Posts Tagged 'Brain drain'
From France to New Jersey, High Tax Rates and Class Warfare Are Economic Poison
Posted in Brain drain, Competitiveness, Economics, Fiscal Policy, France, Higher Taxes, Jurisdictional Competition, Marginal Tax Rate, New Jersey, Tax Competition, Tax Increase, Taxation, tagged Brain drain, Competitiveness, Economics, Fiscal Policy, France, Higher Taxes, Jurisdictional Competition, Marginal Tax Rate, New Jersey, Tax Competition, Tax Increase, Taxation on March 26, 2014| 30 Comments »
Back in the 1980s and 1990s, there was a widespread consensus that high tax rates were economically misguided. Many Democrats, for instance, supported the 1986 Tax Reform Act that lowered the top tax rate from 50 percent to 28 percent (albeit offset by increased double taxation and more punitive depreciation rules).
And even in the 1990s, many on the left at least paid lip service to the notion that lower tax rates were better for prosperity than higher tax rates. Perhaps that's because the overwhelming evidence of lower tax rates on the rich leading to higher revenue was fresh in their minds.
The modern left, however, seems completely fixated on class-warfare tax policy. Some of them want higher tax rates even if the government doesn't collect more revenue!
I've already shared a bunch of data and evidence on the importance of low tax rates.
A review of the academic evidence by the Tax Foundation found overwhelming support for the notion that lower tax rates are good for growth.
An economist from Cornell found lower tax rates boost GDP.
Other economists found lower tax rates boost job creation, savings, and output.
Even economists at the Paris-based OECD have determined that high tax rates undermine economic performance.
Today, we're going to augment this list with some fresh and powerful evidence.
Lots of new evidence. So grab a cup of coffee.
The New York Times, for instance, is noticing that high taxes drive away productive people. At least in France.
Here are some excerpts from a remarkable story.
A year earlier, Mr. Santacruz, who has two degrees in finance, was living in Paris near the Place de la Madeleine, working in a boutique finance firm. He had taken that job after his attempt to start a business in Marseille foundered under a pile of government regulations and a seemingly endless parade of taxes. The episode left him wary of starting any new projects in France. Yet he still hungered to be his own boss. He decided that he would try again. Just not in his own country.
What pushed him over the edge? Taxes, taxes, and more taxes.
…he returned to France to work with a friend's father to open dental clinics in Marseille. "But the French administration turned it into a herculean effort," he said. A one-month wait for a license turned into three months, then six. They tried simplifying the corporate structure but were stymied by regulatory hurdles. Hiring was delayed, partly because of social taxes that companies pay on salaries. In France, the share of nonwage costs for employers to fund unemployment benefits, education, health care and pensions is more than 33 percent. In Britain, it is around 20 percent. "Every week, more tax letters would come," Mr. Santacruz recalled.
Monsieur Santacruz has lots of company.
…France has been losing talented citizens to other countries for decades, but the current exodus of entrepreneurs and young people is happening at a moment when France can ill afford it. The nation has had low-to-stagnant economic growth for the last five years and a generally climbing unemployment rate — now about 11 percent — and analysts warn that it risks sliding into economic sclerosis. …This month, the Chamber of Commerce and Industry of Paris, which represents 800,000 businesses, published a report saying that French executives were more worried than ever that "unemployment and moroseness are pushing young people to leave" the country, bleeding France of energetic workers. As the Pew Research Center put it last year, "no European country is becoming more dispirited and disillusioned faster than France."
But it's not just young entrepreneurs. It's also those who already have achieved some level of success.
Some wealthy businesspeople have also been packing their bags. While entrepreneurs fret about the difficulties of getting a business off the ground, those who have succeeded in doing so say that society stigmatizes financial success. …Hand-wringing articles in French newspapers — including a three-page spread in Le Monde, have examined the implications of "les exilés." …around 1.6 million of France's 63 million citizens live outside the country. That is not a huge share, but it is up 60 percent from 2000, according to the Ministry of Foreign Affairs. Thousands are heading to Hong Kong, Mexico City, New York, Shanghai and other cities. About 50,000 French nationals live in Silicon Valley alone. But for the most part, they have fled across the English Channel, just a two-hour Eurostar ride from Paris. Around 350,000 French nationals are now rooted in Britain, about the same population as Nice, France's fifth-largest city. …Diane Segalen, an executive recruiter for many of France's biggest companies who recently moved most of her practice, Segalen & Associés, to London from Paris, says the competitiveness gap is easy to see just by reading the newspapers. "In Britain, you read about all the deals going on here," Ms. Segalen said. "In the French papers, you read about taxes, more taxes, economic problems and the state's involvement in everything."
