Singapore has been in the news because one of the Facebook billionaires has decided to re-domicile to that low-tax jurisdictions.
Some American politicians reacted by blaming the victim and are urging tax policies that are disturbingly similar to those adopted by totalitarian regimes such as the Soviet Union and Nazi Germany.
Maybe they should go on one of their fancy junkets instead and take a visit to Hong Kong and Singapore. Even with first-class airfare and 5-star hotels, taxpayers might wind up benefiting if lawmakers actually paid attention to the policies that enable these jurisdictions to grow so fast.
They would learn (hopefully!) some of what was just reported in the Wall Street Journal.
Facebook co-founder Eduardo Saverin’s recent decision to give up his U.S. citizenship in favor of long-term residence in Singapore has drawn fresh attention to the appeal of residing and investing in the wealthy city-state and other parts of Asia, where tax burdens are significantly lighter than in many Western countries. …Some 100 Americans opted out of U.S. citizenship in Singapore last year, almost double the 58 that did so in 2009, according to data from the U.S. Embassy in Singapore. …The increase of Americans choosing to renounce their citizenship comes amid heated tax debates in the U.S. Many businesses and high-income individuals are worried…[about]…tax increases in future years.
It’s not just that America is moving in the wrong direction. That’s important, but it’s also noteworthy that some jurisdictions have good policy, and Hong Kong and Singapore are always at the top of those lists.
The Asian financial hubs of Singapore and Hong Kong, on the other hand, have kept personal and corporate taxes among the lowest in the world to attract more foreign investment. Top individual income-tax rates are 20% in Singapore and 17% in Hong Kong, compared with 35% at the federal level in the U.S., according to an Ernst & Young report. The two Asian financial centers have also been praised by experts for having simpler taxation systems than the U.S. and other countries. …The tax codes are also more transparent so that many people don’t require a consultant or adviser.
Keep in mind that Hong Kong and Singapore also avoid double taxation, so there’s nothing remotely close to the punitive tax laws that America has for interest, dividends, capital gains, and inheritances.
One reason they have good tax policy is that the burden of government spending is relatively modest, usually less than 20 percent of economic output (maybe their politicians have heard of the Rahn Curve!).
No wonder some Americans are shifting economic activity to these pro-growth jurisdictions.
“The U.S. used to be a moderate tax jurisdiction compared with other countries and it used to be at the forefront of development,” said Lora Wilkinson, senior tax consultant at U.S. Tax Advisory International, a Singapore-based tax services firm that specializes in U.S. taxation laws. Now “it seems to be lagging behind countries like Singapore in creating policies to attract business.” She said she gets at least one query per week from Americans who are interested in renouncing their citizenship in favor of becoming Singaporeans. …Asian countries offer a business climate and lifestyle that many find attractive: “America is no longer the Holy Grail.”
That last quote really irks me. I have a knee-jerk patriotic strain, so I want America to be special for reasons above and beyond my support for good economic policy.
But the laws of economics do not share my sentimentality. So long as Hong Kong and Singapore have better policy, they will grow faster.
To get an idea of what this means, let’s look at some historical data from 1950-2008 on per-capita GDP from Angus Maddison’s database. As you can see, Hong Kong and Singapore used to be quite poor compared to the United States. But free markets, small government, and low taxes have paid dividends and both jurisdictions erased the gap.
Wow, America used to be 4 times richer, and that huge gap disappeared in just 60 years. But now let’s look at the most recent data from the World Bank, showing Gross National Income for 2010.
It’s not the same data source, so the numbers aren’t directly comparable, but the 2010 data shows that the United States has now fallen behind both Hong Kong and Singapore.
These charts should worry us. Not because it’s bad for Hong Kong and Singapore to become rich. That’s very good news.
Instead, these charts are worrisome because trend lines are important. Here’s one final chart showing how long it takes for a nation to double economic output at varying growth rates.
As you can see, it’s much better to be like Hong Kong and Singapore, which have been growing, on average, by more than 5 percent annually.
Unfortunately, the United States has not been growing as fast as Hong Kong and Singapore. Indeed, last year I shared some data from a Nobel Prize winner, which showed that America may have suffered a permanent loss in economic output because of the statist policies of Bush and Obama.
