Portugal seeks to become low-tax haven for young people
ft.com
ft.com
I don't think tinkering with income tax brackets/credits is going to fix the actual problem - robust and steady job creation of good paying jobs.
There are ~11M people in Portugal, 3M of which are in Lisbon metro and 2M are in Porto metro areas. This leads them to having the same problem as Japan - the population is decreasing, BUT the countryside and 2nd/3rd tier cities are emptying out.
So housing affordability in the major cities remains poor. The youth therefore get squeezed out and emigrate, leaving an increasing tax burden problem paying for all the benefits given to the increasingly aging population.
My father visited his home town in the countryside in the last decade and found much of the town essentially abandoned. No one lived in the home he grew up in. His uncle owned an inn that had no guests, etc.
Meanwhile, Portugal remains a beautiful place and I will visit more in the future, and could even see wanting to retire there.
But the USA has massive federal tax revenue and spending which redistributes wealth from rich states to poor states. Federal taxes are much higher than state taxes.
By comparison the EU has high state taxes, but very tiny "confederal" EU level revenue. So much less ability to balance things between rich and poor member states.
This puts poor states like Portugal into a bad position where they suffer from brain drain due to the free movement, but don't get enough monetary benefits from the EU to counteract that.
This turns Portugal into a gateway country for the EU: they have loose immigration rules because they want to attract young workers. But as soon as those workers live in Portugal long enough to get an EU passport, many brain drain away to other (better paying) EU countries, and need to be replaced with even more immigrants.
The only reason Portugal (and Ireland, Spain, Greece, etc) is counted as a "Developed Country" today is because of the EU.
These countries received the lion's share of EU Development Funds until EU expansion in the 1990s-2000s.
If Portugal didn't join the EU, it would have been similar to Argentina - it's economic peer until EU ascension in 1986
Maybe your comment about what defines a developed country might be overly simplified...
Developmental indicators, nominal GDP per Capita, and median household income.
Before Spain, Ireland, Greece, and Portugal ascended into the EU in the 1970s-80s, their developmental indicators largely mirrored those of developing countries from that era (Malaysia, Turkey, Argentina, Iran).
It was EU developmental funds that helped these countries not fall into the middle income trap.
The only developing countries that were able to escape the middle income trap without EU Development Funds or oil were South Korea, Taiwan, Singapore, and Israel.
Also, having a large GDP does not mean a country is developed. China and India have the 2nd and 5th largest GDP in the world, yet their median household incomes are less than that of Thailand, Mexico, or Malaysia - let alone countries defined as developed by the IMF.
Also were mentioned Malaysia, Turkey, and Iran, which have their own unique historical contexts that I'm not as familiar with.
And that doesn't have anything to do with my point that Spain was a developing country well into the 1990s, and that most of the post-Franco era development was subsidized by EEC and EU Developmental Funds
Read this, it's a good overview of the process - https://www.elibrary.imf.org/display/book/9781557753199/ch02...
It shouldn't be any surprise that a nation and culture so tolerant of living in a dictatorship isn't exactly leading the world.
In terms of getting rid of dictators, you also have to realize that since the Spanish civil war (1936-1939) there was a dictatorship until 1975. That is a lot of time to purge any opposition. Your last sentence is uncharitable and overly simplistic.
Portugal to this day has fairly weak human capital compared to it's peers.
On the eve of the Carnation Revolution, Portugal had one of the lowest literacy rates in Europe, one of the lowest GDP per Capitas in Europe, one of the lowest electrification rates in Europe, etc [0]
In the early 1970s, it was unimaginable for Portugal to become a developed country, and if it wasn't for its ascension into the EC, it would have stagnated.
[0] - https://www.cia.gov/readingroom/docs/CIA-RDP85T00875R0017000...
Singapore has it's location- a politically stable enclave in South East Asia. Portugal is competing with the likes of Denmark and Germany.
It is helpful to the core rich countries and to elite/upwards mobile across countries. But it hollows out the periphery.
A lot of the GFC era EU debt crisis was German banks lending to southern European states to then buy goods/services from.. German industry. So I was not as understanding of the northern countries looking down at the "lazy south". It was far more complicated than this and they were happy to look the other way while it worked for the first decade.
I'm honestly not sure where EU goes from here as the GFC & the response dampers any enthusiasm for a true federal government, unified military, etc. Not that there was much appetite to hand over that much sovereignty to start with. Nor does it help that post-GFC, even the rich parts of EU have further diverged in terms of wealth/income from the US, so they are probably feeling even less "generous".
Draghi wrote a whole report on EU competitiveness recently and in standard Eurocrat form its like a 500 page paper no one will read, let alone action.
I was always supportive of the spirit of the European Union and its ultimate objectives, but in its current state, it's a brutalized self-sabotaging entity that has disillusioned the general public to veer rightwards. And with furthermore technological lagging vis-a-vis China and the US, and the immigration crisis, not to mention the Russian Axis round the corner and the collective inaction of a number of EU states around that, and it's no wonder the EU is falling back into 3rd place.
And for some reason, the EU still thinks net uncontrolled refugee migration is good for their economics,their population and their electability, as is letting American private equity buy up large swathes of residential properties. Guess that's what you get when you let freeloaders who haven't worked a real job in their lives hold unelected positions of power.
It hasn’t, it only disillusioned those people (like the brits) who didn’t understand the purpose of the EU to begin with. The economic benefits were always considered secondary objectives, subordinated to the main principle of cooperation. This is public knowledge, it was made very clear in the foundational documents of the EU. And therefore the EU has indeed been very successful and its effect is unprecedented: since its inception, we are seeing the longest period ever recorded without a war between European countries.
