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Thursday, January 7, 2010

Will Higher Taxes Force Wealthy to Flee U.S.?

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Comments

Only retirees have a realistic option to leave the country due to taxes. Work opportunities are much worse elsewhere in the world.

Consider migration within the US. California has suffered a veritable exodus of middle-income families over the past decade or two. Some of this is due to tax rates, some was due to sky-high real estate prices, and some was due to transformation of the public schools by a flood of non-English speaking immigrants. Upper-income families do not appear to have fled California, because they could afford to stay and their neighborhoods and schools were not affected by immigration.

Taxes are pretty far down the list of reasons for moving.

Posted by: AMTbuff | Jan 7, 2010 4:02:34 PM

I had the understanding that even if one were to leave the U.S. and renounce their U.S. citizenship they would still be obligated to pay income tax to the United States for the next ten years. If this is incorrect I would like to know. Furthermore I thought that a new tax was being implemented to prevent a mass exodus of capital by forcing a large one time payment if someone were to remove all of their monies from the United States and seek foreign citizenship. I am certain I have read something to that effect but am too lazy to source everything. Too bad though... people should have sovereign ownership of their person and property. They should be able to pick up and leave with it in my opinion.

Posted by: Charles | Jan 7, 2010 7:21:26 PM

Um.. the truth of the situation is that goldie is either in the investor class or the executive class and is really "producing" all of that wealth by taking a major chunk of all the other animals' production.

Posted by: Markov | Jan 7, 2010 8:43:47 PM

If you're in the mood to provide some free tax advice, consider the following: Suppose I decided to retire in Costa Rica so as to avoid the confiscatory taxes that Obamacare and ObamaStimulus will impose on us in the coming decades. P{resumably I could transfer all of my defined contribution retirement funds to foreign funds that will be outside US tax jurisdiction. But what do I do about my UC US-based defined benefit plan? Will the US be able to tax it even if I'm living in Costa Rica?

Posted by: Steve Bainbridge | Jan 7, 2010 9:30:50 PM

The "rich" will not leave the US as it has great real, net tax rates for the higher brackets as compared to all but a very few countries who limit immigration. The US economy is tuned for the top 5%, as the substantial shift in wealth to that group over the last 30 years empirically attests.

The reason they pay such a large percentage of the total tax base is because they make such a disproportionally large share of the income. The middle class has been beaten down to a net beggar financial position over the last 30 years with millions unemployed, no hope for decent employment, and a future of subsistence on food stamps and living in their cars.

In case I am incorrect, please feel free to instruct those who leave to not let the door hit them on the way out and be sure to give them a hearty “see ya” for all us little people out here.

I’m sure few in America will miss the Lloyd Blankfeld’s and Jamie Dimon’s of this world. They haven’t exactly been a boon to anyone but the members of the financial insiders club, after all.

Yes taxes are too high but I doubt you can convince the MIC to forego their imperial wars and their ever-escalating war budgets which are currently running at a rate of a trillion dollars plus annually. As we all know, the US spends more for war than the total sum of all other nations on the earth.

Could this be the real source of our economic problems and the reason taxes are “too high”? Ya, think?

Posted by: James Johnson | Jan 7, 2010 11:00:41 PM

You goose that laid the golden egg clip is absurd, third rate propaganda and simplistic. What about the horrific conditions of capital and labor in the days of Carnegie, child-labor, and starvation wages. Capital which you equate with the golden goose, as being productive, has in the days of Goldman Sachs produced some really rotten eggs. There are many workers who complain about shrunken wages, a vanishing middle class, and their exploitation by the CEO"s doing "God's work"

Posted by: Ann McCoy | Jan 8, 2010 8:04:04 AM

There are two tests to determine if you are living abroad: a residency test, and a physical presence test (you have a max of 30 days per any defined 365 to be in the US without voiding this one). If you pass these tests (one/both? I'm shaky on this--have a tax prep do the work) then your first ~$87,000 (as of 2008) per person is not taxed, but taxes resume at the normal rate for everything above that amount. This tax advantage continues even if you live abroad, but are paid in the US.