What makes this so frustrating is that we know the policies that are needed to boost growth. But those reforms would mean less power for the political class, so we face an uphill battle.
I take issue with the notion that our losses are “permanent”. Any law or policy can be undone and its persistent effects with it. Eliminate the policies this year, and in 10 they will be long forgotten.
Who’s this Severin guy? Who is he to refuse to work for the people? Crucify him!
Sure he gave us Facebook. But that’s not good enough, we also want half of his booty. He has proven highly capable of serving the people. He must remain here and do so.
The only reason the policies are even on the table is that they are likely to garner significant, if not outright majoritarian support amongst the American population. And this does not bode well for America.
This particular policy — renunciation of citizenship being the only avenue to not paying taxes to a now distant and thus largely irrelevant motherland, coupled with the obligation to pay special exit taxes in order to merely be given the opportunity to do so – is a gross aberration of policy to an otherwise still free country. And as I have perhaps said a few times before, these particular policies, more than anything else, point to the fact that the much touted American freedom is probably more a result of historical serendipity and historical momentum at this point, rather than rational thought. But momentum against fundamentals is very short lived and a sure preamble to an imminent vicious cycle of decline.
By succumbing to this new expansion of pitchfork economics, the American people are launching even further into the vanguard of oppressing economic emigration. As Mr. Mitchell has also pointed out in some of his most relevant posts, worldwide taxation, renunciation of citizenship being the only option, AND recently exit taxes to boot, are a highly aberrant area of American policy. A policy that is highly at odds with a country known (and to a large extent is/was) the beacon of freedom, especially economic freedom. No other developed country has such an oppressive policy regarding economic emigration. Not only that, but the only two other countries that come to mind with similar pitchfork policies are North Korea and Eritrea.
Prospective entrepreneurs take notice !! If you HOPE to invent wonderful things for the people and one day be rich, take note of the CHANGE. Be proactive and bail out BEFORE you become rich. Better yet, make your inventions and innovations overseas, as a foreigner, perhaps even with foreign capital.
Yes, sure the “bail out” phenomenon is still a trickle, since America is still one of the more economically free places in the world – overall. But beware. There are many highly non-linear phenomena in economics where a trickle is the short warning to an uncontrollable flood. A flood that breaks out once a critical tipping point is reached.
The sudden uptick in “economic defections” may be just another indication that the critical point of no-return , the loss of overall competitiveness leadership, is near for USS America. This is likely to be a policy that plays heavily into the declining days of the once grand and free New World empire and greatly accelerates entrance into the vicious vortex of decline. That is the cycle of Hope, Change, decline, Desperation, go back to more Hope and Change.
By closing the exit safety valves, Americans are setting themselves up for an explosive end to their now declining empire. Having opted to start copying the statist and economically stagnant collectivism of Europe and now sliding into decline, Americans are now resorting to desperate measures. This is the final stage before the great slide.
What is today an accelerating trickle will sooner or later turn into a proactive flood as America is very close to the threshold of losing its global leadership as a place to work hard, and get rewarded by keeping the fruits of your labor — and prosper. As is predictably typical of such situations the people will be very slow to react once the issue becomes a real problem. It will be virtually impossible for “the people” to quickly reverse the pitchfork policies they only recently supported so adamantly once rapid decline starts. That is the story of Greece. Once the decline starts, people will perhaps take feeble half measures in rolling back a small fraction of the suicidal policies, but alas, by then it will be too late, the pendulum will have already started swinging in the opposite direction and other competitive environments will be in fast ascent. The tide will be impossible to reverse.
For now the American people seem poised not only to ignore the problem but to actually increase the pressure by adding even more emigration restrictions, like no other nation in the world. This desperation is typical of an empire that is reaching its end stages and is an attitude that predictably contributes to an explosive end, as opposed to an orderly decline.
Soon, foreign entities, foreign nationals with foreign capital will be competing with American companies who are operating under en ever less enviable regulatory and economically oppressive environment. Once that starts happening (it is already happening) its game over for America. The once enviable American standard of living will unravel fast after a few iterations of the Hope and Change cycle. Once you slide into mediocrity you will realize how high you once were. By upping the pressure against fundamentals, Americans are hastening the arrival of this tipping point.
Reblogged this on SG Hard Truth.
