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Archive for the ‘Brain drain’ Category

Back in the 1980s and 1990s, there was a widespread consensus that high tax rates were economically misguided. Many Democrats, for instance, supported the 1986 Tax Reform Act that lowered the top tax rate from 50 percent to 28 percent (albeit offset by increased double taxation and more punitive depreciation rules).

And even in the 1990s, many on the left at least paid lip service to the notion that lower tax rates were better for prosperity than higher tax rates. Perhaps that’s because the overwhelming evidence of lower tax rates on the rich leading to higher revenue was fresh in their minds.

The modern left, however, seems completely fixated on class-warfare tax policy. Some of them want higher tax rates even if the government doesn’t collect more revenue!

I’ve already shared a bunch of data and evidence on the importance of low tax rates.

A review of the academic evidence by the Tax Foundation found overwhelming support for the notion that lower tax rates are good for growth.

An economist from Cornell found lower tax rates boost GDP.

Other economists found lower tax rates boost job creation, savings, and output.

Even economists at the Paris-based OECD have determined that high tax rates undermine economic performance.

Today, we’re going to augment this list with some fresh and powerful evidence.

Lots of new evidence. So grab a cup of coffee.

The New York Times, for instance, is noticing that high taxes drive away productive people. At least in France.

Here are some excerpts from a remarkable story.

A year earlier, Mr. Santacruz, who has two degrees in finance, was living in Paris near the Place de la Madeleine, working in a boutique finance firm. He had taken that job after his attempt to start a business in Marseille foundered under a pile of government regulations and a seemingly endless parade of taxes. The episode left him wary of starting any new projects in France. Yet he still hungered to be his own boss. He decided that he would try again. Just not in his own country.

What pushed him over the edge? Taxes, taxes, and more taxes.

…he returned to France to work with a friend’s father to open dental clinics in Marseille. “But the French administration turned it into a herculean effort,” he said. A one-month wait for a license turned into three months, then six. They tried simplifying the corporate structure but were stymied by regulatory hurdles. Hiring was delayed, partly because of social taxes that companies pay on salaries. In France, the share of nonwage costs for employers to fund unemployment benefits, education, health care and pensions is more than 33 percent. In Britain, it is around 20 percent. “Every week, more tax letters would come,” Mr. Santacruz recalled.

Monsieur Santacruz has lots of company.

…France has been losing talented citizens to other countries for decades, but the current exodus of entrepreneurs and young people is happening at a moment when France can ill afford it. The nation has had low-to-stagnant economic growth for the last five years and a generally climbing unemployment rate — now about 11 percent — and analysts warn that it risks sliding into economic sclerosis. …This month, the Chamber of Commerce and Industry of Paris, which represents 800,000 businesses, published a report saying that French executives were more worried than ever that “unemployment and moroseness are pushing young people to leave” the country, bleeding France of energetic workers. As the Pew Research Center put it last year, “no European country is becoming more dispirited and disillusioned faster than France.”

But it’s not just young entrepreneurs. It’s also those who already have achieved some level of success.

Some wealthy businesspeople have also been packing their bags. While entrepreneurs fret about the difficulties of getting a business off the ground, those who have succeeded in doing so say that society stigmatizes financial success. …Hand-wringing articles in French newspapers — including a three-page spread in Le Monde, have examined the implications of “les exilés.” …around 1.6 million of France’s 63 million citizens live outside the country. That is not a huge share, but it is up 60 percent from 2000, according to the Ministry of Foreign Affairs. Thousands are heading to Hong Kong, Mexico City, New York, Shanghai and other cities. About 50,000 French nationals live in Silicon Valley alone. But for the most part, they have fled across the English Channel, just a two-hour Eurostar ride from Paris. Around 350,000 French nationals are now rooted in Britain, about the same population as Nice, France’s fifth-largest city. …Diane Segalen, an executive recruiter for many of France’s biggest companies who recently moved most of her practice, Segalen & Associés, to London from Paris, says the competitiveness gap is easy to see just by reading the newspapers. “In Britain, you read about all the deals going on here,” Ms. Segalen said. “In the French papers, you read about taxes, more taxes, economic problems and the state’s involvement in everything.”

Let’s now check out another story, this time from the pages of the UK-based Daily Mail. We have some more news from France, where another successful French entrepreneur is escaping Monsieur Hollande’s 75 percent tax rate.