Let's now check out another story, this time from the pages of the UK-based Daily Mail. We have some more news from France, where another successful French entrepreneur is escaping Monsieur Hollande's 75 percent tax rate.
François-Henri Pinault, France's third richest man, is relocating his family to London. Pinault, the chief executive of Kering, a luxury goods group, has an estimated fortune of £9 billion. The capital has recently become a popular destination for wealthy French, who are seeking to avoid a 75 per cent supertax introduced by increasingly unpopular Socialist President François Hollande. …It has been claimed that London has become the sixth largest 'French city' in the world, with more than 300,000 French people living there.
But it's not just England. Other high-income French citizens, such as Gerard Depardieu and Bernard Arnault, are escaping to Belgium (which is an absurdly statist nation, but at least doesn't impose a capital gains tax).
But let's get back to the story. The billionaire's actress wife, perhaps having learned from all the opprobrium heaped on Phil Mickelson when he said he might leave California after voters foolishly voted for a class-warfare tax hike, is pretending that taxes are not a motivating factor.
But despite the recent exodus of millionaires from France, Ms Hayek insisted that her family were moving to London for career reasons and not for tax purposes. …Speaking about the move in an interview with The Times Magazine, the actress said: 'I want to clarify, it's not for tax purposes. We are still paying taxes here in France. 'We think that London has a lot more to offer than just a better tax situation.
And if you believe that, I have a bridge in Brooklyn that I'm willing to sell for a very good price.
Speaking of New York bridges, let's go to the other side of Manhattan and cross into New Jersey.
It seems that class-warfare tax policy isn't working any better in the Garden State than it is in France.
Here are some passages from a story in the Washington Free Beacon.
New Jersey's high taxes may be costing the state billions of dollars a year in lost revenue as high-earning residents flee, according to a recent study. The study, Exodus on the Parkway, was completed by Regent Atlantic last year… The study shows the state has been steadily losing high-net-worth residents since 2004, when Democratic Gov. Jim McGreevey signed the millionaire's tax into law. The law raised the state income tax 41 percent on those earning $500,000 or more a year. "The inception of this tax, coupled with New Jersey's already high property and estate taxes, leaves no mystery about why the term 'tax migration' has become a buzzword among state residents and financial, legal, and political professionals," the study, conducted by Regent states. …tax hikes are driving residents to states with lower tax rates: In 2010 alone, New Jersey lost taxable income of $5.5 billion because residents changed their state of domicile.
No wonder people are moving. New Jersey is one of the most over-taxed jurisdictions in America – and it has a dismal long-run outlook.
And when they move, they take lots of money with them.
"The sad reality is our residents are suffering because politicians talk a good game, but no one is willing to step up to the plate," Americans for Prosperity New Jersey state director Daryn Iwicki said. The "oppressive tax climate is driving people out." …One certified public accountant quoted in the study said he lost 95 percent of his high net worth clients. Other tax attorneys report similar results. …Michael Grohman, a tax attorney with Duane Morris, LLP, claimed his wealthy clients are "leaving [New Jersey] as fast as they can." …If the current trend is not reversed, the consequences could be dire. "Essentially, we'll find ourselves much like the city of Detroit, broke and without jobs," Iwicki said.
By the way, make sure you don't die in New Jersey.
The one bit of good news, for what it's worth, is that Governor Christie is trying to keep matters from moving further in the wrong direction.
Here's another interesting bit of evidence. The Wall Street Journal asked the folks at Allied Van Lines where wealthy people are moving. Here's some of the report on that research.
Spread Sheet asked Allied to determine where wealthy households were moving, based on heavy-weight, high-value moves. According to the data, Texas saw the largest influx of well-heeled households moving into the state last year, consistent with move trends overall. South Carolina and Florida also posted net gains. On the flip side, Illinois and Pennsylvania saw more high-value households move out of state than in, according to the data. California saw the biggest net loss of heavy-weight moves. Last year, California had a net loss of 49,259 people to other states, according to the U.S. Census. …Texas had the highest net gain in terms of domestic migration—113,528 more people moved into the state than out last year, census data show. Job opportunities are home-buyers' top reason for relocating to Texas, according to a Redfin survey last month of 1,909 customers and website users.
The upshot is that Texas has thumped California, which echoes what I've been saying for years.
One can only imagine what will happen over the next few years given the punitive impact of the higher tax rate imposed on the "rich" by spiteful California voters.
If I haven't totally exhausted your interest in this topic, let's close by reviewing some of the research included in John Hood's recent article in Reason.