One of the aim is political integration and weakening of each member's sovereignty. The UK does not want this but was OK with the common market.
I feel that if British concerns, including about immigration and free movement had been addressed Brexit and the current turmoil within the EU would have all been averted. This disconnect with the people's concerns is a key issue the EU has to face or be torn apart.
Germany suddenly deciding to reintroduce border controls is especially telling and highly ironic.
I was referring to the official position of the EU, which is verifiable in their public documents; I don’t care about far-right propaganda. People of course are free to care more about “cultural identity” (whatever it means in the 21st century), than about war. But it doesn’t change the fact that the EU has been successful in creating the longest period of continuous peace in the history of the continent. And this is what it intended from the beginning.
It's all NATO.
And even then, it's arguable whether they did a good job or put too much unneeded pressure to Russia.
The EU addresses resource and cultural motivations.
NATO intimidates countries that already want to take resources from their neighbours.
NATO has its merit as well, but the EU is unarguably one of the main reasons why EU countries have not even begun to think about creating military conflict within member states since the 1950s.
Disagree. Going from a bombed-out, stone-age hellscape to conflict-free and essentially borderless in just 47 years was a very impressive achievement. Unfortunately for the past several years we've been headed in the reverse direction.
To deny the very existence of cultural identities is also quite bizarre. Of course countries have their own cultural identies and this is in fact something absolutely key in the current political dynamics in Europe.
If you want real cultural identities, build a time machine and travel back before airplanes, the internet and neoliberal finance rendered cultural divisions in western countries obsolete.
You yourself state that the final objective of the EU has always been complete integration across all departments. I don't see how it's possible to retain individual cultural identities in that construct - either you'd have to compromise on representative democracy and equally distribute representation across all cultures, making the vote of a Croat valued more than that of a German, or you'd end up making the vote of the Bulgarian irrelevant against the vote of the French. This is kind of already the case in more closely integrated federations of a similar kind - India and Russia. Individual cultures are slowly being replaced across regions, as people are forced to learn Hindi and Russian to get a job or access some government benefits, in spite of the protests of their respective state governments.
> If you want real cultural identities, build a time machine and travel back before airplanes, the internet and neoliberal finance rendered cultural divisions in western countries obsolete.
Your arguments are precisely the kind of uneducated drivel that provide fuel to anti-EU sentiment
And it is already the case in western countries. Learning english is more or less mandatory at this point, while democracy is being influenced by consumer culture and media, which are often produced by multinational corporations, financed through a global network of banks and distributed via the internet. But this has nothing to do with the EU, in fact it isn’t being intended by any single institution or organisation as an aim in itself. It’s a far bigger and frankly irreversible phenomenon that emerges from present conditions.
Nobody is against freedom of movement of EU citizens.
But there has also been concerns about internal migration since 2004 when Eastern European countries joined. This is not only in the UK and is still the case now.
The current crop of unfettered non-EU migration is not only an employment threat but also a security threat and a threat to the entire concept of the European welfare state.
Sure people have been complaining about criminals from poor eastern europe moving to wealthy countries but the numbers were never high enough to actually change the national identity. Internal transfers of hard working people were (and are) always cherished and we celebrated diversity as long as laws were respected.
Importing people from Africa and the Middle East in large numbers changed the face of Europe dramatically.
The British expats in Spain and Portugal are famous for learning the local language and culture.
The creation of a pan-European identity does not in anyway degrade from having a "British identity", as you can see in places like the USA with Texas.
Whilst net migration was above 0, this was mostly due to arrivals from outside the EU, as we can see from post-Brexit immigration figures, EU free movement has always been a two way street that many Brits took advantage of (those "expats" in Spain).
Neat idea, but is quite a challenge.
The US in general is different from even an imaginary future federal EU in that, as some say, "America is an idea". I know people who can trace their "American Heritage" back to pilgrims/boats, and others who naturalized in the last decade. No one aside from true nutcases really gives much thought to the difference. There is no legal distinction aside from naturalized citizens being unable to be President, is about it.
Most people I know have lived in multiple states, sometimes across completely different regions. People don't derive any strong identity to the state they were born or spent the most time in. Most people I know would just identify by the current state they live in.
There are of course regional differences, but you can move from one region to another and mostly drive the same car, eat the same food, wear the same clothes, buy the same products, shop the same stores, etc. This is a feature or bug depending on your perspective. I think we are sort of like a cultural Borg.
The plus side is the US quickly adapts and/or adopts aspects of the culture & cuisine of each wave of immigrants over time. You can get pho in random strip malls nowhere near a big city, and we'll adopt any holiday if it means more drinking, like say Cinco de Mayo.
For businesses that don't rely on national pride of patriotism as part of their image, it's a massive feature.
The press vilified the EU in the UK for decades, at school I had one lesson in geography on how the EU worked and that was it. Wasn't covered in history or anything. It just all added up and the European identity never took hold in the UK outside center liberals.
Well, I'm driving very often to Belgium via A4 and there are rarely any controls. A44 to Liege is more common but not A4. You could have always been stopped at the border, for whatever reason, even with free movement. It's not like they stop everyone at their border. By the way - from 16th of September for 6 months...