François-Henri Pinault, France’s third richest man, is relocating his family to London.  Pinault, the chief executive of Kering, a luxury goods group, has an estimated fortune of £9 billion.  The capital has recently become a popular destination for wealthy French, who are seeking to avoid a 75 per cent supertax introduced by increasingly unpopular Socialist President François Hollande. …It has been claimed that London has become the sixth largest ‘French city’ in the world, with more than 300,000 French people living there.

But it’s not just England. Other high-income French citizens, such as Gerard Depardieu and Bernard Arnault, are escaping to Belgium (which is an absurdly statist nation, but at least doesn’t impose a capital gains tax).

But let’s get back to the story. The billionaire’s actress wife, perhaps having learned from all the opprobrium heaped on Phil Mickelson when he said he might leave California after voters foolishly voted for a class-warfare tax hike, is pretending that taxes are not a motivating factor.

But despite the recent exodus of millionaires from France, Ms Hayek insisted that her family were moving to London for career reasons and not for tax purposes.  …Speaking about the move in an interview with The Times Magazine, the actress said: ‘I want to clarify, it’s not for tax purposes. We are still paying taxes here in France.  ‘We think that London has a lot more to offer than just a better tax situation.

And if you believe that, I have a bridge in Brooklyn that I’m willing to sell for a very good price.

Speaking of New York bridges, let’s go to the other side of Manhattan and cross into New Jersey.

It seems that class-warfare tax policy isn’t working any better in the Garden State than it is in France.

Here are some passages from a story in the Washington Free Beacon.

New Jersey’s high taxes may be costing the state billions of dollars a year in lost revenue as high-earning residents flee, according to a recent study. The study, Exodus on the Parkway, was completed by Regent Atlantic last year… The study shows the state has been steadily losing high-net-worth residents since 2004, when Democratic Gov. Jim McGreevey signed the millionaire’s tax into law. The law raised the state income tax 41 percent on those earning $500,000 or more a year. “The inception of this tax, coupled with New Jersey’s already high property and estate taxes, leaves no mystery about why the term ‘tax migration’ has become a buzzword among state residents and financial, legal, and political professionals,” the study, conducted by Regent states. …tax hikes are driving residents to states with lower tax rates: In 2010 alone, New Jersey lost taxable income of $5.5 billion because residents changed their state of domicile.

No wonder people are moving. New Jersey is one of the most over-taxed jurisdictions in America – and it has a dismal long-run outlook.

And when they move, they take lots of money with them.

“The sad reality is our residents are suffering because politicians talk a good game, but no one is willing to step up to the plate,” Americans for Prosperity New Jersey state director Daryn Iwicki said. The “oppressive tax climate is driving people out.” …One certified public accountant quoted in the study said he lost 95 percent of his high net worth clients. Other tax attorneys report similar results. …Michael Grohman, a tax attorney with Duane Morris, LLP, claimed his wealthy clients are “leaving [New Jersey] as fast as they can.” …If the current trend is not reversed, the consequences could be dire. “Essentially, we’ll find ourselves much like the city of Detroit, broke and without jobs,” Iwicki said.

By the way, make sure you don’t die in New Jersey.

The one bit of good news, for what it’s worth, is that Governor Christie is trying to keep matters from moving further in the wrong direction.

Here’s another interesting bit of evidence. The Wall Street Journal asked the folks at Allied Van Lines where wealthy people are moving. Here’s some of the report on that research.

Spread Sheet asked Allied to determine where wealthy households were moving, based on heavy-weight, high-value moves. According to the data, Texas saw the largest influx of well-heeled households moving into the state last year, consistent with move trends overall. South Carolina and Florida also posted net gains. On the flip side, Illinois and Pennsylvania saw more high-value households move out of state than in, according to the data. California saw the biggest net loss of heavy-weight moves. Last year, California had a net loss of 49,259 people to other states, according to the U.S. Census. …Texas had the highest net gain in terms of domestic migration—113,528 more people moved into the state than out last year, census data show. Job opportunities are home-buyers’ top reason for relocating to Texas, according to a Redfin survey last month of 1,909 customers and website users.

The upshot is that Texas has thumped California, which echoes what I’ve been saying for years.

One can only imagine what will happen over the next few years given the punitive impact of the higher tax rate imposed on the “rich” by spiteful California voters.

If I haven’t totally exhausted your interest in this topic, let’s close by reviewing some of the research included in John Hood’s recent article in Reason.