Over the past three decades, America's state and local governments have experienced a large and underappreciated divergence. …Some political scientists call it the Big Sort. …Think of it as a vast natural experiment in economic policy. Because states have a lot otherwise in common-cultural values, economic integration, the institutions and actions of the federal government-testing the effects of different economic policies within America can be easier than testing them across countries. …And scholars have been studying the results. …t present our database contains 528 articles published between 1992 and 2013. On balance, their findings offer strong empirical support for the idea that limited government is good for economic progress.
And what do these studies say?
Of the 112 academic studies we found on overall state or local tax burdens, for example, 72 of them-64 percent-showed a negative association with economic performance. Only two studies linked higher overall tax burdens with stronger growth, while the rest yielded mixed or statistically insignificant findings. …There was a negative association between economic growth and higher personal income taxes in 67 percent of the studies. The proportion rose to 74 percent for higher marginal tax rates or tax code progressivity, and 69 percent for higher business or corporate taxes.
Here are some of the specific findings in the academic research.
James Hines of the University of Michigan found that "state taxes significantly influence the pattern of foreign direct investment in the U.S." A 1 percent change in the tax rate was associated with an 8 percent change in the share of manufacturing investment from taxed investors. Another study, published in Public Finance Review in 2004, zeroed in on counties that lie along state borders. …Studying 30 years of data, the authors concluded that states that raised their income tax rates more than their neighbors had significantly slower growth rates in per-capita income. …economists Brian Goff, Alex Lebedinsky, and Stephen Lile of Western Kentucky University grouped pairs of states together based on common characteristics of geography and culture. …Writing in the April 2011 issue of Contemporary Economic Policy, the authors found "strong support for the idea that lower tax burdens tend to lead to higher levels of economic growth."
By the way, even though this post is about tax policy, I can't resist sharing some of Hood's analysis of the impact of government spending.
Of the 43 studies testing the relationship between total state or local spending and economic growth, only five concluded that it was positive. Sixteen studies found that higher state spending was associated with weaker economic growth; the other 22 were inconclusive. …a few Keynesian bitter-enders insist that transfer programs such as Medicaid boost the economy via multiplier effects… Nearly three-quarters of the relevant studies found that welfare, health care subsidies, and other transfer spending are bad for economic growth.
And as I've repeatedly noted, it's important to have good policy in all regards. And Hood shares some important data showing that laissez-faire states out-perform their neighbors.
…economists Lauren Heller and Frank Stephenson of Berry College used the Fraser Institute's Economic Freedom of North America index to explore state economic growth from 1981 to 2009. They found that if a state adopted fiscal and regulatory policies sufficient to improve its economic freedom score by one point, it could expect unemployment to drop by 1.3 percentage points and labor-force participation to rise by 1.9 percentage points by the end of the period studied.
If you've made it this far, you deserve a reward. We have some amusing cartoons on class-warfare tax policy here, here, here, here, here, here, and here.
And here's a funny bit from Penn and Teller on class warfare.
P.S. Higher tax rates also encourage corruption.
Even the Establishment Media Is now Admitting the French Economic Model Is Fatally Flawed
Posted in Big Government, Brain drain, France, Jurisdictional Competition, Migration, Socialism, Statism, Taxation, tagged Big Government, Brain drain, France, Jurisdictional Competition, Migration, Socialism, Statism, Taxation on January 6, 2014| 21 Comments »
Some things in life are very dependable. Every year, for instance, the swallows return to Capistrano.
And you can also count on Dan Mitchell to wax poetic about the looming collapse of French statism.
Back in 2011, I said France was engaged in economic self-destruction.
In September 2012, I wrote that it was time to start the countdown for France's fiscal crisis.
In October of that year, I pontificated about France's looming fiscal suicide.
Last April, I warned that the fuse was burning on France's fiscal time bomb.
In June of 2013, I stated that the looters and moochers in France were running out of victims to plunder.
And in October of last year, I expounded on France's economic death spiral.
Geesh, looking at that list, I guess I'm guilty of – in the words of Paul Krugman – being part of the "plot against France" by trying to discredit that nation's economy.
Or maybe I'm just ahead of my time because we're now seeing articles that almost sound like they could have been written by me appearing in establishment outlets such as Newsweek. Check out some amazing excerpts from an article by Janine di Giovanni, who lives in France and serves as the magazine's Middle East Editor.
…what is happening today in France is being compared to the revocation of 1685. …the king closed churches and persecuted the Huguenots. As a result, nearly 700,000 of them fled France, seeking asylum in England, Sweden, Switzerland, South Africa and other countries. The Huguenots, nearly a million strong before 1685, were thought of as the worker bees of France. They left without money, but took with them their many and various skills. They left France with a noticeable brain drain.
It's happening again, except this time the cause is fiscal persecution rather than religious persecution. French politicians have changed the national sport from soccer to taxation!