Every once-in-a-while you'll hear about how Europe is becoming less relevant, less competitive, and falling behind. Many reasons are pointed out: too many regulations, too much bureaucracy, too little investor funding, too little risk appetite etc. And then all of that is promptly ignored and we're back to
>but we need all of these regulations, otherwise we'll be like America!
and
>Europeans are actually better off!
Imo it's European people that defend all of these things, not just something unelected bureaucrats do.
Older European generations have negotiated for the current state of affairs which are nice for existing homeowners who are near and in retirement.
This is at the expense of the youth who have eye watering levels of youth unemployment, near 20% in many EU countries. It's 25% in Portugal (vs 6.5% overall) and was as high as 35% in the last decade. These levels make it hard for the next generation to build a career, savings and future for themselves.
Note US current unemployment rate is about 4% with youth unemployment being 9%. So US youth unemployment is ~2x overall while Portugal for example has youth unemployment at 4x the overall rate... much more skewed.
No country in the EU would have been better off if the EU hadn’t been formed.
The only way the EU can be described in the economically apocalyptic way you are is if you don’t consider the alternatives at all.
Consider Greece, which is the poster child of the EU economic failures.
Outside the EU Greece would have completely collapsed. The only thing that gave it some sort of leverage to get out of a long standing mess was the fact that being part of the EU still gave it some credibility with lenders which gave it time to recover to whatever degree it has.
In a nutshell, the EU had a lot of problems but the pre-EU situation would have been significantly worse.
EU, the economic union. Not the political union and the bureaucratic machine that tagged along.
> Outside the EU Greece would have completely collapsed. The only thing that gave it some sort of leverage to get out of a long standing mess was the fact that being part of the EU still gave it some credibility with lenders which gave it time to recover to whatever degree it has.
You give Greeks too little credit. Outside the EU, they could have devalued their currency, spurred investment from second-world countries (notably China) without answering to a preachy EU blocking them, etc. Greeks imo are some of the most hard-working people in the EU at the moment, perhaps even the most. The EU didn't give them the flexibility to adapt, so that Germany could maintain its supremacy.
Portugal received about 3 billion dollars from EU funds in 2021. About the same Tennessee received from the US federal government in that same year.
I fail to see how a nominal difference in internal organization leads to much different outcomes.
edit: I got some bad data on my search, my bad, will leave my mistake up.
Portugal (and a significant portion of EU members) had an economic meltdown during the Eurozone crisis from 2008-14, and are still trying to service those loans and bonds to this day.
Also, Portugal's GDP is half that of Tennessee's.
In fact, Portugal has the same population size as Michigan and North Carolina, yet a GDP that is ~50% and ~33% in size respectively.
Does that change when the relative value of Euro to Dollar fluctuates?
Oklahoma, but Oklahoma also only has 40% of the population of Portugal.
Despite being in the Western half of Europe, Portugal is economically comparable to an Eastern European country like Poland or Slovakia.
The only US territory (not state - even poor Mississippi has a higher median household income and GDP per capita than much of Western Europe excluding Germany and Scandinavia) that is comparable to Portugal is Puerto Rico.
In fact, the problems Puerto Rico faces today in the US mirror those that Portugal faces in the EU.
Take the GDP, in local value, against the aid they receive, in local value.
Then you have a percent, which you can compare between the two agnostic of PPP/currency/etc.
Tennessee nominal GDP is $420B and the last figure I found for federal aid to TN was $10B but this was 2014 data, at which point TN GDP was $350B. So ~2.5-3% of GDP in aid from the feds, quite a lot more than Portugal.
Also this is simply the direct aid in TN budget that comes from Feds. Often there are other direct payments/transfers from Feds to individuals who file federal taxes while living in TN, which is not captured in that $10B number.
A major issue was the ascension of then poorer CEE states in the 1990s and 2000s.
This meant the bulk of EU Development Funds which used to go to Southern European countries like Portugal and Greece ended up getting diverted to countries like Hungary, Poland, Romania, Bulgaria, Slovakia, etc.
Unlike the CEE countries, Portugal's pre-EU era rulers (eg. Salazar, post-Revolution military junta, trade unions) did not invest in human capital to the same degree that CEE's pre-EU rulers did.
https://www.usaspending.gov/state/tennessee/2021
Including $72.6 billion in direct payments.
https://www.tn.gov/content/dam/tn/finance/budget/documents/2...
It looks like in 2023, the IRS collected ~96 billion from TN
https://www.irs.gov/statistics/soi-tax-stats-gross-collectio...
Like sure the EU, healthcare & education is cheap/free, but your taxes at the low end will are double to pay for that. And they pay nurses similar to what we pay fry cooks. Even higher pay places like London, UK pay 1/3 to 1/2 what you can make in NYC or SF for similar jobs.
Median household income in Pennsylvania is approx $73,000 [2], but median household income of Portugal is below $20,000 [3]
Sure the US has plenty of problems, but it is absolutely one of the most developed large countries in the world.
The only other large (greater than 50 million population) countries with higher developmental indicators are the UK (barely) and Germany.
[0] - https://en.m.wikipedia.org/wiki/List_of_U.S._states_and_terr...
[1] - https://en.m.wikipedia.org/wiki/List_of_countries_by_Human_D...
[2] - https://www.census.gov/quickfacts/fact/table/PA/INC110222
[3] - https://eco.sapo.pt/2023/01/13/rendimento-medio-das-familias...
And like the EU there’s very little investment from London out to the regions
This leads to increased demand for housing in London (and to a lesser extent Manchester and a couple other big cities) and a vicious cycle.
Even worse, an ambitious young person can’t go anywhere else other than London thanks to Brexit.
