Millionaires Flee Their Homelands as Tensions Rise and Taxes Bite
bloomberg.com
bloomberg.com
The US has a lot of warts, so that may not be true at the end of the day - but it is a pretty reasonable argument. The population of Scandanavia is less than 10% of the population of the US and is part of a larger European region. Comparing the Scandinavian system to the US system is like running US Federal policy by assuming all 300 million Americans live and work in the nice half of California rather than the geographically and economically diverse reality.
A high tech industry hub can only employ so many people. Hence that non-linearity of effects. And the politics of scaling up population aren't at all smooth (small is better for politics).
[0] https://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PP...
I have also discussed these topics with plenty of American millionaires. Most of those are also disgusted at the US healthcare system and skyrocketing college tuition. YMMV. (How do your coworkers feel about the cost of putting their kids through college or covering aging parents’ medical bills?)
Why is it the parents’ responsibility to put their kids through college? If your parents paid for your college, you do not have the right to refer to yourself as self made, millionaire or otherwise.
My parents lived in Canada, the one that is no longer here died from cancer after waiting 5 months for an operating room to open up. They were only stage 2 when they received the diagnosis. I would have broken the bank to get them care in the states if I was working then.
Funny how things are so free to the point that they become worthless when you actually need them.
And I'm not talking $100 million. I'm talking $200k or so. Total assets ignoring debt maybe $2M. Nothing spectacular.
Especially if you do this in the "wrong neighborhood". But of course, if there's some reason you have money, you might have picked your residence based on where your company has to be, to be close to your workshop and able to easily drive to various customers, and not on being in the neighborhood with the "correct" social status. (I live in an immigrant neighborhood because of it's location. Richer neighborhoods are generally in the center of cities and not very drive-able but my work requires a car. Also I vastly prefer a big house over rich neighbours)
Then again, his wealth is only because his family bought up a bunch of land and housing in central and southern Turkey. So while they sat on it, living in Germany, other Turks worked hard to develop the cities and business, increasing property value tenfold. A good investment, but one can see why people want the rich taxed more.
It is a two way street.
My friend moved to Prague. He said it is difficult to raise children in Norway if you are a christian. He could not afford to buy a car. There is long waiting list for a house. And Norway is taxing expats even after they leave country (for three years).
What?
(Mind you I didn't know it had escalated to a diplomatic incident between Norway and Poland)
I don’t get America’s obsession with Scandanavia. Have any of you actually lived there? It’s hilariously overrated.
I am just a "normal" freelance software developer myself, but partly due to crazy taxation I did emigrate from The Netherlands (though other factors where part of this decision as well).
I think I must have paid close to, or maybe even over 50% tax in The Netherlands, all things considered (including city tax, VAT on products, utilities, etc...) and I also felt I got very little in return (I am sure some people feel tax in The Netherlands is fair, but to each his own).
Millionaire employees:
You do have HFT companies where people make between 100,000 euro's to 250,000 euro's but pay 50% in employee tax on average. Also, top positions here are taxed around the same rate.
International millionaire employees:
The thing is: not all top managers who are also millionaires are domestic. There are quite some Dutchies who are top managers but have been an expat, which means they were paying the employee tax of another country, which is most likely cheaper. These Dutchies sometimes return to The Netherlands after decades of working abroad. I highly doubt though that tax evasion was their biggest motivator, but paying 20% less (number out of thin air, but NL is 50% so the world is 30%) employee tax year over year definitely adds up as these type of people also invest their money.
Entrepreneurs and freelancers:
A business in The Netherlands that makes 250,000 euro's in profit per year, probably has some tax tricks but my guestimate is that they still pay between 15 to 30% taxes. It really depends on how focused they are on it and how structured they are. I met this one Dutch person who's a freelancer, he makes about a 120,000 euro's per year. I'm pretty sure he pays normal income tax (and gets some deductions because he's a freelancer). Other freelancers that I know are much more focused on it and tend to be on the 15%, maybe even 10% side.