Since the arrival of Socialist President François Hollande in 2012, income tax and social security contributions in France have skyrocketed. The top tax rate is 75 percent, and a great many pay in excess of 70 percent. As a result, there has been a frantic bolt for the border by the very people who create economic growth – business leaders, innovators, creative thinkers, and top executives. They are all leaving France to develop their talents elsewhere.
It's an exaggeration to say "they are all leaving," but France is turning Atlas Shrugged from fiction to reality.
"Au revoir, bloodsuckers"
Many of the nation's most capable people are escaping – ranging from movie stars to top entrepreneurs.
What I find most amusing is that France's parasitical political elite is whining and complaining that these people won't remain immobile so they can be plundered.
And when the people who have the greatest ability leave, that has an impact on economic performance – and ordinary people are the ones who suffer the most.
…the past two years have seen a steady, noticeable decline in France. There is a grayness that the heavy hand of socialism casts. It is increasingly difficult to start a small business when you cannot fire useless employees and hire fresh new talent. Like the Huguenots, young graduates see no future and plan their escape to London. The official unemployment figure is more than 3 million; unofficially it's more like 5 million.
The article also gives some details that will help you understand why the tax burden is so stifling. Simply stated, the government is far too big and pays for things that should not be even remotely connected to the public sector.
Part of this is the fault of the suffocating nanny state. …As a new mother, I was surprised at the many state benefits to be had if you filled out all the forms: Diapers were free; nannies were tax-deductible; free nurseries existed in every neighborhood. State social workers arrived at my door to help me "organize my nursery." …The French state also paid for all new mothers, including me, to see a physical therapist twice a week to get our stomachs toned again.
Government-subsidized "toned" stomachs. Hey, maybe big government isn't all bad. Sort of reminds me of the taxpayer-financed boob jobs in the United Kingdom (British taxpayers also pay for sex trips to Amsterdam).
More seriously, all the wasteful spending in France erodes the work ethic and creates a perverse form of dependency.
I had friends who belonged to trade unions, which allowed them to take entire summers off and collect 55 percent unemployment pay. From the time he was an able-bodied 30-year-old, a cameraman friend worked five months a year and spent the remaining seven months collecting state subsidies from the comfort of his house in the south of France. Another banker friend spent her three-month paid maternity leave sailing around Guadeloupe – as it is part of France, she continued to receive all the benefits. Yet another banker friend got fired, then took off nearly three years to find a new job, because the state was paying her so long as she had no job. "Why not? I deserve it," she said when I questioned her. "I paid my benefits into the system."
So what's the bottom line? Well, the author sums up the issue quite nicely.
…all this handing out of money left the state bankrupt. …The most brilliant minds of France are escaping to London, Brussels, and New York rather than stultify at home. …"The best thinkers in France have left the country. What is now left is mediocrity." From a chief legal counsel at a major French company: "France is dying a slow death. Socialism is killing it…"
As the old saying goes, this won't end well. Maybe France will suffer a Greek-style meltdown, but perhaps it will "merely" suffer long-run stagnation and decline.
Which is a shame because France is a beautiful country and is ranked as one of the best places to live if you happen to already have a considerable amount of hard-to-tax wealth (and the French also were ranked among the top-10 most attractive people).
But bad government can screw up a country, even if it does have lots of natural advantages.
And that's exactly what generations of French politicians have done to France. The tax system has become so bad that more than 8,000 French households had to pay more than 100 percent of their income to the government in 2012.
The French government has announced, by the way, that it intends to cap taxes so that no household ever pays more than 80 percent to the state. Gee, how merciful, particularly since the French President has echoed America's Vice President and asserted that it's patriotic to pay higher taxes.
That's why I'll stand by my prediction that President Obama will never be able to make America as bad as France. Heck, France has such a bad approach on taxes that Obama has felt compelled to oppose some of that country's statist initiatives.
P.S. The prize for silliest example of government intervention in France goes to the law that makes it a crime to insult your spouse's personal appearance.
P.P.S. The big puzzle is why the French put up with so much statism. Polling data from both 2010 and 2013 shows strong support for smaller government, and an astounding 52 percent of French citizens said they would consider moving to the United States if they got the opportunity. So why, then, do they elect statists such as Sarkozy and Hollande?!?
A Proposal for More Immigration that Should Have 100 Percent Support
Posted in Brain drain, Immigration, Migration, tagged Brain drain, Entrepreneurship, Immigration, Jared Polis, Migration on November 21, 2010| 16 Comments »
On my recent trip to Colorado, I had dinner with Congressman Jared Polis, a Democrat from Boulder. He's not exactly a small-government conservative, but he understands the importance of low marginal tax rates, free trade, and other important economic principles (whether he votes the right way is a separate question, of course, so I'm curious to see what he decides to do about Obama's plan to increase tax rates on investors, entrepreneurs, and small business owners).