In the U.K. the median wage outside London is about 20% above the minimum wage. There’s basically no point in doing anything other than the lowest shittest job you can find. Hell a masters degree will only net you about 30% more than minimum wage in many sectors.
I’ve just spent 2 weeks in the US, including being in Florida since Sunday. A young colleague has been working in our DC office for much of the last 2 years on a non immigrant visa. He went for a h1b and has got it, he’ll be leaving for a local employer by the end of the year.
For the first time ever I’m actually thinking the problems of the US are now less than those of the U.K., and even potentially Europe, and were I 20 again I’d be looking at the US as a target.
There was a brief period post GFC where it seemed like the US had lost its way and Europe had the right idea. Europe leaned hard into austerity and self immolated while the US just grew our way out of it and into the future.
As an American, I've always sort of held the stereotype of Europe as being a fun place to vacation. Nice lifestyle if you've made your money already, probably elsewhere.
Unintentionally or not, Eurocrats seem to have done everything they can to perpetuate this further and further. Between austerity, regulation, bureaucracy, etc it just seems like the whole continent is encased in amber, focussed on how to slice up a static/shrinking pie.
The work-life balance is so tilted towards life that it’s already semi retirement for people with full time jobs because job security is so high.
Best is getting a job in the European Union (in Belgium ) , United Nations, or other multi country agency.
At some point the declining demographic situation means your taxes will go up, and the percent of budget going towards retirees will go up.
Meanwhile the retirement age for current workers like you will increase, but future benefits you will receive when you eventually retire get cut.
It's basic math of any shrinking & aging country as the worker:retiree ratio shrinks.
Cities there transition instantly from high-rise apartments to rural farms.
And prices in cities seem far above what the locals could possibly earn.
Portugal is such a great place to live, it just lacks reasonably paying jobs.
At a risk of going off on a tangent, it should be said that this is a direct consequence of the 2007-2008 financial crisis and the resulting 2010–2014 Portuguese financial crisis.
https://en.wikipedia.org/wiki/2010%E2%80%932014_Portuguese_f...
A series of banks went bankrupt, the construction sector was ravaged, the real estate sector plummeted due to a market where neither consumers not producers could have access to credit. With the drop in supply and a constant demand, housing costs skyrocketed even though salaries stagnated. The youth is then faced with the problem of either facing a lifetime of earning salaries that don't allow them to buy or even rent a home or emigrating to places where it's possible to earn a modest living.
Taxes aren't the problem. The bulk of the income of those who can afford a home is already syphoned to service the costs of buying a home.
If housing becomes affordable, people stay and will have disposable income.
If Portugal wants to keep the young people from leaving, why don't they look at where those people are going - and why - and emulate the policies of those destination countries?
If you don't want to adopt the policies that lead to the results that you want, then you don't really want those results.
Maybe most of the voters and politicians in Portugal don't want to change those things that the young people don't like.
Did I forgot to mention that if you come here you're capped at 20% IRS
Another possible consequence is greater inter-generational friction as young people with more money out-compete existing, older tenants/owners for those homes.
https://www.forbes.com/sites/danieladelorenzo/2024/04/09/nor...
As prior art, doesn't the US have something similar where if you want to leave your residency/citizenship, you have to pay up, even for unrealized gains and such? Seems like Norway is modelling something similar to what the US already has, and the US seems to still have tech startups coming out of it.
The real trick is to be European and then go to the US, make a ton of money, then fall back on the European social safety net when you want to start a family, etc.
For what it's worth a good few of my friends are software engineers and now that we're in our 40's it's the Americans who have better work life balance, not me (the American who moved to Europe chasing better WLB but instead just making a ton less money)
Heh, funny that you just exemplified my "Americans care mostly about money" by only thinking about money/funding :) The startup/company culture might be a bit different in the Nordics compared to what you're used to. Many people just want to create a business that earns "well enough", then they're happy with that, rather than a "takeover the world" approach that is common in the US.
> The real trick is to be European and then go to the US, make a ton of money, then fall back on the European social safety net when you want to start a family, etc.
You do you! Personally I wouldn't feel ethically OK with that approach, as the country that raised you loses out until when/if you come back, and you're only moving to the US to make money, then leave with it, rather than retiring there.
But, everyone has a different approach to life, there is no right or wrong, correct or incorrect, only what we feel is the right approach for us :) In the end I hope you live the life you want, just like me.
That’s a big difference. (Also, is it company or personal residence?)
If the obvious difference explains the gap, this is unnecessary. Switch American taxation to a territorial system and you’d see a similar flourishing of start-ups and founders in Canada and Mexico.
Hence in both cases they are both looking to realise gains at the point where they no longer have control over the taxes being charged. A `penalty` for leaving their tax jurisdiction, notionally for the tax they are 'owed'.
Norway has high tax rates despite having oil wealth-- this ensures citizens remain productive and don't get too complacent by depending on a fluctuating commodity.
Norway has successfully avoided the Dutch Disease. But whether we will be able to successfully negotiate the decline of oil in the long run remains uncertain.
According to the local the threshold for share gains is 3 million kr, about 300 thousand USD. You only pay the exit tax on amounts above that.
"Those subject to the tax will have to address their tax obligations related to gains exceeding 3 million kroner on shares acquired during their time in Norway.
They will have several options to fulfil this obligation, including immediate payment, interest-free instalments spread over 12 years, or deferred payment with accrued interest.