[...] HOW TO GET GROWTH: Dan Mitchell: American Politicians Should Learn Some Policy Lessons From Hong Kong and Singapore. [...]
[...] Daniel Mitchell [...]
once they close the US exits with BS crap sammich taxes then no one will invent here or venture capital here anymore
[...] LEARNING FROM HONG KONG AND SINGAPORE. h/t Instapundit. Also, IIRC, I heard Newt say during primary season that HK has a 15% flat tax. Like this:LikeBe the first to like this post. 05/20/2012 by Some Guy Categories: Other | Leave a comment [...]
The BBC has recently compiled a list of the 60 most influential Britons during Queen Elizabeth II’s 60 year reign. Conspicuously absent – it is the BBC after all – is the name of Sir John Cowperthwaite, the government bureaucrat sent out to Hong Kong in 1945 to oversee its economy, who should probably be number one on the BBC’s list -even though nobody has ever heard of him.
http://www.hoover.org/publications/hoover-digest/article/7696
I think someone wrote a book about certain rich folks taking a walk from the looters and takers,now who was that?
SO, singapore is Galts Gulch,who knew?
While I entirely agree with your argument in general and with your central point, it’s misleading to compare average income levels in city-states with those of much larger countries. London’s GDP per head for example is way above that of the UK. Luxemburg’s GDP per head is higher than the UK’s, but not higher than London’s.
[...] drive their prosperous economies. Western countries like the United States and Canada would be wise to learn from them (via Instapundit). Singapore has been in the news because one of the Facebook [...]
Korea has roughly the same income and corporate tax rates as the U.S., and yet its growth over the past 60 years is unparalleled. So tax rates aren’t everything.
[...] American Politicians Should Learn Some Policy Lessons from Hong Kong and Singapore « International …. Share this:TwitterRedditFacebookEmailPrintDiggStumbleUponLike this:LikeBe the first to like this [...]
I think an important premise is being missed in the discussion about Eduardo Saverin especially as it relates to Hong Kong and Singapore. Ed is not skipping out on taxes, he’s paying them before realizing a gain, and there are enough tax strategies in the US that he can easily keep his taxes close to zero if he so chose. The real issue is that all his international accounts (since he presumably has more than a combined $10k in those accounts) will have to be reported to the IRS, those businesses will have to send in a report, as well, even if they are not US companies or do not have any business in America.
The burden of compliance is costly and time consuming, yet that annoyance can be overcome. The real problem is the opportunity these laws provide to strong arm and intimidate citizens. There is no due process when it comes to the IRS. You are presumed guilty. The risk that poses to anyone conducting business with an American has had a profound impact on the way business is conducted in entrepots such as Hong Kong and Singapore. It’s almost to the point that Americans need not apply.
That’s the lesson.
The way I see it, American exceptionalism consists primarily in the fact that the USA, together with Britain in times past, is the only great power in human history which has acted as a force for freedom.
That some small countries have become, by some measures, more free than the USA, is not surprising, given how many countries there are in the world.
If and when the USA stops being a force for freedom, that’s when we should be worried. Especially if no other country takes up the role.
When you think about where most Americans came from and how their kin do in the places left behind, it’s not the brains but the lack of restraints and protection of property that allowed for the exceptional history of the place. And the leg up from being part of the British Empire and having its common law and then taking the hand off ca. 1950 didn’t hurt. There is a lesson though in the exceptional rise of HK and SG and to some extent SK and postwar Japan and Germany. Low tax an; low barriers to entry created much prosperity though a lot has changed since. Red China has been copying this but the way the state there treats its subjects is deplorable. You need permission to leave even for a short business trip; need I say more? There is some valid debate about whether the US Federal Gov’t remains a force for freedom. The folks inhabiting it have their own interests. Those interests are not necessarily ours.
@Sluggh: I’m 80 and a Korean War vet. Sixty years ago both N. and S. Korea were completely destroyed. They’ve had rapid growth in the south, and look at the north. I doubt that tax rates in SK were identical to ours for all those 60 years. Capitalism enriches people…. Socialism impoverishes them.
[...] for those who prefer international evidence, I’ve cited the differences between successful low-tax jurisdictions such as Hong Kong and Singapore and decrepit high-tax nations such as [...]