One of the topics we discussed was his proposal to create a special visa for entrepreneurs. I won't pretend to be an immigration expert or legislative lawyer, so I reserve the right to quibble about the legislation if there are details I don't like, but the concept is a no-brainer. America gets to bring in the best and brightest from around the world. We give a green light to people who will be creating jobs rather than people who might want to mooch off taxpayers. And we make it easier to retain job-creating foreigners who already are in the United States. What's not to like? Am I missing something?
The Wall Street Journal has given this idea favorable coverage here and here, and here are some excerpts from an article at Businessweek.com.
A change to immigration policy could help create jobs and rev up economic growth. It's a change that wouldn't be hard to bring about. I'm talking about the establishment of a Startup Founders Visa program. The program would make it easier for those with great ideas and the desire to start a company to live and work in the U.S. The idea is simple, yet powerful. By letting in company founders, the U.S. would bring in risk-takers who want to create jobs and potentially build the next Google, Cisco Systems, or Microsoft. At the same time, a founder visa program could stem the tide of talented, tech-savvy foreigners who are leaving the U.S. to seek fortunes in their home countries, primarily China and India. …U.S. Representative Jared Polis (D-Colo.), himself a former entrepreneur, is developing legislation to make it easier for foreign founders of investor-backed startups to secure visas to remain in the U.S. On the other end of the political spectrum, even Newt Gingrich, the Republican former Speaker of the House, has blogged about the need to make the country "more accessible to skilled immigrants." He wrote this after witnessing "the dynamic entrepreneurial and high-tech business culture in Tokyo, Beijing, and Seoul"—countries with which we are competing for top talent. Representatives of both ends of the political spectrum can agree on this issue. As things stand, we're losing the battle to retain the immigrants who fueled the recent tech boom. We're experiencing the first brain drain in American history.Other countries in Europe and South America are realizing the potential of attracting skilled immigrants and are putting together programs to snap them up.
David Cameron's Foolish (or Cynical) Naivete about the Laffer Curve
Posted in Big Government, Brain drain, Class warfare, Competitiveness, David Cameron, England, Gordon Brown, Government Spending, Laffer Curve, Tax Competition, United Kingdom, tagged Big Government, Brain drain, Class warfare, David Cameron, England, Government Spending, Laffer Curve, Tax Competition, United Kingdom on October 8, 2010| 16 Comments »
Even though he's allowing the budget to grow twice as fast as inflation, some people seem to think the new U.K. Prime Minster is a fiscal conservative. I'm skeptical. Not only is spending rising much too fast (there are promises of more restraint in the future, but I'll believe it when it happens), but Cameron and the Tory/Liberal coalition government are increasing the value-added tax and increasing the capital gains tax. Perhaps worst of all, they are leaving in place the new 50 percent tax rate that former Labor Prime Minister Gordon Brown imposed in hopes that class-warfare policy would help him get elected. But as this Daily Telegraph story suggests, it is quite likely that the higher tax rate will lose revenue as productive people escape to Switzerland and other jurisdictions not influenced by the politics of hate and envy.
One-in-four hedge fund employees has already left London to move to Switzerland, which is said to have a more stable tax regime, according to consultancy Kinetic partners. Calculations by the company claim the UK could have already forgone about £500m in tax revenues, based on the 1,000 or so hedge fund managers it says have already left the country. …High-profile departures this year include Alan Howard, founder of Brevan Howard, and Mike Platt, founder of BlueCrest Capital.
This story shows both the power of the Laffer Curve and the importance of tax competition. The greedy politicians in England doubtlessly resent the "brain drain" to Switzerland. Like their U.S. counterparts, politicians view taxpayers as serfs who are supposed to blindly produce more income for the ruling class to expropriate and redistribute.
While I'm obviously not a big fan of British fiscal policy, America is worse in one important way. At least British taxpayers have the liberty to leave without being raped by the U.K. tax authority. Once they leave the United Kingdom and make their home in Switzerland, they are no longer British taxpayers. Americans who want to move, by contrast, are unable to escape the punitive internal revenue code. Indeed, the United States is one of the few nations in the world to have exit taxes, an odious approach generally associated with loathsome regimes such as the Soviet Union and Nazi Germany.