The changes are part of the government's efforts to counter the recent outflow of wealth from Norway, with Switzerland being a popular destination for tax exiles."
https://www.thelocal.no/20241007/whats-the-latest-on-norways...
Countries invest too. In their economy. Providing high quality education at a low price is a huge investment, for example. It's not a good deal if citizens take that and you don't get a return on your investment, i.e. they're not creating innovative companies in your country.
And the biggest problem for startup founders remains: you're taxed, on leaving the country, on unrealized gains. Being taxed on 5 millions of profit sounds fair, being taxed on 5 millions (or 30 millions) of valuation used for raising capital, in a startup that then fails and is worth nothing after a few years, maybe not so much. Neighboring countries do not have this kind of taxation.
Many sub-aspects of this are debatable, of course: Is VC money good? Are high startup valuations good? Also: Sure, you can defer the payment, you can pay it later with interest, etc., etc. But that's besides the point.
The problem here is: Once your startup reaches a high valuation, exiting the country, for whatever reason, will become difficult. And this might happen for rather innocuous reasons: Temporarily moving to the US to open up a subsidiary, staying there > 180 days / year? --> Exit tax. Etc. The number of second-order consequences is high, and I'd wager most of them are not good if your goal, as a country, is to foster a startup ecosystem.
Or just let people move between there and US without forcing asset sales at bad times to cover tax payments on unrealized gains.
The same issue in New Zealand. Anyone with a professional job invests $100k/year in lost wages founding their high risk venture. Lose taxes if you win. Lose 100% of your time if you lose. Hardly economically worth being a founder given expected return is so poor (worse than the standard figure of 90% businesses fail after 5 years). We don't have a capital gains tax yet in NZ but CGT means nobody sensible should found a startup by "investing" their time.
> A worker in Portugal earning the average annual wage of about €20,000 currently pays a top income tax rate of 26 per cent. Anyone earning between roughly €21,000 and €27,000 pays a top rate of 32.75 per cent.
Here's a handy table: https://en.wikipedia.org/wiki/Tax_rates_in_Europe
[1] https://www.statista.com/statistics/205960/median-household-... [2] https://www.euronews.com/business/2024/07/08/european-averag...
And given too left-leaning and fanatical green-deal-at-all-costs push from Brussels economical situation won't get better, in contrary. They could be pouring money into defense, its not like in 20 years russia will stop wanting to subjugate/murder us all. Or they could try not killing their own automobile industry so quickly. Or...
EU started a slow but steady decline given changes in global economies, it will take probably a long time due to various factors but trend is clear.
Investing heavily in renewable technology and R&D doesn't mean spending less on military or industrial capacity - in fact it's fairly dual use.
Furthermore, US, China, SK, JP, and others manage to balance both.
The issue is most EU members stopped funding their militaries following the fall of the Berlin Wall and redeployed that capital elsewhere - especially during the European Recession+Currency Crisis (1990-95), GFC (2008-11), and Eurozone Crisis (2008-2014).
It has private healthcare mandated by the government, and an economy favorable to capital. It has a federal system where most of the power and spending resides with the cantons(states), and much closer to the voters.
The Swiss constitution was actually modeled after that of the US.
“The Amercian national constitution, the Articles of Confederation, was constructed on the Swiss model of a confederacy of some over sovereign states. Then, Americans repudiated confederal government in 1787 as impotent and unworkable and adapted a new federal constitution. The opponents of the new charter, the Anti Federalists argued that a Swiss style government was still a viable model which offered the best hope for the preservation of American liberty. The Swiss themselves repudiated confederate government in 1848 using many of the same arguments Americans had marshalled against it in 1787 and adapted a Federal constitution modelled after the American constitution of 1787. After the Civil War many American state and local governments adapted constitutional reforms borrowed from the Swiss. The initiative and referendum – which continues to this hour to give the politics of California and other influential states their distinctive tone.”
https://www.legalanthology.ch/hutson_swiss-and-american-stat...
Another fun fact about the Swiss government that I think is superior to the US is that the effectively have seven presidents which form an executive council. The executive council debates behind closed doors and presents a unified public front. Internal debates of the executive counsel are sealed for 20 years before release to the public.
That said, my favorite thing about Switzerland is still that the vast majority of tax collection and public spending occurs at the local level. Federal spending revenue is approximately 30% with the rest being the local cantons. Swiss Cantons are smaller by population then a typical California county.
I think this emphasis on local government results in Civic engagement, oversight, and empowerment while reducing political strife.
This resembles the Athenian executive. It works in peacetime but less so in war. It’s also bad if you polarise because it blamelessly deadlocks.
https://www.healthcare.gov/health-coverage-exemptions/forms-...
> I think only the wealthiest Americans have much more money in their bank accounts than they would in Europe
Well, you thunk wrong.
Median household income in the US is $80,000 [0] and taxes like VAT are nonexistent.
Throw on top of that access to subsidized plans like Medicaid or ACA plans for households that earn below the median, and most Americans come out ahead.
The big issue with the US is the de facto inability to commit mental health patients to involuntary mental health holds unlike much of Europe due to the current interpretation of the 14th amendment, which has caused the mental health crisis to become a homelessness and drug crisis.
That said, as a whole, most Americans live fairly comparable lives to most Western countries, as HDI shows. In fact, much of Europe has a much lower HDI than the US once you exclude Scandinavia, Germany, the British Isles, and Switzerland.
When you look at a subnational level, it is the Deep South (Alabama, Mississippi, Louisiana, Arkansas) and Appalachia (West Virginia, Kentucky) that continues to lag, but they represent less than 5% of the entire population of the US.
