It isn't easy being a banker. You want to collect your multi-million dollar bonus, but governments want to tax you to kingdom come, leaving you only a fraction to take home. And some governments, like Britain and France, have decided to institute a punitive tax, wiping out 50% of your after-tax bonus amount as well. As you might expect, many of these bankers would love to flee to countries where they can keep more of their earnings. They're having trouble.
Bloomberg reports today that Switzerland might have seemed like an obvious choice, particularly for annoyed European bankers. But that option might not work out so well:
Geneva, touted as a haven for London bankers facing heavier U.K. taxes, may lure fewer than predicted thanks to a housing shortage, crowded schools and a 44 percent income-tax rate.
The article goes on to explain, in detail, why some of these problems might keep wealthy financiers away from Switzerland. One analyst agrees:
"It's a joke, it's lobbying," said Tim Dawson, an analyst at Geneva-based brokerage Helvea AG. "People are dreaming if they think the London investment banking world is going to move. There is more office space in Canary Wharf than in the whole of Switzerland," he said, referring to London's second financial district.
Indeed, if labor mobility was perfect, and the grass really was greener, then bankers would certainly leave hostile environments like London. But it's actually rather inconvenient to up and move your family to a foreign country. And pretty much all governments like to tax big incomes at high rates. So the brain drain might not be quite as bad as theoretically anticipated.
If these bankers were seen as being purely positive to national economies, then I would imagine the barriers deterring them from working in some of these counties would be lifted. Right now, however, many don't believe that the potential tax revenue that could be produced through bankers' earnings is worth the risk they could pose by their dealings. If you had a sector of individuals eager to collect lofty salaries who brought technological advancement or manufactured real goods, then that might be different. But many view bankers' social benefit as neutral, at best. Whether or not that's fair is debatable.
So where should these bankers turn? Maybe they should pool their collective billions and buy an island nation. They could then set the effective tax rate equal to zero. The trick, of course, would be having global investors and firms believe that the unregulated financial market was safe. They could call it "Bermuda" or "Grand Cayman."
Or they could just spend billions on lobbying instead. Wait a second. . .