Americans Voting with their Feet to Escape Obama Tax Oppression
Posted in Brain drain, Competitiveness, Fiscal Policy, Global Taxation, International Taxation, IRS, Migration, Tax avoidance, Taxation, Worldwide Taxation, tagged Brain drain, Expatriation, Global Taxation, International Taxation, IRS, Worldwide Taxation on July 17, 2010| 20 Comments »
The Financial Times reports that the number of Americans giving up their citizenship to protect their families from America's onerous worldwide tax system has jumped rapidly. Even relatively high-tax nations such as the United Kingdom are attractive compared to the class-warfare system that Obama is creating in the United States. I run into people like this quite often as part of my travels. They are intensely patriotic to America as a nation, but they have lots of scorn for the federal government. Statists are perfectly willing to forgive terrorists like William Ayres, but they heap scorn on these "Benedict Arnold" taxpayers. But the tax exiles get the last laugh since the bureaucrats and politicians now get zero percent of their foreign-source income. You would think that, sooner or later, the left would realize they can get more tax revenue with reasonable tax rates. But that assumes that collectivists are motivated by revenue maximization rather than spite and envy.
The number of wealthy Americans living in the UK who are renouncing their US citizenship is rising rapidly as more expatriates seek to escape paying tax to the US on their worldwide income and gains and shed their "non-dom" status, accountants say. As many as 743 American expatriates made the irreversible decision to discard their passports last year, according to the US government – three times as many as in 2008. …There is a waiting list at the embassy in London for people looking to give up citizenship, with the earliest appointments in February, lawyers and accountants say. …"The big disadvantage with American citizens is they catch you on tax wherever you are in the world. If you are taxed only in the UK, you have the opportunity of keeping your money offshore tax free."
To grasp the extent of this problem, here are blurbs from two other recent stories. Time magazine discusses the unfriendly rules that make life a hassle for overseas Americans.
For U.S. citizens, cutting ties with their native land is a drastic and irrevocable step. But as Overseas American Week, a lobbying effort by expatriate-advocacy groups, convenes in Washington this week, it's one that an increasing number of American expats are willing to take. According to government records, 502 expatriates renounced U.S. citizenship or permanent residency in the fourth quarter of 2009 — more than double the number of expatriations in all of 2008. And these figures don't include the hundreds — some experts say thousands — of applications languishing in various U.S. consulates and embassies around the world, waiting to be processed. While a small number of Americans hand in their passports each year for political reasons, the new surge in permanent expatriations is mainly because of taxes. …expatriate organizations say the recent increase reflects a growing dissatisfaction with the way the U.S. government treats its expats and their money: the U.S. is the only industrialized nation that taxes its overseas citizens, subjecting them to taxation in both their country of citizenship and country of residence. …Additionally, the U.S. government has implemented tougher rules requiring expatriates to report any foreign bank accounts exceeding $10,000, with stiff financial penalties for noncompliance. "This system is widely perceived as overly complex with multiple opportunities for accidental mistakes, and life-altering penalties for inadvertent failures," Hodgen says. These stringent measures were put into place to prevent Americans from stashing undeclared assets in offshore banks, but they also make life increasingly difficult for millions of law-abiding expatriates. "The U.S. government creates conflict and abuses me," says business owner John. "I feel under duress to understand and comply with laws that have nothing to do with me and are constantly changing — almost never in my favor." …Many U.S. expats report being turned away by banks and other institutions in their countries of residence only because they are American, according to American Citizens Abroad (ACA), a Geneva-based worldwide advocacy group for expatriate U.S. citizens. "We have become toxic citizens," says ACA founder Andy Sundberg. Paradoxically, by relinquishing their U.S. citizenship, expats can not only escape the financial burden of double taxation, but also strengthen the U.S. economy, he says, adding, "It will become much easier for these people to get a job abroad, and to set up, own and operate private companies that can promote American exports."
The New York Times, meanwhile, delves into the misguided policies that are driving Americans to renounce their citizenship.
Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship. …frustrations over tax and banking questions, not political considerations, appear to be the main drivers of the surge. Expat advocates say that as it becomes more difficult for Americans to live and work abroad, it will become harder for American companies to compete. American expats have long complained that the United States is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income. One Swiss-based business executive, who spoke on the condition of anonymity because of sensitive family issues, said she weighed the decision for 10 years. She had lived abroad for years but had pleasant memories of service in the U.S. Marine Corps. Yet the notion of double taxation — and of future tax obligations for her children, who will receive few U.S. services — finally pushed her to renounce, she said. …Stringent new banking regulations — aimed both at curbing tax evasion and, under the Patriot Act, preventing money from flowing to terrorist groups — have inadvertently made it harder for some expats to keep bank accounts in the United States and in some cases abroad. Some U.S.-based banks have closed expats' accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision.
