Three years ago Italy introduced an attractive regime for very rich foreigners who only have to pay 100,000 euros in flat-rate tax. In the first year only 99 empires took advantage of this, but the number has now more than quadrupled. In the tax year 2019, the most recent for which the corresponding figures are available, 421 rich people from different countries followed Italy’s call and moved their residence.
The flat tax is valid for a maximum of 15 years and replaces personal income tax on income earned abroad, which explains why it is particularly attractive to those who have assets, businesses and other activities abroad. Of the 421 rich, Italy received 42 million euros in taxes in 2019 – plus taxes from their family members. That is not much. But Italy never expected to generate high direct tax revenues from the flat tax. But the rich also consume more and more expensive goods, which has positive effects on VAT. And empires attract other empires who – so the calculation – could discover the country for themselves as an investment location. Above all, the psychological effect is important, and this is often overlooked: word gets around among the rich as to whether they are welcome in a country or not.
In Germany, many rich people are not so bothered by the tax burden as by the hostile social atmosphere. In the media and political speeches in Germany, the rich appear mainly in a negative context. Angela Merkel opened the doors wide to poor people from all over the world in 2015, but rich people are unwelcome. For several years there have been media reports that several thousand millionaires leave Germany every year. And in the event of an election victory for the SPD, the Greens and the Left, there would certainly be a lot more – many rich people would leave the country immediately.
New York alienates the rich
In New York, one of the cities with the most rich people, the atmosphere for the rich has also become rougher. One example is New York City’s housing policy, which is increasingly regulating the market. Left-wing democrats like New York MP Alexandria Ocasio-Cortez, who describes herself as a socialist, are raising the mood against the rich, and her influence in the party is increasing, especially in cities like New York. And in the Corona crisis, the rich have to serve as scapegoats: US media brought outraged sensational reports about rich people who are leaving New York because of Corona.
But the exit of the rich from New York has not only something to do with Corona. The Financial Times recently reported under the headline “Big money ditches New York, moves family to Palm Beach” that the center of gravity of the hedge fund, private equity and family office world is increasingly shifting to Florida. To be more precise, to Palm Beach and West Palm Beach. “The industry had already started moving,” the newspaper quoted a Palm Beach investor as saying. The move is of course taking place in silence: When Elliott Management announced its office expansion in West Palm Beach, for example, the company emphasized that it would keep its offices in New York and open some rooms in Greenwich, Connecticut. The paper quotes a wealthy hedge fund manager: “We don’t want to draw attention to our top people moving. But after the end of March, everyone from portfolio managers onwards will have their electronic key cards blocked for the New York office. “
Paradoxically, one reason for the departure of the rich lies in Trump’s tax reform, which was overall very positive (not only, but also for the rich), but which also had a downside for New Yorkers: because before the reform, taxpayers could see the very high state taxes Deduct New York from federal taxes, which is no longer possible due to Trump’s tax reform. Since tax rates are extremely high in New York, rich people in New York are particularly badly affected, who prefer to go to sunny (and more tax-friendly) Florida or Texas. You can see this move not only in tax statistics, but also in other indicators: At the Palm Beach Day Academy, an exclusive private school in Florida, applications rose by 124 percent during the pandemic period from March to September 2020. Half of all new students is currently attending this exclusive private school from New York City and the surrounding area.
Rainer Zitelmann is the author of the book “Society and its rich people. Prejudices against an envied minority. “
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