Criminals:
Criminals need to launder money, they pay their taxes, in a more karmic than bureaucratic way. This is also because most criminals that are millionaires don't seem super duper smart (source: the Dutch news regarding assinations of 15 years ago), but they are quite clever since non-clever criminals get caught, not shot.
Inherited wealth:
See my first statement, these people are most likely in real estate. There's even an episode about it by Zondag met Lubach [1]. These people evade tax.
That's all I know about it. My point is: it's a bit more nuanced than every millionaire not paying tax.
[1]: https://www.youtube.com/watch?v=c3fywTiEJgM -- Dutch spoken but has English subtitles (non-auto translated)
The point is rather about large global business entities with sophisticated ownership, leadership, and shareholder structure - somehow they oftentimes are registered as Dutch BV, or in Luxembourg/Ireland. This way or another it’s always some kind of Dutch-Irish sandwich with Luxembourgian sauce.
https://twitter.com/novogratz/status/1087548420129214464?lan...
The main reason is to have a backup plan in case things go wrong: there aren’t a lot of reliable legal protections to begin with and the political situation can change any time.
Better have your wealth stored outside of the country and an additional citizenship so you can leave when necessary.
* Belgium: Luxemburg
* France: Monaco, Luxemburg, Switzerland
* Germany: Liechtenstein, Luxemburg, Switzerland
* Italy: Vatican city, San Marino, Switzerland
* Spain: Andorra, Gibraltar
* UK: the channel islands
It was how the Dutch became a powerhouse on the line of Spain, England and France in the colonial age. Because they let their people be, and didn’t take their wealth, it became an attractive haven for rich families who then did business.
I’m not sure the latter is as beneficial as it was then, as you can now turn money into more money without investing in local business, but the former is going to remain true forever. People who have the means to do so, will always chose the freer country.
Ireland went from being an always-underdog to Britain, to having nearly twice their GDP per capita. Finland and Sweden in 1990 had a GDP per capita 100% higher than Ireland; now Ireland is ~50%-60% higher. It took only 30 years to transform Ireland into a far wealthier nation and it was mostly due to the very attractive tax structure for large corporations. It made them very well positioned to ride the globalism economic boom.
It seems to have got started in the early 80s, when Ireland was still a very poor country. The major changes were in 1995.
Tax policy is still mostly a reserved matter in the EU and there is a taboo on trying to dictate rates, but this is changing - in part due to the obvious huge tax avoidance problem.
https://en.wikipedia.org/wiki/Modified_gross_national_income
https://en.wikipedia.org/wiki/List_of_countries_by_GNI_(PPP)...
Average individual consumption is a better measure of the standard of living though unfortunately all we have reliably is household final consumption. Again, the rankings are quite similar.
https://en.wikipedia.org/wiki/List_of_countries_by_household...
Every possible means should be brought to bear in punishing these enablers of tax evasion. Steal from the rest of us at such a scale? Prepare to feel pain.
Sure, donations are perfectly legal and an above-board way to evade paying taxes to the USA, but it's still tax avoidance and I could choose not to itemize, especially if my donations were 100% pure of heart.
Similarly, emigrating to Malta, or Bermuda, etc. is perfectly legal and if I do so for the weather, or to avoid paying taxes, is not one just as legal as the other? Even moving from New York to Texas so my combined state and city income taxes drop from 10% to 0% has a whiff of tax avoidance.
Simply put, people vote with their feet, and the rich have the best shoes money can buy.
No. You're mixing up terms. That's avoiding taxes. There's a critical distinction in the tax world between avoiding taxes and evading taxes. One is legal and common, one can send you to prison and get you a lifetime of close IRS scrutiny.
Simplified, evading means to not pay what you actually owe (what you should be paying). Avoiding means to use entirely legal means - such as deductions - to not owe the taxes in the first place. To evade taxes you always have to do something illegal. In avoiding taxes you should never break the law.
So tax deductible donations show what is important for a society at large. And society profits.