Say Goodbye to England
Posted in Big Government, Brain drain, Class warfare, David Cameron, England, Gordon Brown, Government Spending, Switzerland, Tax Competition, Uncategorized, United Kingdom, Welfare State, tagged Big Government, Brain drain, Class warfare, David Cameron, England, Gordon Brown, Government Spending, Switzerland, Tax Competition, Taxation, United Kingdom on May 9, 2010| 6 Comments »
Okay, the title of this post is an absurd exaggeration, but I am not optimistic about the future of the United Kingdom. Government spending has exploded over the last ten-plus years (the largest expansion in the burden of government spending among developed nations), and this unsurprisingly has led to punitive class-warfare policies. I saved this article from the Daily Mail from a couple of months ago because I was curious to see whether predictions about talent fleeing London would prove accurate:
London will become the most highly taxed financial centre in the world when the new 50 per cent income tax rate for those earning £150,000 or more comes into force next month. Taxes will be higher than for financial workers living in the other key centres of New York, Paris, Frankfurt, Geneva, Zurich, Dubai and Hong Kong, KPMG calculated. The findings will raise fears that Labour's levies are driving businesses and bankers overseas and threatening Britain's competitiveness. …Tullett announced last December that it will help employees move abroad if they want to avoid the top rate of tax, and Mr Smith said workers are already looking at relocating. Graeme Leach of the Institute of Directors said: 'The 50 per cent rate is a policy that should never have been announced. The indirect impact on entrepreneurial aspiration, business confidence and foreign investment is likely to be significant.
As we can see from this Bloomberg article, it appears that the feckless big-government policies of all the major parties are driving productive investors and entrepreneurs to jurisdictions with better tax law. Switzerland seems to be the biggest beneficiary. As you read the details below, one thing to keep in mind is that at least Brits are free to emigrate. The U.S. government imposes repugnant Soviet-style exit taxes designed to ransack successful people who want the freedom to move someplace with more liberty:
…more than 100 bankers, hedge fund managers and wealthy retirees are gathered on a cold March night to plot their escape from Britain. Swiss government officials and Geneva-based financial advisers have come to London to lure rich residents with glowing descriptions of the country's low taxes, safe streets, private-banking options and convenient ski weekends. …Next door, an overflow crowd of 50 more attendees enjoys wine and canapes as they watch the presentation on closed- circuit televisions in a mahogany-lined library, which includes a chart showing the prevalence of English as a language for doing business in Switzerland. A JPMorgan Chase & Co. banker who declined to be identified confides he's planning to relocate next year. His main complaint: higher U.K. taxes, a theme the Swiss delegation has pounced upon. "Some people think it's morally wrong to be working for the government for more than half the year," says Jonathan Ivinson, a Geneva-based tax partner at international law firm Hogan & Hartson LLP… London's highest earners must now pay a 50 percent tax on incomes above 150,000 pounds ($227,200) that came into force on April 6, replacing a 40 percent top rate. …During the campaign, both Brown and Cameron said they backed additional curbs on the U.K. financial industry — including a bank transaction levy — and agreed that Britain's dire financial state would lock in higher tax rates for the foreseeable future: …As the taxman's take grows larger, Switzerland is shaping up as the most-welcoming alternative for British exiles. Light- touch regulation and the willingness of cantons, as regional governments are called, to negotiate special tax rates for both individuals and businesses have prompted at least 30 London hedge fund managers to consider moving to Geneva in the past year, says Shelby du Pasquier, a Geneva-based partner at Lenz & Staehelin, a Swiss law firm. Investment management and advisory services aren't regulated in Switzerland, apart from anti-money laundering rules, and the federal government and several cantons last year reduced taxes on dividend payments for entrepreneurs, including owners of hedge fund firms, he says. …Geneva has already attracted some of London's top talent. Alan Howard, co-founder of Brevan Howard Asset Management LLP, Europe's largest hedge fund firm, has rented office space in Geneva for 60 traders relocating from London. …BlueCrest Capital Management Ltd., Europe's third-largest hedge fund firm, has opened a Geneva office for as many as 70 traders and analysts who have worked in London on its two biggest funds. They're being joined by BlueCrest co-founder Michael Platt and Leda Braga, manager of the $9 billion BlueTrend fund, according to people familiar with the firm's transitional plans. …The departures of those principals prove that the threat to London's prominence as a financial center is real, says Stuart Fraser, head of policy at the City of London Corporation, which runs the financial district. …U.K. top tax rates will exceed those in Germany and France for the first time since 1989, according to a study by accounting firm KPMG. A banker earning 1 million pounds a year in London will now take home less than his counterparts in Frankfurt, Hong Kong, New York, Paris, Singapore and Zurich, KPMG says. "The U.K. has abandoned one of its key principles when it comes to tax, which is predictability," says Bertrand des Pallieres, founder of SPQR Capital LLP, a London-based hedge fund firm with about $700 million in assets as of April. He left the U.K. last year and opened an office in Geneva after the new tax rate was announced. It's not only funds looking at leaving. Broker Tullett Prebon said in December it would allow its 700 employees in London to move to "more certain tax regimes." Several of Tullett Prebon's major desks are now planning to move key personnel, the company says. …London Mayor Boris Johnson estimates that up to 9,000 bankers, hedge fund managers and private-equity executives could leave the city, according to a letter he sent to the Labour government in January. …Marcel Jouault is working to make sure that agitated Britons wind up in Pfaeffikon, a village on the shore of Lake Zurich. Pfaeffikon's 11.8 percent corporate tax rate and 19 percent personal income levy are both Switzerland's lowest, helping the village lure funds that handle about $100 billion in investments, according to hedge fund research firm Opalesque Ltd.