Over the past three decades, America’s state and local governments have experienced a large and underappreciated divergence. …Some political scientists call it the Big Sort. …Think of it as a vast natural experiment in economic policy. Because states have a lot otherwise in common-cultural values, economic integration, the institutions and actions of the federal government-testing the effects of different economic policies within America can be easier than testing them across countries. …And scholars have been studying the results. …t present our database contains 528 articles published between 1992 and 2013. On balance, their findings offer strong empirical support for the idea that limited government is good for economic progress.

And what do these studies say?

Of the 112 academic studies we found on overall state or local tax burdens, for example, 72 of them-64 percent-showed a negative association with economic performance. Only two studies linked higher overall tax burdens with stronger growth, while the rest yielded mixed or statistically insignificant findings. …There was a negative association between economic growth and higher personal income taxes in 67 percent of the studies. The proportion rose to 74 percent for higher marginal tax rates or tax code progressivity, and 69 percent for higher business or corporate taxes.

Here are some of the specific findings in the academic research.

James Hines of the University of Michigan found that “state taxes significantly influence the pattern of foreign direct investment in the U.S.” A 1 percent change in the tax rate was associated with an 8 percent change in the share of manufacturing investment from taxed investors. Another study, published in Public Finance Review in 2004, zeroed in on counties that lie along state borders. …Studying 30 years of data, the authors concluded that states that raised their income tax rates more than their neighbors had significantly slower growth rates in per-capita income. …economists Brian Goff, Alex Lebedinsky, and Stephen Lile of Western Kentucky University grouped pairs of states together based on common characteristics of geography and culture. …Writing in the April 2011 issue of Contemporary Economic Policy, the authors found “strong support for the idea that lower tax burdens tend to lead to higher levels of economic growth.”

By the way, even though this post is about tax policy, I can’t resist sharing some of Hood’s analysis of the impact of government spending.

Of the 43 studies testing the relationship between total state or local spending and economic growth, only five concluded that it was positive. Sixteen studies found that higher state spending was associated with weaker economic growth; the other 22 were inconclusive. …a few Keynesian bitter-enders insist that transfer programs such as Medicaid boost the economy via multiplier effects… Nearly three-quarters of the relevant studies found that welfare, health care subsidies, and other transfer spending are bad for economic growth.

And as I’ve repeatedly noted, it’s important to have good policy in all regards. And Hood shares some important data showing that laissez-faire states out-perform their neighbors.

…economists Lauren Heller and Frank Stephenson of Berry College used the Fraser Institute’s Economic Freedom of North America index to explore state economic growth from 1981 to 2009. They found that if a state adopted fiscal and regulatory policies sufficient to improve its economic freedom score by one point, it could expect unemployment to drop by 1.3 percentage points and labor-force participation to rise by 1.9 percentage points by the end of the period studied.

If you’ve made it this far, you deserve a reward. We have some amusing cartoons on class-warfare tax policy here, here, here, here, here, here, and here.

And here’s a funny bit from Penn and Teller on class warfare.

P.S. Higher tax rates also encourage corruption.

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Some things in life are very dependable. Every year, for instance, the swallows return to Capistrano.

And you can also count on Dan Mitchell to wax poetic about the looming collapse of French statism.

Back in 2011, I said France was engaged in economic self-destruction.

In September 2012, I wrote that it was time to start the countdown for France’s fiscal crisis.

In October of that year, I pontificated about France’s looming fiscal suicide.

Last April, I warned that the fuse was burning on France’s fiscal time bomb.

In June of 2013, I stated that the looters and moochers in France were running out of victims to plunder.

And in October of last year, I expounded on France’s economic death spiral.

Geesh, looking at that list, I guess I’m guilty of – in the words of Paul Krugman – being part of the “plot against France” by trying to discredit that nation’s economy.

Or maybe I’m just ahead of my time because we’re now seeing articles that almost sound like they could have been written by me appearing in establishment outlets such as Newsweek. Check out some amazing excerpts from an article by Janine di Giovanni, who lives in France and serves as the magazine’s Middle East Editor.

…what is happening today in France is being compared to the revocation of 1685. …the king closed churches and persecuted the Huguenots. As a result, nearly 700,000 of them fled France, seeking asylum in England, Sweden, Switzerland, South Africa and other countries. The Huguenots, nearly a million strong before 1685, were thought of as the worker bees of France. They left without money, but took with them their many and various skills. They left France with a noticeable brain drain.

It’s happening again, except this time the cause is fiscal persecution rather than religious persecution. French politicians have changed the national sport from soccer to taxation!