Leaving a country to evade taxes doesn't help society at large. People do this after they profit of the infrastructure and all other stuff society provided and paid for with taxes.
I really don't see how tax deductions for donations aren't glorified tax evasion strategies.
[0] https://www.snopes.com/fact-check/nra-tax-exempt-non-profit/
You could argue it's tax avoidance, but it's not even that, it's just making a donation, and that's how they are taxed. It's part of your normal activity: taxes are higher on some things than others.
Creating a non-profit as a special purpose vehicle would be 'tax avoidance' but if it's legal, it's legal.
The OP's comments are perfectly just i.e. punishing tax havens because there's deep incentive for them to facilitate actual tax evasion, moreover, they enable the stockpiling of surpluses generated elsewhere. Especially for those part of a 'common market' - you can't have taxes at 1% in Malta and 50% and France, it's not going to work.
Dubai does not have any tax deals with the US, it's built on utterly shady tax dealings. Much of the money poured into Afghanistan by the US for reconstruction ends up there, for example. It's super duper dirty.
People are not fleeing China because of 'taxation' in the classical sense, they're fleeing for a pile of other, obvious reasons.
People are however fleeing France, partly due to 'taxation' and this is an issue ... they have some issues with competitively and their solution of 'just tax the rich' will not work out if that's it.
Worth considering: normalize the migration data against 'regular people' and what you'll find is that still a lot of Chinese are moving to Australia/Canada, and in general people are moving there, the US anyhow!
I'll bet the one that sticks out a little is France. I don't suggest a ton of people are leaving, net.
Right, but if it's perfectly legal to emigrate to a lower-tax jurisdiction, is that not "part of normal activity"?
I think there's an argument to remove the tax deduction for donations. If you are doing it altruistically, then you still owe your fair share to the government, no?
I have been on vacations on Malta. It is a nice place for a vacation, but it is not the most interesting place in the world to live in.
Rich people are rich because they have access to luxury items, health care, transportations systems, etc. For all that to exist a complex society is needed where citizens have education, transport, health care, food safety, clean water, rule of law... and all that costs money, a lot of it.
If rich people leave that society, how rich are they? How easy is to just tax the business that produces wealth?
Malta, as a nice place as it is, cannot produce super-rich people. Is Malta decides to isolate itself it just becomes an inhabitable rock in the middle of the Mediterranean. The same goes for more tax havens.
Rich people will vote with their feet, but the economy will not care. Taxes are needed to generate any wealth independently of the tantrum of a few rich people.
So you want to prevent rich people from moving to low-tax jurisdictions for their own good? How kind of you!
Given your comment, I assume you think 0% taxation is also infeasible.
So we agree that somewhere above 0% and below 100% taxation there is some optimal amount. However, given the circumstances of the country and our personal philosophies, we may disagree on that optimal level.
The fact that free people can move to lower (or higher!) tax jurisdictions, and judge the quality of those services based on how much they pay and what they get in return, is a good thing in my opinion. The competition keeps politicians from elevating taxation to that unworkable 100%.
I think few would disagree that if you move to a new jurisdiction to benefit from a different tax scheme, that's fine. But therein lies two problems: First, so few people are able to move; the wealthy are disproportionally able to have their pick of tax jurisdictions so they can extract benefits from one society and then jump ship when it suits them without returning benefits to that society.
Second is when people move on "paper" to benefit from another jurisdiction but don't physically move in reality. Thus they continue to benefit from the society they nominally "left" but don't pay into it. That's the kind of tax avoidance / evasion that most people have a problem with.
What jurisdiction allows this?
The US is particularly draconian by taxing worldwide income; every other country that I know of will tax your income if you live there.
Although really most of the tax avoidance schemes rely on moving one's income and assets to a company and then playing games with the "residency" of the company.
Let me tell you a little story. In 2013, Croatia had some 350,000 unemployed. In a country of about 4 million people, that is a lot. Today, we have the lowest unemployment rate in the EU. What happened?