Given how many jobs there are these days that permit telecommuting to your office, there are increasing opportunities to enjoy benefits such as this without giving up access to the US job market. Even if you do not telecommute, you'd be surprised how many foreign companies in developing regions welcome an American and pay decently--especially compared with local living standards.

Posted by: JC in KZ | Jan 8, 2010 10:26:09 AM

In some contexts, lefties understand clearly that you get less of what you tax. Witness their love of taxes on such as tobacco and proposals to tax unhealthful fast food. But in other contexts, such as productivity of capital, they seem willfully blind to the the principle.

The comment that the investor and executive "classes" are "really producing all of that wealth by taking a major chunk of all the other animals' production" is astounding. I suppose that explains the wealth and high living standards of countries without high levels of capital. Some Marxists are impervious to experience.

Posted by: Tex the Pontificator | Jan 8, 2010 10:39:23 AM

I don't know that the people who have commented "get it." If you are in the top 1% in income in the US (I am not), you can create a "C" corporation (or the local equivalent) in the country of your choosing and invest your capital in that company. You pay the corporate taxes in the country, but do not repatriate any of the income to yourself (yet). Most people in the top 1% of taxpayers in the US achieved that status by creating businesses. Would you like them to create businesses (and employment) here or somewhere else? Are people leaving high tax states for low tax states now? Why leave the beautiful weather of California for Colorado or Texas? I have lived in both CO and TX and people are leaving California for those states in droves. Why?

Posted by: SER | Jan 8, 2010 10:39:51 AM

James Johnson is all wet.

Entitlement spending and income-redistribution programs are the source of our economic problems, the reason for too-high taxes, and the reason for the decline of the middle class.

Defense spending is one of the two areas in which government dollars actually purchase production of goods and services - infrastructure spending being the other.

If our government stopped robbing Peter to pay Paul, we'd have a lot less trouble.

Posted by: MikeC | Jan 8, 2010 10:45:33 AM

The problem isn't that many wealthy individuals will quickly leave. The real problem is that more businesses will either fail to be created or that they will leave and take jobs away from Americans and give them to citizens of other more business-friendly countries. This has already been happening and has placed us in the position of requiring an ever-increasing portion of bloated government programs to be funded by wealthier people. If this continues, what we will see is shrinkage of the wealthy class in America as some people gradually leave and others simply decide that the risks of wealth building aren't worth the effort. It happened in New Zealand and brought that government to its knees before the liberal politicians were voted out and the new conservative government implemented business-friendly policies that stopped the hemorrhage and encouraged the formation of new businesses and enticed existing businesses to stay within the country. We need a more business-friendly government that is focused on promoting the development of more indigenous industries that provide good jobs for Americans. This approach paves the way for more income to come from the middle class through job creation. This approach, when combined with reasonable government spending restraints, will reduce the deficit and put us on the road to economic recovery. If we continue the current liberal policies, it can only lead to economic disaster.

Posted by: Darrell | Jan 8, 2010 10:54:09 AM

Most of the clowns in the top 1 percent are parasites who exploit everyone else. We are better off without them. The whole gang of New York banksters needs to be in prison. And the inherited wealth pirates who raided companies and tore them apart in the 1980s started this mess. Good riddance to this slime.

Posted by: harry canary | Jan 8, 2010 11:01:06 AM

An up-dated version of the "Little Red Hen" In that story the hen asked the other animals to help plant,water,harvest & grind the seeds. They refused, but wanted to eat the bread after the hen had done all the work. She refused to provide welfare for them.That story is no longer used in schools.Ever wonder why? Now "Goldie" has to flee rather than be vilified for greed, for refusing to support the whole lazy farm.

