More and more people are turning their backs on the European Union. With them, the states are also losing economic substance. Exit taxes are being used in an attempt to counter this.
The states of the European Union are experiencing a veritable exodus. About 1.4 million EU citizens left their home countries in 2023, among them 265,000 Germans. Among the favored destinations are, alongside Switzerland and the United States, booming regions such as Qatar or Dubai.
Good Reasons
The list of destination countries carries political dynamite, because it says much about the background of this flight movement. A growing number of high performers are trying to escape what is in many places almost predatory levels of taxation. In addition, academics, researchers, freelancers such as the so-called “digital nomads,” and entrepreneurs simply find better economic prospects elsewhere than in economically sedated Europe.
EU citizens are not infrequently being drained by a tax burden of 45 percent. We know this from Germany: it is not even necessary to count among the absolute top earners in order to have to surrender nearly half of one’s income to the tax authorities. Basically, it is a scandal—one about which there is no longer any open discussion.
In Dubai, for example, there is no income tax at all. In the United States, the state burdens its citizens with around 27 percent. Anyone who can calculate, who is well educated and mobile, draws the consequences. Alongside the tax burden, social crises increasingly come into play: uncontrolled migration, the decay of major cities, and the visibly hostile climate of ever-expanding bureaucracies. For many ambitious people, life in the EU’s Europe is simply too expensive, and the essence of bureaucracy too overbearing.
Expensive Emigration
Every emigrant leaves behind an economic gap in his homeland. When a German with a high income leaves the country, the state does not only lose a taxpayer—it loses his capital and know-how. Over the lifetime of an academic, around €1.5 million in taxes and social contributions escape the treasury. In addition, there is the enormous loss of capital. Estimates assume that the median wealth of Germans per person is €106,000. With the emigration of 265,000 Germans and the return of 191,000 persons—where for simplicity we assume the same level of wealth—about €7.8 billion in capital flows abroad.
The economist Bernd Raffelhüschen calculates the annual fiscal loss through emigration by discounting the difference between future tax and social contribution payments and state transfers of an average academic to its present value. He arrives at a loss of about €30,000 for each emigrated academic.
The flight of high performers works like economic erosion in real time. Highly qualified people leave the country. People who, with higher probability, would have moved venture capital and founded companies are tearing open a fiscal gap. About 56 percent of income tax revenue is provided by the top ten percent of taxpayers—the political class would be well advised to roll out the red carpet for these people instead of harnessing them to the cart of their ambitious social projects.
Feudalism as the Answer
The answer of EU Europe to the flight of the economically ambitious and wealthy is neo-feudal in character. Through punitive taxes, the costs of fleeing the tax collector and the increasingly invasive state are to be raised so high that the impulse to emigrate is suffocated. Somewhat exaggeratedly formulated, this policy recalls the old feudal European conditions which once led to the mass migration of Europeans to North America.
Alongside France, Spain, Italy, and the Netherlands, the Federal Republic of Germany has also deployed an exit tax.
Anyone who, as an entrepreneur, holds at least 1 percent of a corporation (this includes stock capital) and turns his back on Germany triggers exit taxation—even if no sales proceeds have been realized. In this case, the state assumes a fictitious sale of the shares and taxes the theoretical capital gain. What is decisive is the difference between the original purchase price and the current market value. Sixty percent of this gain is added to taxable income and taxed at up to 45 percent, depending on the income tax rate. In addition comes the solidarity surcharge and a possible church tax levy.
This regulation applies if the person concerned was subject to unlimited taxation in Germany for at least seven of the past twelve years—and it applies equally in the case of emigration to third countries or relocation within the EU. Since 2022, moves within the EU are no longer automatically privileged for tax purposes: whoever wants to leave must pay—unless he applies for a deferral over seven years and provides collateral. The frequently mentioned €150,000 threshold is not a tax-free allowance, but only a guideline for assessment.
In sum, this amounts to state access to future gains, binding entrepreneurs to their homeland and making departure more difficult through a fiscal hurdle.
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