividend to cover it. Once that money has left the company, it doesn\u2019t go back into payroll or business expansion.<\/p>\n
Make no mistake, the non-wealthy will suffer from this tax too. As wealth taxes diminish saving and reinvestment, the capital stock that workers depend on for tools, equipment and business expansion stops growing as quickly as it should. Wages rise when there\u2019s more capital for each worker to use, so the slower buildup eventually means smaller paychecks for people who would never pay a wealth tax. This effect compounds for decades, so a modest annual drag turns into a substantial gap by the time anyone notices it in the data.<\/p>\n
The same dynamic can show up even without a wealth tax. We saw it with another aggressive California levy. When the state raised its top income-tax rate by three points in 2012, Stanford economist Joshua Rauh went looking for the revenue. He found that the people who stayed and bore the tax increase deferred bonuses, retimed asset sales and restructured how they got paid, shifting income away from the year the higher rate applied. Within two years, those reporting changes had erased most of the revenue gain the tax increase was supposed to deliver.<\/p>\n
Income and wealth are taxed differently, but the lesson is the same: Raise the price of an activity and people do less of it, restructure how they report it, or, if they can, leave the jurisdiction entirely.<\/p>\n
These are the responses that even a global wealth tax can\u2019t reach, because mobility was never the sole problem. The result is less tax revenue than pro-tax advocates project, and less economic activity too. Ultimately, everyone, not just the rich, will be poorer for it.<\/p>\n
\u2022 Veronique de Rugy is the George Gibbs chair in political economy and a senior research fellow at the Mercatus Center at George Mason University. <\/p>\n","protected":false},"excerpt":{"rendered":"Last week, almost every elite men\u2019s tennis player skipped one of London\u2019s marquee tournaments. Only one of the…\n","protected":false},"author":2,"featured_media":1053933,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[7757],"tags":[748,20908,393,4884,257,391,16,15],"class_list":["post-1053932","post","type-post","status-publish","format-standard","has-post-thumbnail","category-london","tag-britain","tag-column","tag-england","tag-great-britain","tag-london","tag-opinion","tag-uk","tag-united-kingdom"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/116823321931258842","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/1053932","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=1053932"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/1053932\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/1053933"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=1053932"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=1053932"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=1053932"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}