… Eh? Large-scale involuntary committal largely ended in Western Europe decades ago. What figures are you basing this on?
The government has no reason, in the medium to long term, to have such high taxes. Since, by keeping high taxation the state retrieves less money in absolute terms than they would if they let wages increase and steer away from the minimum wage.
I don't think you could say that about most EU countries. Portugal really is in a bad place.
(Edit: just clarifying that the situation is different, yes taxation is high as most others but in the case of Portugal its much worse)
It does - Debt.
Portugal's debt as percent of GDP skyrocketed during the GFC and Eurozone crisis from 75.8% in 2008 to 129% by 2012.
Unlike economies with a similar debt-to-GDP ratio like Italy, Portugal's economy is a relative minnow, and doesn't have a significant domestic capital market which can at least help stem some of the issues, nor can Portugal attract FDI at the same level as much more business friendly Spain, which made income taxes their only lever.
That said, the Portuguese debt-to-GDP ratio has gotten much better (99.10% in 2023), but that was because of how much of the Portuguese budget was spent on servicing debt.
This does seem low in comparison to the US, where ~17% of the national budget is spent servicing debt interest. For context, this is approximate 1.5X what we spend on national defense. [1]
https://www.investopedia.com/why-interest-payments-are-blowi...
Looks like the US’s cost of servicing works out to about 3.4%, which definitely seems rather high (though, probably still not high enough that you’d necessarily want to aggressively pay it down; 3.4% isn’t a _great_ return). Actually, I’d wonder how much of this is related to the debt ceiling stuff; I would assume that makes refinancing when debt is cheap more difficult.
I don't know how or if the debt ceiling has any impact on refinancing.
My concern is that the US GDP is also fluffed up, and the situation is more dire.
I just think we would've gotten through this sooner by making use of the invisible hand and lead businesses to be able to prosper more and as a result, higher wages. This would lead to more modest taxes having a higher wield to the state.
As it stands, they are taxing people for a very low absolute amount in the end. Not to mention that taxes go way lower the closer you are to minimum wage (a good thing, but it also shows how little they gain from this strategy). In the meantime they strangle any small to medium sized company, which are the ones driving the wages for most.
However, the issue lies in the absolute amounts. In France, the median (monthy) is 2340€, but in Portugal it is 1039€.
When you are taxed in relative terms this amounts to quite a big difference when comparing what both government get from their citizens.
I concur that France's cost of living is higher and that I'm wayyyy oversimplifying it.
You can better see the reality by looking at actual examples of families with massively different incomes living in the US vs elsewhere. It takes WAY higher salary (5x?) in the US to enjoy the same lifestyle as someone in the UK, for example.
I don't know exact salary figure, but my sisters family in UK have medium income (1.5 jobs) new BMW, two kids in college, foreign vacations every year, kids got latest Apple phones/watch/laptop growing up ... A bit like 1950's America living the dream on a single income with foreign holidays and iPhones added.
It's seriously not difficult.
Where do you live?
Or if it's parts of Europe like Portugal where there is health insurance check the cost - looks like 14 euros to 90 euros a month:
Straight up if you actually do the math and count every tax paid directly a d indirectly someone making minimum wage has a effective tax rate above 60%
But you're right, the big taxation items in Europe are not the income tax, but the "social tax" and VAT. The first is added as a payroll tax (>30% in some places) and the second is basically a sales tax on every purchase (>20%). These two tax items alone add up to a crazy percentage of your income.
(Which is why wages haven’t grown that much while total compensation has grown much more)
[0]https://www.irs.gov/filing/federal-income-tax-rates-and-brac...
Not sure if Portugal uses marginal tax rates or not.
32.75% taxes. That is so low.
Many people ignore portugal mandatory social contribution, it is mandatory even if you earn minimum wage, and the tax there is about 34% (forgot exact number, the way they charge make it clunky to calculate). Most portuguese people think this tax is "only" 11% because the rest of the tax is "paid" by the employer. Average people don't understand that if your salary was supposed to be 1000 and you get only 650 after tax you paid 350 in taxes even if your paycheck says your pretax salary is 800.
Note: the income tax is paid on top of the social contribution, so is easy to end paying 50%+ taxes if you are in tech. Then Portugal gets mad with all recent grads moving to Germany. (By the way, I still live in Portugal but all companies I worked for since moving here were German, Portuguese companies can't compete in wages)
Then you have Social Security (mandatory): 11% on the employee and 23,75% on the employer, or 21,4% for independent workers.
I'd imagine that those who earn 10x what you earn hit the €75518 faster than you so they pay their fair share faster. No? Define "fair".
No, if you earn 20k€ you don't pay 26% of taxes, that's the start of the bracket.
The issue is salaries in Portugal are VERY VERY low - they are comparable to Poland, Romania, and Greece - yet their tax burden and cost of living is comparable to Denmark.
A 25 year old Portuguese college graduate can immigrate visa free to Denmark and double-to-triple their salary almost overnight.
The same can't be said for a Dane unless they immigrate to the US, but they're in the H1B queue like everyone else so it just isn't worth the hassle unless it's a high paying white collar job.
The EEC has a massive disparity in incomes, with average monthly wages ranging from €700 to €5,000 depending on the country, and as EEC members tend to have fairly simplified immigration policies between each other, this causes a brain drain in the countries with lower wages.
The issue is Portugal is very business unfriendly and human capital is weak.
