At some point the coexistence of the welfare state with the productive sector becomes so strained that the productive sector either cuts back on effort and/or moves outside the sovereign jurisdiction.
Simon Black discusses the issue of capital flight that has already begun. Capital includes both monetary and human aspects.
There have been a lot of high profile people who have reached their breaking points. Tiger Woods and Phil Mickelson recently disclosed their contempt for California taxes. Tina Turner and Eduardo Saverin renounced their US citizenship.
Over in Europe, actor Gerard Depardieu and billionaire Bernard Arnault have announced their departure from France.
And these are just the famous people. Legions of other unknowns have seen the writing on the wall and quietly moved themselves and their assets out of dodge.
For now, the door is wide open. Will it be forever? No chance. Throughout history, politicians have always reviled those who left home in difficult times.
In the early 1790s in France, the government passed a law confiscating the property of all Frenchmen who had left the country after July 14, 1789 (the date which marks the start of the revolution.)
The US government currently has tax penalties imposed against 'covered expatriates', i.e. those who have a net worth above $2 million or average annual tax liability of roughly $155,000 for the last five years (this adjusts with inflation).
Expatriates aren't exactly a strong voting block, and governments desperately need the cash. So, yes, given current fiscal conditions and the historical patterns, it's quite likely that much, much steeper penalties will be imposed in the future. And the penalties will apply across the board to more people… not just the 'wealthy'.