[...] It’s worth noting, by the way, that government is still far too big in Estonia. The public sector consumes about 39 percent of economic output, almost double the burden of government spending in Hong Kong and Singapore. [...]
[...] It’s worth noting, by the way, that government is still far too big in Estonia. The public sector consumes about 39 percent of economic output, almost double the burden of government spending in Hong Kong and Singapore. [...]
[...] for those who prefer international evidence, I’ve cited the differences between successful low-tax jurisdictions such as Hong Kong and Singapore and decrepit high-tax nations such as [...]
[...] It’s worth noting, by the way, that government is still far too big in Estonia. The public sector consumes about 39 percent of economic output, almost double the burden of government spending in Hong Kong and Singapore. [...]
[...] It’s worth noting, by the way, that government is still far too big in Estonia. The public sector consumes about 39 percent of economic output, almost double the burden of government spending in Hong Kong and Singapore. [...]
[...] Interestingly, if Cypriot politicians had engaged in a very modest amount of spending restraint and limited annual budgetary increases to 3 percent, there would be a giant budget surplus today and the burden of government spending would be down to 21.4 percent of GDP, very close to the levels in the hyper-prosperous jurisdictions of Hong Kong and Singapore. [...]
[...] of GDP. But Estonia shouldn’t use Western Europe as a benchmark. Instead, Estonia should copy the Asian Tiger economies of Singapore and Hong Kong. These jurisdictions have maintained very high growth for decades in part because the burden of the [...]
[...] a thoughtful guy, I then made suggestions for pro-growth changes. Estonia should copy the Asian Tiger economies of Singapore and Hong Kong. These jurisdictions have maintained very high growth for decades in part because the burden of the [...]
[...] with some nations (such as France) showing why statism is a mistake, other jurisdictions (such as Hong Kong) showing that freedom is a key to prosperity, and other countries (such as Sweden) having good and [...]
[...] with some nations (such as France) showing why statism is a mistake, other jurisdictions (such as Hong Kong) showing that freedom is a key to prosperity, and other countries (such as Sweden) having good and [...]
[...] Interestingly, if Cypriot politicians had engaged in a very modest amount of spending restraint and limited annual budgetary increases to 3 percent, there would be a giant budget surplus today and the burden of government spending would be down to 21.4 percent of GDP, very close to the levels in the hyper-prosperous jurisdictions of Hong Kong and Singapore. [...]
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[...] such as Bermuda, Monaco, or the Bahamas. Or they can decide that to set up shop in places such as Hong Kong and Singapore, which have very modest income tax burdens (and the ability to out-compete Cayman in other [...]
[...] the United States should try to copy nations that are doing better, not ones that are doing worse. Hong Kong and Singapore come to [...]
[...] the United States should try to copy nations that are doing better, not ones that are doing worse. Hong Kong and Singapore come to [...]
[...] the United States should try to copy nations that are doing better, not ones that are doing worse. Hong Kong and Singapore come to [...]
[...] other words, our economic policy should be more like Hong Kong and Singapore, but Obama has been making us more like France. Rate this:Share [...]
[...] other words, our economic policy should be more like Hong Kong and Singapore, but Obama has been making us more like [...]
[...] I have nothing against copying other nations, either when they get one policy right (such as Estonia’s flat tax or Australia’s system of personal retirement accounts), or when they get a bunch of policies right and routinely rank at the top for economic freedom and prosperity (such as Hong Kong and Singapore). [...]
[...] class-warfare agenda isn’t as bad as what Hollande is trying to impose, but it’s not Hong Kong or the Cayman Islands [...]
[...] you can imagine how prosperous they would be if a bunch of them lived in places such as Hong Kong and Singapore! Rate this:Share this:PrintEmailFacebookTwitterMoredeliciousDiggFarkLinkedInRedditStumbleUponLike [...]
[...] guy, I’m happy to see some nations doing well. I’ve previously highlighted the good policies in Hong Kong and Singapore. And I’ve trumpeted the good policies in Switzerland and Australia, as well as Canada, Chile, [...]
[...] guy, I’m happy to see some nations doing well. I’ve previously highlighted the good policies in Hong Kong and Singapore. And I’ve trumpeted the good policies in Switzerland and Australia, as well as Canada, Chile, and [...]
