By Judd Gregg - 06/03/13 09:00 AM EDT
In 2011, 8,000 French households’ tax bills topped 100 percent. It is so shocking that it is worth repeating: The French government was taxing some of its citizens at a rate that exceeded their income. These were not the super-wealthy; the tax hit families that had household assets (not necessarily income) that exceeded $1.67 million.
As most people know, the French elected a socialist president, Francois Hollande, in May of last year, and a socialist government in parliamentary elections held about a month later. Hollande and his socialist comrades ran on the platform that the wealthy in France were not paying enough in taxes. When is enough, enough for people who believe the government should constantly grow and that only a small percentage of the population should bear the burden of that growth?
This type of tax burden is really only the most egregious part of the approach. The rate for thousands of other French people was set at 75 percent. According to the governing elite, those folks were fortunate that they got to keep 25 percent of what they worked to earn instead of having it all taxed away.
In response to this populist expropriation, the people of France who were subjected to this tax regime are doing what is logical. They are moving, or moving their income, or — one presumes — simply stopping being productive.
When the most productive people lose their incentive to be productive, the economic growth of any nation is badly affected. It inevitably leads not only to less energy in the economy as a whole but to less revenue for the government as the economy hits stall speed.
It would seem easy to just dismiss this outrage with a phrase like “There go the French again” and move on with life here in the United States. But we are already seeing similar patterns here.
America has always been a very mobile society. We started out as a place where people were constantly on the move. In our early days, the movement was typically from the east to the west. “Go west, young man,” Horace Greeley famously advised a young petitioner. We move for jobs, we move for climate, we move to be close to relatives, we just move around a lot as a people and nation.
There is now a new dynamic to this American movement culture, however. For the first time in our history, large numbers of people are moving because they wish to be relieved of the burdens imposed by particular state governments.
For years, we have seen a microcosm of this phenomenon in my native New Hampshire. We used to hold ourselves out as a “refugee camp for entrepreneurs” who wanted to escape “Taxachusetts,” as our neighbor to the south had become known.
Today, however, people who are high producers, who are generating significant incomes or are building small businesses are leaving California, Illinois and New York. They are leaving because the people who govern these states, like the leaders of France, have expanded the cost and burden of the state government in a totally irresponsible manner. To pay for this excess, they have placed a disproportionate burden on the people who were the traditional engines of their states’ economic well-being.
The total tax burden in these states can often exceed 60 percent. People, especially small business owners, find it hard to justify working long hours and risking their capital so that they get to keep less than 40 percent of what they earn. So they move.
They take with them jobs and revenue that the states need to meet the obligations put on the books by the elected elite as they expand government to meet their reelection needs. Often, for instance, these politicians have put in place unaffordable public-pension benefit plans for overstaffed public enterprises.
The surrounding states benefit from having the producers move to them. Texas is awash with economic activity, as are Nevada and Indiana. As for the states with the excessive tax burdens, their likelihood of long-term recovery is not good. They have built a self-defeating tax system to support unsupportable governments.
Governing by taxing the person next door at levels that causes them to leave the neighborhood is not a good way to run a country, like France — or a state, here in the United States.
Judd Gregg is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and the new CEO of SIFMA, a financial industry lobbying group. He also is an international adviser to Goldman Sachs.