FranceHigh tax rates in European Union nations have caused some high profile news, including when French actor Gerard Depardieu decided to become a Russian citizen rather than pay a 75% tax rate on people who earn more than one million euros in France. The silly story does stand as an example of the undercurrent of the rich deserting the nations where they have been citizens as taxes rise and the financial sectors become troubled. The next country where that will happen is embattled Cyprus, where a tax on bank deposits could go as high as 15% for people with deposits of more than 500,000 euros.

These financially troubled nations become even more troubled as wealth and big businesses exit, crippling governments that rely on them for a tax base and job creation. Wealthy Greeks have moved money out of that country for more than two years, based on both the fear of an unstable economy and a belief that the government cannot help but aggressively tax them for both financial needs and the good publicity that goes with taxing the rich as an example of resolve and a signal to all other classes that even the powerful will not be spared.

Cyprus has no other choice, most likely. The deposit taxes for all levels are meant to raise 5.8 billion euros, which the country needs to get 10 billion euros in aid. Since the economy of Cyprus is troubled like the ones in Greece and Spain, the rich can assume that the tax period will not end with the deposits. The high odds of serial bailouts mean more and more austerity and greater and greater reliance on healthy business and high net worth people.

However, these tax decisions create a death spiral as money for business and individuals moves "off shore" and the availability of that money to create gross domestic product expansion and a tax base are crippled. It is a trend that will continue in Cyprus and other nations, and it will ruin chances for recoveries.


Filed under: 24/7 Wall St. Wire, Tax Tagged: featured

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