Many of those people (and even some that were employed) left for Germany and Ireland. It's gotten to the point that the government has increased non-EU worker quotas in order to plug the hole - despite being part of the EU and having access to its huge labor market!
So, as you can see, at least in the EU, people can and do move.
What does this have to do with taxes? Germany does not have a problem with tens or even hundreds of thousands of skilled migrants emigrating to fuel its economy. But God forbid that some billionaire decides to leave Germany for Malta - that's an atrocity and a EU-wide problem that MUST be solved. Despite the fact that the EU is based on the free movement of labor, goods AND capital.
I think that in the future, more and more people are going to be voting with their feet - and not just the rich. Between gerrymandering, vote buying, corporate lobbying, vocal minorities, apathetic voters and defective electoral systems (first past the post/two party systems) many have lost faith in democracy.
You are making a very big assumption here - that paying taxes guarantees you these things. I assure you, it does not.
In fact, I believe that public services and the amount of tax you pay have been out of sync for a very long time - that is, that it is quite possible to pay a lot of tax and get none (or only a few) of those services.
It is definitely possible to pay a lot of tax and get nothing and that is something to be opposed. America’s existence is testament to the resentment that unjust taxation evokes.
All throughout history, any society of sufficient complexity develops strong hierarchies, with a small ruling elite. Throughout history those ruling elites almost never had a problem exerting sufficient oppression on the majority of the population so as to remain rich and powerful. Indeed it has been argues that the ruling elites of yesteryear were substantially more wealthy in comparison with the rest of the population than today's rich. Ruling families tend to last centuries (e.g. the almost 2000 year rule of Europe by a few families like the House of Habsburg which ruled Austria for > 600 years, or ongoing 2.5K years ruling family in Japan, the Shang dynasty ruled in China for 554 years. House of Saud is ruling for nearly 3 centuries. Etc etc.) We remember the French revolution, because it's so rare.
Contrary to what you claim ("expensive institutions"), oppressing a large number of people into submission is cheap, provided the oppressors cooperate tightly and efficiently. (See also the prevalence of slavery in almost all known societies before industrialisation).
It has been argued that by letting the rich get off with some tax evasion, the population buys them off, buys their acceptance of democracy and low-levels of oppression.
Hard to believe that Bezos or Gates would find it difficult to hire enough mercenaries to defend their position at the top of the social hierarchy.
History certainly seems to suggest that the ruling class virtually always manage to do this. The main way in which the ruling class looses power has been being displaced by other members of the ruling class, which is why dictators are always especially suspicious of their own army and secret service leaders. For example, after the collapse of the Soviet Union, Russia became a fiefdom of 4 oligarchs pretty quickly, and they were displaced by a high-ranking ex-KGB operative (Putin) and his people, i.e. by a gang from another power center.
What historical evidence to the contrary would you put forward?
My point is that the kind of elite we get in a context of peace and security is very different from the kind we get outside of it. Russia is run by a former member of the security forces, and that is often what happens in a time of disorder. How many other former leaders of Russia were drawn from the security forces, and when?
Yeltsin, a civil engineer, followed Gorbachev in 1991 as the first President of Russia. Putin followed Yeltsin in 1999.
> The Organisation for Economic Co-operation & Development is scrutinizing the potential misuse of these schemes. In October 2018, it released a blacklist of 21 jurisdictions, including Malta and Cyprus, that it believes are undermining international efforts to combat tax evasion.
What we're talking about here is hiding assets that are subject to taxation. Like Swiss banks did for many years.
Wow, more classically liberal than the man himself Adam Smith, who basically invented the concept of graduated taxation because he laid out how such systems would work and what would end up happening without it.
How will you pay for a functional society then? All these people that are rich, it is rich because they live in very complex, healthy, educated societies. That does not come from the air.
How will you make sure that one person does not accumulate all world wealth? Without progressive taxation, wealth accumulates naturally as having more money makes it even easier to make even more money. How could such a system work?
I would like to understand your position. Why paying for the sustain the society where you live in is unethical?