Posted by: Mary Evans | Jan 8, 2010 11:02:51 AM

In fact the 1% who pay 40% of federal income taxes earn 18% of the income. While they do earn a large portion of income............that's why they're in the top 1%..........the percentage of the taxes that they pay is much higher. They so not earn nearly the percentage of income that they pay in taxes.

Posted by: mothergoose | Jan 8, 2010 11:27:26 AM

For the last year I have been re-allocating my cash to buy foreclosed properties in the Midwest. Originally, my plan was to create a portfolio of between 50-60 properties, which would have generated $400-$500K annually, and employed a full-time manager, at least one and possibly two full time maintenance personnel. During 2009 I have pared down my ambitions, and will only do about 1/2 or less of that inventory. Why work your ass off creating wealth and employing people if your reward is lethal taxation and confiscatory government policies? My intentions, at least for the duration of the Obama debacle, will be to generate monies almost in exact proportion to my write-offs -- this will be sufficient for me to live very comfortably, but I have no interest in creating more money for Socialists to redistribute to the non-producing parasite class.

I suspect my adjustments are reflected a million times over again by other capitalists who have had it with the carnage of Obama. For the duration I refuse to work my butt off to support these power mongering criminal anti-American anti-Capitalist schemes.

Posted by: Morton Doodslag | Jan 8, 2010 12:21:26 PM

“Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded—here and there, now and then—are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.
This is known as ‘bad luck’.”

– Robert A. Heinlein

Posted by: Mike K | Jan 8, 2010 12:29:50 PM

In some contexts, lefties understand clearly that you get less of what you tax.

In other contexts, lefties understand clearly that helping the less fortunate is a virtue. Yet they seem to miss the fact that it's not charity when you use somebody else's money to provide the help.

In other contexts, lefties understand clearly that using broad stereotypes is unfair and bigoted. Yet they seem to have no problem painting every high-income earner as a greedy parasite on the proletariat.

In other contexts, lefties understand clearly that big business purchases legislators and regulators at wholesale rates, leaving consumers and smaller competitors at a significant disadvantage. Yet they seem to have no problem advocating for ever-greater powers for legislatures and regulators, consistently claiming that "this time" everything will work out great.

In other contexts, lefties complain that a trillion dollars spent on the military is wasted money. Yet they have no trouble with spending trillions of dollars on health care, retirement, and welfare, even though wars end, while entitlements expand forever.

It's a source of endless frustration to me that my lefty friends, for all their knowledge and powers of observation, cannot seem to comprehend the consequences of their policies past the most facile surface-level effects. For all their claims of sophistication and nuance, you'd think they could do better.

Posted by: Squid | Jan 8, 2010 12:39:04 PM

"As we all know, the US spends more for war than the total sum of all other nations on the earth."

And? That comment means nothing. I spend more on groceries than my two brothers and three sisters combined. What does that mean other than I spend more on groceries than my two brothers and three sisters combined. It is as meaningless as proponents of universal healthcare stating that Canada spends a lower percentage of their GDP on healthcare than the US does. Using a single data point to infer a larger message is well weak.

"Could this be the real source of our economic problems and the reason taxes are “too high”? Ya, think?"

How much did America spend on Iraq and Afghanistan in comparison to what America spent on Social Security, Medicaid, and Medicare in the last fiscal year? I'm betting the later expenses are quite a bit larger. Should America remove every single boot on the ground in Iraq and Afghanistan those soldiers sailors and arimen STILL GET PAID. They still get trained. They still have an operational cost that will be carried by the DOD budget instaed of supplemented by war budgeting through congress. The "Wars are banrupting us" meme is blatantly false. Entitlement programs are bankrupting us. If you have a animopus towards the military, or wars, or just this war, make that arguement instead of implying falsehoods.

Posted by: Rodney Murdock | Jan 8, 2010 1:18:47 PM

Hah! Goldie waited TOO LONG! Ha Ha!