It's hard to make the case to invest in Portugal when you can invest a similar amount in neighboring Spain and get a much better return.
Nor do local businesses earn enough to pay comparable to higher income countries in the Single Market - especially because Portugal essentially penalizes large employers
This means the only way to make up the salary differnce that is the cause of the brain drain is to decrease taxes for early career Portuguese.
Denmark and Portugal are nowhere near the same level of development, and what works for Denmark does not work for Portugal.
Exactly. So I would focus on improving that, rather than try a quick and desperate trick of tax cuts. Why not collect the taxes and then invest them wisely in great modernised services, for example?
Easing hiring means pissing off unions, which means you piss off voters and donors.
Simplifying entry of foreign businesses and competitors means pissing off small and medium businesses, which means you piss off voters and donors.
Shrinking Portugal's notorious bloated public sector will save money, but means firing a significant number of Portuguese, which means you piss off voters.
Shrinking Portugal's notoriously large spending on social programs will save money, but means you piss off voters.
You can't just "modernize services" overnight. It requires a generation, a lot of capital, and strategy to invest in building a High Tech industry.
> Why not collect the taxes and then invest them wisely in great modernised services, for example?
Because Portugal has had an elevated debt-to-GDP ratio for almost 20 years now, which makes it extremely difficult to get the capital to do any of the above, which means a significant amount of Portugal's tax revenue is spent on servicing those debts.
The average Portuguese gets paid too little, the average Portuguese business is too small to generate significant business taxes, and every individual Portuguese person who has hireable skills has no incentive to be paid a fraction of what they would earn in London, Frankfurt, or Madrid.
Lowering taxes for early career Portuguese in order to entice them to stay until they become mid-career is the least bad option of the multiple bad options Portugal has.
So the move of bringing people and capital by available means (tax breaks) and be less hostile to startups & companies (they have been very hostile and bureaucratic historically) is one of the few things they can do, and it works.
For example, in Hungary, a lot of Orban's political consolidation was itself due lagging economic growth in the aftermath of the GFC and Eurozone crisis, as well as FDI moving towards cheaper Romania, Bulgaria, and Serbia.
Hungary's HDI and GDP growth began stagnating around 2014-15, which was around the time mass dissatisfaction against Orban arose.
It's been 10 years, and he's still in power, so I guess the Hungarian people aren't that dissatisfied with him.
Gerrymandering, control of all Hungarian language media in a country where most people are monolingual in a unique language, and selective judicial prosecution are the main things keeping Orban afloat.
I think Portugal is fun, comfortable and safe. It is a fantastic place if you want to visit.
Living there can be an issue. One of the problems, as another comment says, is that salaries are really low. That's probably compounded by the amount of bureaucracy one needs to wade through to do anything, and the overall 'old school' thinking of folks.
Generalizing(perhaps unfairly), the Portuguese seem to look fondly at the rear view mirror, but more progressive ideas are not viewed in the same light.
You would probably see more people staying if they had a space for their ideas, and a living wage.
That does not sound like the description of a "fun" or "comfortable" country to live in. :-(
A cool policy would be every newcomer has to construct (or cause to be constructed) at least one housing unit. If that was a condition of the golden visa everyone would do it and the benefits would be in injecting significant additional supply into the local rental and real estate market preventing supply and demand from raising housing costs.
Yeah, apart from the pickpockets in Lisboa. They are really the most brazen I have ever seen anywhere. They don't seem dangerous, but constantly having someone trying to pick a wallet from your bag is pretty annoying.
Thailand comes to mind, but its only "fun and comfortable" if you're an economic maximiser, bringing western money in. For locals, it is not fun or comfortable.
Denmark pays the highest wages in the EU [0], so you can't consider there.
[0] - https://nordicbusiness.media/denmark-pays-the-highest-wage-i...
Young, educated people are the gold of the western world- and the gold must not always flow towards rome as tax.
No, they (we?) are not. The better analogy is a gold mine. You still need to invest in it to get anything out, and it’ll be a few years before you do. If you fail to do that, all you have is a Superfund site.
Young, educated, [and motivated] workers are a desired and contested resource.
Producing them is also important.
Theoretically, sure. In reality this isn’t reflected in the immigration policy of any large economy. Portugal makes news with this for a reason.
> Producing them is also important
The point is having lots of underutilised young people is a liability. Gold doesn’t join gangs or riots.
If you are holding gold, you dont want someone to flood your market with more.
Right, this is why it’s a stupid analogy. That’s true for gold. But if you’re hiring young, educated people, you do want your country flooded with them.
I agree that these analogies all depend on which perspective you are framed in. If you are a hiring manager, you want cheap effective candidates. If you are a worker, you want a labor shortage, at least for your role.
Public policy is a whole different mess. It is set by competing self-interested parties and may or may not bear any relation to the aggregate public benefit.
But if Portugal imports too much from France and exports too little, and they're both using the euro, then there is no exchange rate to adjust, and so you're just left with the trade imbalance and no adjustment.
I would question how well that works outside completely generic goods that you can buy anywhere, since with economies of scale consolidating production there is often hardly any alternative anymore.
Also, feels like there could be a way to manually address the balance without reducing people's standard of living.
Eventually those in Portugal will not have enough wealth to import above their exports, depending on how much stored wealth they have in aggregate.
So it’s still guaranteed to balance out on a century timescale…
>So it’s still guaranteed to balance out on a century timescale…
Balance in what sense? In terms of trade, countries can perpetually run a deficit if they share a currency. Wealth isnt zero sum and is continually created. This can be used to pay a perpetual deficit at a cost to growth.