[...] guy, I’m happy to see some nations doing well. I’ve previously highlighted the good policies in Hong Kong and Singapore. And I’ve trumpeted the good policies in Switzerland and Australia, as well [...]
[...] that decided to refer to a certain country as fiscally conservative. Was the reporter writing about Hong Kong or Singapore, the two jurisdictions with the smallest government and freest markets? Nope. Was the reporter [...]
[...] Hong Kong and Singapore are at the top of the rankings, unsurprisingly. The Nordic nations also do well, which fits with the analysis showing they are very free market in areas other than fiscal policy. And it’s always good to see Estonia with a relatively high score. [...]
[...] Interestingly, if Cypriot politicians had engaged in a very modest amount of spending restraint and limited annual budgetary increases to 3 percent, there would be a giant budget surplus today and the burden of government spending would be down to 21.4 percent of GDP, very close to the levels in the hyper-prosperous jurisdictions of Hong Kong and Singapore. [...]
[...] century, a good rule of thumb was that the United States was about halfway between the high-growth, small-government economics such as Hong Kong and Singapore and the low-growth, big-government economies of [...]
[...] guy, I’m happy to see some nations doing well. I’ve previously highlighted the good policies in Hong Kong and Singapore. And I’ve trumpeted the good policies in Switzerland and Australia, as well as Canada, Chile, and [...]
[...] result of data constraints. Researchers looking at the post-World War II data generally find that Hong Kong and Singapore have the maximum growth rates, and the public sector in those jurisdictions consumes about 20 [...]
[...] Obama’s class-warfare agenda isn’t as bad as what Hollande is trying to impose, but it’s not Hong Kong or the Cayman Islands [...]
[...] still more than 25 flat tax jurisdictions in the world, including two of my favorite places – Hong Kong and [...]
[...] are still more than 25 flat tax jurisdictions in the world, including two of my favorite places – Hong Kong and [...]
[...] fiscally stable, particularly since less spending and lower taxes are associated with prosperity. Hong Kong, Singapore, and Switzerland are good [...]
[...] I have nothing against copying other nations, either when they get one policy right (such as Estonia’s flat tax or Australia’s system of personal retirement accounts), or when they get a bunch of policies right and routinely rank at the top for economic freedom and prosperity (such as Hong Kong and Singapore). [...]
[...] are still more than 25 flat tax jurisdictions in the world, including two of my favorite places – Hong Kong and [...]
[...] I have nothing against copying other nations, either when they get one policy right (such as Estonia’s flat tax or Australia’s system of personal retirement accounts), or when they get a bunch of policies right and routinely rank at the top for economic freedom and prosperity (such as Hong Kong and Singapore). [...]
[...] there’s also the example of Singapore, which also is a very rich nation that has far less government spending on healthcare than the United [...]
[...] Obama’s class-warfare agenda isn’t as bad as what Hollande is trying to impose, but it’s not Hong Kong or the Cayman Islands [...]
[...] I try to help him understand by comparing fast-growing economies such Hong Kong and Singapore, which have relatively low burdens of government, with slow-growth economies such as France and [...]
[...] I try to help him understand by comparing fast-growing economies such Hong Kong and Singapore, which have relatively low burdens of government, with slow-growth economies such as France and [...]
[...] just look at what’s happened in Hong Kong and Singapore and you’ll [...]
[...] guy, I’m happy to see some nations doing well. I’ve previously highlighted the good policies in Hong Kong and Singapore. And I’ve trumpeted the good policies in Switzerland and Australia, as well as Canada, Chile, and [...]
[...] taxes and deregulation. Heck, if we’re good students and study hard, maybe some day we can be Hong Kong instead of [...]
[...] best role models are still Hong Kong and Singapore, and it’s no coincidence that those two jurisdictions regularly dominate the top two spots in [...]
[...] written before about the remarkable vitality of Hong Kong and Singapore, two jurisdictions that deserve praise for small government and free [...]
[...] written before about the remarkable vitality of Hong Kong and Singapore, two jurisdictions that deserve praise for small government and free [...]
[...] that decided to refer to a certain country as fiscally conservative. Was the reporter writing about Hong Kong or Singapore, the two jurisdictions with the smallest government and freest markets? Nope. Was the reporter [...]
[...] In other words, get rid of the bad policies and adopt more of the good policies. Be more like Hong Kong and less like [...]