Class Warfare Tax Policy Wreaks Havoc with New Jersey Economy
Posted in Atlas Shrugged, Big Government, Brain drain, Class warfare, Competitiveness, Death Tax, Deficit, Economics, Fiscal Policy, Income tax, IRS, Laffer Curve, New Jersey, Politicians, Politics, Tax avoidance, Tax Competition, Taxation, Uncategorized, Video, tagged Brain drain, Class warfare, Corzine, Economics, Fiscal Policy, Income tax, IRS, Laffer Curve, Marginal tax rates, New Jersey, Obama, Politics, Soak the Rich on February 17, 2010| 15 Comments »
Barack Obama wants higher tax rates on the so-called rich, including steeper levies on income, capital gains, dividends, and even death! Along with other greedy politicians in Washington, he acts as if successful taxpayers are like sheep meekly awaiting slaughter. In reality, class-warfare tax policies generally backfire because of the five reasons outlined in this video:
A new study from Boston College provides additional evidence about the consequences of hate-and-envy tax policy. The research reveals that high tax rates in New Jersey have helped cause wealthy people to leave the state, leading to a net wealth reduction of $70 billion between 2004 and 2008. Wealth and income are different, of course, so it is worth pointing out that another study from 2007 estimated that the state lost $8 billion of gross income in 2005. That's a huge amount of income that is now beyond the reach of the state's greedy politicians. Here's a report from the New Jersey Business News:
More than $70 billion in wealth left New Jersey between 2004 and 2008 as affluent residents moved elsewhere, according to a report released Wednesday that marks a swift reversal of fortune for a state once considered the nation's wealthiest. Conducted by the Center on Wealth and Philanthropy at Boston College, the report found wealthy households in New Jersey were leaving for other states — mainly Florida, Pennsylvania and New York — at a faster rate than they were being replaced. …The study – the first on interstate wealth migration in the country — noted the state actually saw an influx of $98 billion in the five years preceding 2004. The exodus of wealth, then, local experts and economists concluded, was a reaction to a series of changes in the state's tax structure — including increases in the income, sales, property and "millionaire" taxes. "This study makes it crystal clear that New Jersey's tax policies are resulting in a significant decline in the state's wealth," said Dennis Bone, chairman of the New Jersey Chamber of Commerce and president of Verizon New Jersey. …In New Jersey, the top 1 percent of taxpayers pay more than 40 percent of the state's income tax, he said. "That's probably why we have these massive income shortfalls in the state budget, especially this year," he said. Until the tax structure is improved, he said, "we'll probably see a continuation of the trend, until there are no more high-wealth individuals left." He added the report reinforces findings from a similar study he conducted in 2007 with fellow Rutgers professor Joseph Seneca, which found a sharp acceleration in residents leaving the state. That report, which focused on income rather than wealth, found the state lost nearly $8 billion in gross income in 2005. …Ken Hydock, a certified public accountant with Sobel and Company in Livingston, said in this 30-year-career he's never seen so many of his wealthy clients leave for "purely tax reasons" for states like Florida, where property taxes are lower and there is no personal income or estate tax. In New Jersey, residents pay an estate tax if their assets amount to more than $675,000. That's compared to a $3.5 million federal exemption for 2009. Several years ago, he recalled, one of his clients stood to make $60 million from stock options in a company that was being acquired by another. Before he cashed out, however, the client put his home up for sale, moved to Las Vegas, and "never stepped foot back in New Jersey again," Hydock said. "He avoided paying about $6 million in taxes," he said. "He passed away two years later and also saved a huge estate tax, so he probably saved $7 million."
Still not convinced that high tax rates are causing wealth and income to escape from New Jersey? The Wall Street Journal wrote a very powerful editorial about the Boston College study, noting that New Jersey "…was once a fast-growing state but has now joined California and New York as high-tax, high-debt states with budget crises." But the most powerful part of the editorial was this simple image. Prior to 1976, there was no state income tax in New Jersey. Now, by contrast, highly-productive people are getting fleeced by a 10.75 percent tax rate. No wonder so many of them are leaving.