I dont understand your question.
Imagine of two families. Whenever one gets money, it buys food from the other. The 2nd keeps taking the money and investing in their garden, making it bigger and more efficient.
IF they share a currency,
Eventually one party will exhaust all their available resources, be that money, gold, desirable trade goods, trust, credibility, etc… and won’t be able to run a deficit anymore.
Lets say you, with your human labor, can use 10 bricks to produce 20 bricks. If you do this every year, your wealth grows. first 10, then 20, then 40, then 80, ect.
In this senario, You can trade with your neighbor and run a 10 brick deficit every year, but you wont exponentially grow your production and wealth. You will have 10 the first year, make 20, trade away 10, then end up where you started. You are sustainable forever, but not growing.
Your house will remain small, and the house of your trading partner will grow ever larger.
Be that quality, quantity, availability, pricing, etc…
Eventually Portugal will exhaust all it’s bricks, and future brick opportunities, that are better in some aspect, relative to French bricks and French future brick opportunities.
And when that happens with every possible thing and opportunity in Portugal, relative to French things and opportunities, then the trade deficit naturally disappears.
That is beside the point of what the long term consequences of running a trade deficit are, if they are sustainable, and how currency exchange impacts these factors.
Humans create new value through labor. It is a renewable resource and you don't run out.
Currency markets are mostly too big for governments to be able to manipulate (e.g. George Soros & GBP).
If a government wants to address a trade imbalance then import tariffs is one way to do it - or policy changes affecting cost of goods produced for export.
That said, leaving the Euro would be too economically traumatic for Greece at this point.
For a definition of “work” which normalises constant financial crisis.
Financial crises are characterised by assets suddenly losing their nominal value. Our dying towns are in structural decline. Not financial crisis.
What really means that no, economical dead zones have no relation at all with the balance of trade. And also, the balance of trade predicts almost nothing and is controllable by policy, anybody focusing on it is just throwing a red herring and hopping people don't look at actually important things.
(What doesn't mean that currency unification doesn't cause dead zones. I know that this explanation is wrong, I don't know if it happens or not.)
People late in their careers are buying imports, people early in their careers are leaving the country. That's as clear of a case of the integral going negative as I can imagine.
People leaving the country carrying money is an example of those "other means", people buying imports isn't.
Either way, it's a bad number to even look at. It meaningless.
Which should be considered the normal state for an economy that with growth and production.
The issue is that a negative trade deficits are sustainable, but come directly out of the wealth growth of the importing country.
If you have $2 of value per year, and loose net $1 across the boarder, you never accumulate wealth.
A subsistence farmer can grow enough for themselves. It they make extra each year, they can buy something from outside each year, continually running an import deficit.
No country accumulates money in any significant way. Neither loses it.
Im talking about wealth, GDP, capital, and trade. These things are measured in currency, but saying a country is hording a currency.
If country A uses all of its surplus production beyond subsistence to import alcohol from country B, and country B invests all that money on education, infrastructure, and productive capital, you would expect different outcomes.
Country A can humm along with a perpetual trade deficit forever, but there is an opportunity cost.
If you meant to talk about wealth, real GDP, and real capital, you can... you know... reference those things on your text. Because every single thing upthread is nominal and about money changing hands.
Do you want to know how Portugal can get a positive trade balance (a nominal concept)? They just need to kill tourism and the unbalanced inflow of salary and pensions. Just destroy their natural and cultural attractions and make the place so bad to live that no foreigners will want to go there. Easy.
Now, we can talk about opportunity costs...
A trade deficit is buying more goods and services from outside than are sold outside.
I was trying to explain to you how a negative trade balance can be sustained, but it seems like you dont want to hear it.
Take care.
It's a shame, Portugal is a nice place to live. offer a low flat tax on income and productive people will flock to Portugal, making businesses, families, investing in the territory until they retire.
Taxes are high in Europe because we fund older generations and have oversized wasteful public sector. It has nothing to do with education (very low % of overall budget), healthcare (you are funding it mainly for old people paying multiple of you fair share if you have any kind of decent job) or "social safety nets". I hope more countries push against that. Portugal has fantastic weather and landscapes, same for Greece. Attract enough productive people who are fed up with being diary cows for pensioners and bureaucrats who never worked an honest day in their lives but are very qualified to spend your money and things will start happening there.
Everyone seems to forget the Eurozone Crisis from 2008-2014 and how government debt skyrocketed.
A lot of that debt was also at bad terms due to the high risk profile during that time period.
The only easy lever a lot of European countries had to service their budgets was taxes, because a lot of other levels were handed off to the ECB.
Ireland is very business and FDI friendly, has a fairly decent budget, and worked very hard to resolve it's debt problem in the 2010s.
Ireland now has a ratio similar to that of Germany's, and Ireland has a credit rating of AAA for years now while Portugal only recently made it to BAA in the past year.
Meanwhile I got a friend, married an American, moved there, was already making reasonable money here, just causually 4x his salary, is able to take vacations, heat his home, etc etc but yeah life not enjoyable in the USA
That will surely encourage young people to have their own children. They will pay even more!
60% is about how much you would pay in Germany on 100k EUR salary - 50% in income tax + social security + healthcare tax and then 19% VAT on most things you buy.
In my view it's just immoral to place this burden on young people.
Now, while in Portugal people talk about these as measures to retain the Portuguese youth in the country, no political party has framed it as a measure to capture foreign youth. Puzzling to me.