Income tax is theft since it is the state usurping the will of the individual, and literally saps the agency one might have over ones progress - Expenditure tax is a better solution, since it allows the individual to maintain agency over their wealth, while also allowing the state to gain income on equal ground.
Really, its time for societies to evolve beyond state-supported theft through threat of force, and grant individuals more agency over how they use their wealth. The current system is criminal.
To be able to run a stable state that actually allows anyone to have opportunities, taxation would have to be pretty high. After all, you need well funded public schools, child services, police/emergency service and a health system at the very least - otherwise you just end up with a bisected society of rich and poor.
But then you need to have a high taxation rate on expenditure (most countries have a VAT, for example, and it would not be enough by itself). So again, this smothers the poors, and they could not, for example, gain wealth themselves.
Why does this imply that taxation is not theft?
I think the most important argument is, that people have accumulated their wealth in either of two ways. First, they did not earn it themselves. Then, one could reasonably argue that some taxation is fair. Second, they accumulated it themselves, such as by starting a business. Then you argue that taxation is theft. However, they earned their money in the existing society. Since they were not rich, they, at that time, used all public services, education, markets and stability provided by the system, while also paying relatively little. They are rich, in part because of a consumer surplus society affords by non-regressive taxation. It is therefore fair, and and not theft, that they are to pay more of their wealth, which they gained within a beneficial system of taxation, to keep that same system stable for the next generation.
Well, overlooking the obvious straw man argument, and ignoring that this has been successfully implemented already, in some of the most diverse poverty vs. wealth distribution countries in the world (India and Sri Lanka) .. this would only be the case if expenditure taxes weren't scaled to target the higher-end luxury items, but instead applied flat across society. Clearly, this is not the case with income tax - and it wouldn't be the case, necessarily, with an expenditure tax. Luxury items would be taxed at higher rates than basic life-survival items. Such a tax would be progressively or proportionally applied across society, such that the wealthy simply pay more for their luxuries, while the poor pay less for their essentials.
In a properly designed expenditure-tax system, people still get wealthy by hard work or inheritance/exploitation - but when they try to spend that wealth, they are equalised by the expenditure tax compared to the less wealthy.
And in this case its not theft, like income tax, because people still will have the choice on whether to spend their money, however it is earned, on luxury items (high tax rate) or survival items (low tax rate). The point is, they have the choice, and ~50% of their life is not spent just working for the state, as is the case with income tax repression.
The only issue, is that it is 'difficult to administer' - but I see no reason to make tax bureaucrats lives easier. We already have sales tax in many states - eradicating income tax would mean freeing resources up to expand the scope of those sales taxes into a broader taxation on expenditure.
Income tax results in people making the conscious decision to not make more money - because, after all, most of it will go to the government. Expenditure tax encourages people to save, and invest wisely in their local economy, and thus gives state managers the ability to direct those investments according to reduced tax rates around the commodities/services for which the state wants to promote growth.
The current mess is repressive. People consciously don't work to improve their conditions in life, when half of that life is given over, immediately, to the government. This causes a lot of resentment over society, and promotes criminal tax avoidance all over the scale.
Curious how you fund police in this dreamworld...
> and if people can escape it I'm happy for them.
Yep, nothing like running off with a pile of cash and doing nothing to support the system from which you extracted it, leaving everyone else to fend for themselves.
How is it their own money if it is the state money? That is all the point. It is not their money.
If I buy an apple an I do not want to give the money to the cashier because "it is my money", I am stealing.
Also you could make the argument that the people rich enough take advantage of these schemes have already paid more tax than most people through other taxes.
What I'm advocating is retaliation against other countries that are facilitating criminal behavior.
The majority of human societies live in peace. Uncontacted tribes never before exposed to us generally mostly live in peace together. They don't have the word "law" but they have an agreed upon set of social norms that people don't violate. Even most primates live in mostly peaceful social groups with established social norms.
Hobbes erred in his assessment of the natural state of humans.