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How does Europe tax its millionaires?

Thursday, 5 April, 2012 - 15:45

Taxing incomes over the one million mark at a rate of 75% as François Hollande is suggesting will not cause French millionaires to flee to our European neighbors. Using the example of a taxpayer earning 1,2 million every year, we compared the exact amount of taxes he would be paying in France, Germany, Belgium, Spain, Italy and the UK. Not without a few surprises.

Translated by Clémence Grison (Paris)

François Hollande is defending his project to tax at a rate of 75% annual incomes that are superior to a million Euros, even if he admits that it would only bring in “200 to 300 million Euros to the state”. Members of the actual government disagree, claiming that such a measure would encourage richer citizens to take off and cause tax revenue to decline. The socialist candidate to the presidential election estimates that “about 3.000 people” would be affected. This may not be much but “it is not about money, it’s about morals” Hollande recently said on French radio station RTL.

What are the taxing policies for millionaires in the rest of Europe? Are the rich really going to leave for fear of this 75% rate on the tax bracket over a million Euros?

Millionaires will not be taxed on three quarter of their income. People whose income is under or equal to a million Euros will not be affected by François Hollande’s “super-tax”. They will continue to pay their taxes according to the rates of the various tax brackets their income falls into, like all other taxpayers, but they will not be concerned by the 75% rate.

French daily newspaper Le Monde used the example of a single man earning 1.2 million Euros, which corresponds to a monthly taxable income of €100.000.

On his 2011 income (according to current rules), he will pay his taxes as follows:

• 0% on the first €6088,
• 5,5% on his income from €6088 to €12.146 Euros, ie €333,19,
• 14% from €12.146 to €26.975, ie €2.076,06,
• 30 % from €26.975 to €72 317, ie €13 602,6,
• 41 % from €72 317 to 1,2 million, ie €462 350,03.

Bringing the total to : 333,19 + 2 076,06 + 13 602,6 + 462 350,03 = €478 361,88, for an average taxing rate of 39%.

If François Hollande wins the presidential election and sticks to his announced platform, the rich single man we are using as an example will, no doubt, become a little less rich, but to what extent? The Socialist platform includes the creation of a tax bracket at a rate of 45% for incomes over 150.000. With the new 75% bracket, the millionaire taxpayer will also be taxed to a larger extent on the 200.000 over the one million mark.

In this scenario, he will pay:
• 41% of his income between €72.317 and €150.000, ie €31.800
• 45% from €150.000 to a million, ie €382.500
• 75% of his income over the million mark, ie €150.000

Bringing the total to: 333,19 +2 076,06 + 13 602,6 + 31 850 + 382 500 + 150 000 = €580 361,85, for an average taxing rate of 48%.

The rich rather privileged in France

Is this rate prohibitive? Will this single man choose to move elsewhere in Europe? In order to find out, comparing the top marginal tax rate across countries is not enough. Like Le Monde did for France, what is necessary is to calculate the average taxing rate based on all of the different tax brackets.

With help from our correspondents in Spain, Belgium, the United-Kingdom, Germany and Italy, we did the maths and confirmed the figures with simulators on official sites.

Spain: €600.000
Belgium: €594.424
• France (with the new tax brackets): €580.361
UK: €573.650
Germany: €520.584
Italy: €509.170
• France (without the new brackets): €478.361

Surprisingly, in spite of Hollande’s extra tax for millionaires, the single man earning €1.2 million will certainly not emigrate to Spain or Belgium to pay fewer taxes!

Even the UK is not a tax haven. The €7.000 benefit is too slim. Only Germany and Italy remain. But for a very wealthy person, is it really worth emigrating to save, at best, €71.000? Especially to emigrate to Italy, a country where tax laxity and tax reduction are no longer on the agenda.

This European comparison surprised us in more than one way. Currently French millionaires are the least taxed. In our example case, with an annual taxable income of €1.2 million, the average taxing rate is at 39%. Potential tax breaks left aside, this rate is the lowest among our European neighbours: