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Cash-strapped Europe nations are not shy about taxing the rich

France has announced a top tax rate of 75%, and even in economic powerhouse Germany there's talk of a higher levy.

October 25, 2012|By Henry Chu, Los Angeles Times
  • France's richest man, Bernard Arnault, and his wife, Helene. Arnault said his move to Belgium is not a ploy to avoid France's high tax rates.
France's richest man, Bernard Arnault, and his wife, Helene. Arnault… (Francois Mori / Associated…)

UCCLE, Belgium — The 8,500 French residents of this affluent Brussels suburb count the Taittingers, of champagne fame, among their well-heeled neighbors. France's richest man, luxury-goods mogul Bernard Arnault, is shopping for some high-end real estate here too.

Sure, the patisseries, chocolatiers, trendy boutiques and assurance that Paris lies a short train ride away make the emigres feel right at home. But for the mega-rich among their number, there's another draw: More of their vast fortunes stays in their pockets and out of the taxman's.

Last month, the Socialist government of French President Francois Hollande decided to increase its take on earnings above $1.3 million to an eye-popping 75%, a "supertax" that has dismayed those who have to pay it and delighted those who don't. By contrast, Belgium's top income tax rate is 50%.

When Arnault revealed his intention to apply for Belgian citizenship and live at least part time in Uccle, this quiet town shot into the spotlight as an unlikely tax refuge. Its genial mayor, Armand De Decker, doesn't mind.

"It's always a good thing to have rich people coming to your territory," De Decker says. "Mr. Hollande is provoking big reaction because his idea of 75% is crazy…. The French economy will go down through his attitude and decisions."

France's government, however, is hardly alone in its desire to extract more from its richest citizens. Higher taxes may be political poison in the U.S. right now, but on this side of the Atlantic, where once-booming countries have tumbled back into recession and are desperately trying to ease their debts, the idea of getting the rich to contribute more to the public purse is increasingly part of the national debate.

France's staggering top rate, which in practice affects only a few thousand people, is the most publicized example of a wealth tax in Europe. In other countries, proponents have urged higher levies on total assets or on property and other luxury items, such as yachts.

Critics say a tax designed to "soak the rich" is a surefire way to damp investment, stifle innovation and destroy jobs. Supporters call it basic fairness, arguing for greater responsibility from the highest earners at a time when inequality across Europe is becoming worse.

"Very few people are getting more money and very many people [are] getting less," says Jutta Sundermann, a social activist in western Germany. "The money we want to take through these levies will not mean that any of the richest will become poor. They will still have more than most people."

Sundermann is a spokeswoman for Umfairteilen, an umbrella organization of unions, environmental groups and other lobbies that sent tens of thousands of people onto the streets of German cities last month in favor of higher taxes for the rich.

They've been galvanized by two things. Even in economic powerhouse Germany, which has yet to feel the same sting of recession and mass unemployment as other European countries, authorities are struggling to fund public services such as transport, libraries and swimming pools.

At the same time, a respected think tank issued a report in July asserting that a one-off tax of 10% on Germany's richest 8% could add $300 billion to government coffers.

The country's biggest opposition party, the Social Democrats, has written a wealth tax into its platform, a 1% levy on residents with assets of more than $2.6 million, which would generate about $11.5 billion a year.

Umfairteilen, whose name plays on the German word for "redistribution," advocates a one-time tax and an annual levy. But there's little indication that the conservative government of Chancellor Angela Merkel is on board.

"You still have a lot of people in Germany believing what Angela Merkel and the liberals say, that there will be more wealth and happiness if you have the rich and do not ask them to give more," Sundermann says. "But there is some change."

In Spain, the newly installed center-right government pledged to repeal the wealth tax that its Socialist predecessor instituted. But with debt levels rising, putting Madrid at the center of fresh fears over the euro crisis, the ruling party has had to abandon that vow. Spaniards with assets exceeding $900,000 must continue coughing up an extra 0.2% to 2.5% to the state.

Iceland also adopted a wealth tax after its economy tanked during the global financial meltdown. On the other hand, the Swedes ditched theirs in 2007 because officials said it encouraged residents such as IKEA tycoon Ingvar Kamprad to park vast amounts of capital offshore instead of investing it in Sweden and creating jobs.

In Britain, which is straining to put a brake on its runaway deficit, the junior governing party has called for a "mansion tax" on properties worth more than $3.2 million.

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