On the plane to France last summer, I channel-surfed into a hilarious movie, entitled Jean-Philippe. In the film, Fabrice Luchini portrays Johnny Hallyday’s biggest fan who, after receiving a knockout blow in a drunken fight, awakes to find himself in an alternate universe where Johnny Hallyday was never discovered, and ergo never became the cult, rock star legend that he is today.
Johnny Who, you might ask? Johnny Hallyday, the aging French rock star treated with idolic reverence throughout the country; the French Elvis who lived. What’s so hilarious about the film, in fact, is its uniquely French premise; the incomprehensibilty and injustice of a world without Johnny.
How does all this relate to my blog?
Well, ironically, the French government is doing its best to create this nightmare France without Johnny. As The Economist reports in this story (subscription required), Johnny recently stirred up controversy by becoming the latest in a long line of tax refugees who have fled France (in his case, moving to Switzerland) to escape its onerous wealth tax.
Since this concept is foreign to most Americans, I’ll say it again — “wealth tax” — i.e., a tax on net worth. France charges a tax of between 0.5% and 1.8% of net worth above about $1M. So if you’re a captain of industry or a rock star worth $50M, in addition to your regular income taxes you will have to pay a tax of about $1M (~2%) every year, all for the privilege of living in France more than 182 days per year.
Peter Mayle even wrote a novel, Anything Considered, about a magnate who hires the main character to “be him” outside of France so he will generate documentation (e.g., parking tickets) “proving” he was not residing in France and thus avoiding the wealth tax.
So how does this relate to the business of technology? Simple. The wealth tax is one key reason that Silicon Valley will never reproduce itself in France. Great companies like Dassault Systemes and Business Objects are spawning on pavement because a key element of the Silicon Valley model is talent recycling.
As mentioned in this post, in Silicon Valley, when people experience great success, they either do it again (a la Steve Jobs), “retire” to sit on boards, or best of all, become venture capitalists, eat at Bucks, and sit on boards. In all three cases they are recycling their talent back into the system by helping young companies leverage their knowledge and expertise.
The wealth tax destroys this because, when faced with a tax on net worth, most high net worth individuals simply leave the country. Ergo, there is no talent recycling, and no self-reinforcing system.
Whether it’s France without Johnny or France without its most successful entrepreneurs, it’s the same driving issue: the wealth tax. Until the government fixes it, the French will have trouble with technology entrepreneurship because its most successful entreprenuers won’t live there anymore. They’ll be neighbors with Johnny in Switzerland.
The wealth tax is a big problem in France. There is a decent chance it will be heavily revised. One funny story and a reason for it is that a sleepy ocean-side community of oyster farmers found themselves getting huge tax bills after high placed government officials built vacation houses there and drove the value of their old farmland up so much they all suddenly came under this crazy tax. Of course in typical French fashion the farmers vandalized the homes of the politicians and waited for them to come to shout their opinions. There are other big problems like the crushingly high benefits payments an employer has to make if they hire one person in France. This forces people like me who live in France but run my own business to base our operations and HQ elsewhere and limit my time in the country. The bad news is that none of the candidates on the ballot for this year have any idea or intention to reform anything in the right direction so France will keep losing ground in this area. All that said they still rule in terms of food, wine, flowers and stuff like that! Cheers.
I couldn’t agree more.As many French nationals, I have firmly entrenched beliefs about the role that the State should play in terms of wealth redistribution through taxes.But, there is also some strong evidence that this “wealth tax” (impôt de solidarité sur la fortune, or ISF) doesn’t work. Some research indicates that the amount of money collected via ISF barely makes up for the cost of collecting that money. Just ridiculous, from an economical standpoint. But the worst side-effect is definitely the fact that along with the money that flees abroad, most people take their brain & their talent away!”Adieu, veaux, vaches, cochons”, as the say goes.