Even now, an "escape tax" is already law! Has been since the last guy...

http://online.wsj.com/article/SB121193252276024279.html

Posted by: Yeah | Jan 8, 2010 1:27:17 PM

If you change citizenship and finish paying less taxes . You forfeit the right to enter again in the USA.
In the 80´s someone became Honduras citizen and then bought a post as honorary consul for Honduras in Miami. So now you cant not change citizenship to avoid taxes and reenter the USA

Posted by: jcm | Jan 8, 2010 2:17:13 PM

Since Capital has already gone on strike, it might as well go on vacation while it's not doing anything.

Posted by: AD | Jan 8, 2010 3:19:18 PM

If you give up U.S. citizenship in order to avoid U.S. taxation, you do not pay income tax for the next 10 years. However, you will need to pay the "exit" tax on all unrealized net gain of your assets at the time of your departure. Also, your ability to visit the U.S. will be limited. If you are retiring and have no friends or family in the U.S., this is no big deal. However, this can be a problem if you continue to do business in the U.S.

If you live abroad, but remain as U.S. citizen, you must pay income tax on worldwide income, but you are exempt on the first $80k per year of income. If you are planning to leave the U.S., I would first live abroad as U.S. citizen for a few years to make sure that you actually like it. Giving up U.S. citizenship is a one-way path. You do not want to go down it unless you are truly committed to the international life style for the rest of your life.

As far as places to live go, you want one that not only has low taxes and is friendly business environment, but one that is attractive to live in and where their passport allows you to travel easily. For example, a Singaporean passport will allow you to travel pretty much anywhere a U.S. passport does. I do not know about Costa Rica. I have considered a Singaporean passport, but to live in a place like Costa Rica and run import/export business.

Language is another issue. Of course, you want to speak the language where ever you live. Not only does this make the locals feel better about you. But it also makes it easier for you to start any kind of business where ever you live. Also, if you can speak several languages, for example Spanish and Chinese, you have the capacity to do more high level work as well as business in Latin America as China is investing heavily in Latin America (and Africa, too).

I think permanent leaving of the U.S. will slowly become more popular in the coming decades as the Asian economies continue to grow and to eventually surpass the U.S. and Europe in economic and technological dynamism.

Another reason for leaving the U.S. is to get access to cheaper and more innovative medical therapies. Cumbersome FDA regulation will ensure that stem-cell regenerative medicine will become available in Asia and Latin America a good decade or so before the U.S. AND will be cheaper to boot. Also, the FDA does not recognize aging as a disease state and, therefor, will not approach of effective anti-aging therapies. So, you will need to at least travel abroad for these as well.

Posted by: Abelard Lindsey | Jan 8, 2010 4:13:47 PM

All you good people who responded to my comments have caused me to review my position and completely change my thinking. You are right. Clearly, the wealthy are the only people in the world who do anything important or worthwhile, the US military is the savior of mankind, and the elderly everywhere are merely a burden to society.

Obviously, America needs to:
(1) Eliminate all taxes on anyone making over a million a year as an incentive to spur their efforts, without which humanity’s poor, dumb beasts (non-millionaires) couldn’t possibly survive for even one more day.
(2) Triple the US military budget and invade all countries not currently under US military invasion. I’m sure they will be very grateful and it will end well for us all.
(3) Eliminate every public and private social program for every person in America immediately. Those funds not given to the war budget can be allocated to those possessing the top 1% of assets by current market value as a gift from the grateful commoners of America for their benevolence towards and tolerance of us.

Thanks so much everybody. I’ve come to see the light of our great capitalist system and heartily apologize for my former erroneous thinking. Let me assure you I have thoroughly enjoyed my reeducation and am fervently seeking a few wealthy people with whom I can establish a schedule to genuflect daily; at no cost to them naturally.

I’m pretty sure our good blog master won’t publish this. 

Posted by: James Johnson | Jan 8, 2010 10:10:39 PM