Since the arrival of Socialist President François Hollande in 2012, income tax and social security contributions in France have skyrocketed. The top tax rate is 75 percent, and a great many pay in excess of 70 percent. As a result, there has been a frantic bolt for the border by the very people who create economic growth – business leaders, innovators, creative thinkers, and top executives. They are all leaving France to develop their talents elsewhere.

It’s an exaggeration to say “they are all leaving,” but France is turning Atlas Shrugged from fiction to reality.

“Au revoir, bloodsuckers”

Many of the nation’s most capable people are escaping – ranging from movie stars to top entrepreneurs.

What I find most amusing is that France’s parasitical political elite is whining and complaining that these people won’t remain immobile so they can be plundered.

And when the people who have the greatest ability leave, that has an impact on economic performance – and ordinary people are the ones who suffer the most.

…the past two years have seen a steady, noticeable decline in France. There is a grayness that the heavy hand of socialism casts. It is increasingly difficult to start a small business when you cannot fire useless employees and hire fresh new talent. Like the Huguenots, young graduates see no future and plan their escape to London. The official unemployment figure is more than 3 million; unofficially it’s more like 5 million.

The article also gives some details that will help you understand why the tax burden is so stifling. Simply stated, the government is far too big and pays for things that should not be even remotely connected to the public sector.

Part of this is the fault of the suffocating nanny state. …As a new mother, I was surprised at the many state benefits to be had if you filled out all the forms: Diapers were free; nannies were tax-deductible; free nurseries existed in every neighborhood. State social workers arrived at my door to help me “organize my nursery.” …The French state also paid for all new mothers, including me, to see a physical therapist twice a week to get our stomachs toned again.

Government-subsidized “toned” stomachs. Hey, maybe big government isn’t all bad. Sort of reminds me of the taxpayer-financed boob jobs in the United Kingdom (British taxpayers also pay for sex trips to Amsterdam).

More seriously, all the wasteful spending in France erodes the work ethic and creates a perverse form of dependency.

I had friends who belonged to trade unions, which allowed them to take entire summers off and collect 55 percent unemployment pay. From the time he was an able-bodied 30-year-old, a cameraman friend worked five months a year and spent the remaining seven months collecting state subsidies from the comfort of his house in the south of France. Another banker friend spent her three-month paid maternity leave sailing around Guadeloupe – as it is part of France, she continued to receive all the benefits. Yet another banker friend got fired, then took off nearly three years to find a new job, because the state was paying her so long as she had no job. “Why not? I deserve it,” she said when I questioned her. “I paid my benefits into the system.”

So what’s the bottom line? Well, the author sums up the issue quite nicely.

…all this handing out of money left the state bankrupt. …The most brilliant minds of France are escaping to London, Brussels, and New York rather than stultify at home. …“The best thinkers in France have left the country. What is now left is mediocrity.” From a chief legal counsel at a major French company: “France is dying a slow death. Socialism is killing it…”

As the old saying goes, this won’t end well. Maybe France will suffer a Greek-style meltdown, but perhaps it will “merely” suffer long-run stagnation and decline.

Which is a shame because France is a beautiful country and is ranked as one of the best places to live if you happen to already have a considerable amount of hard-to-tax wealth (and the French also were ranked among the top-10 most attractive people).

But bad government can screw up a country, even if it does have lots of natural advantages.

And that’s exactly what generations of French politicians have done to France. The tax system has become so bad that more than 8,000 French households had to pay more than 100 percent of their income to the government in 2012.

The French government has announced, by the way, that it intends to cap taxes so that no household ever pays more than 80 percent to the state. Gee, how merciful, particularly since the French President has echoed America’s Vice President and asserted that it’s patriotic to pay higher taxes.

That’s why I’ll stand by my prediction that President Obama will never be able to make America as bad as France. Heck, France has such a bad approach on taxes that Obama has felt compelled to oppose some of that country’s statist initiatives.

P.S. The prize for silliest example of government intervention in France goes to the law that makes it a crime to insult your spouse’s personal appearance.

P.P.S. The big puzzle is why the French put up with so much statism. Polling data from both 2010 and 2013 shows strong support for smaller government, and an astounding 52 percent of French citizens said they would consider moving to the United States if they got the opportunity. So why, then, do they elect statists such as Sarkozy and Hollande?!?

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On my recent trip to Colorado, I had dinner with Congressman Jared Polis, a Democrat from Boulder. He’s not exactly a small-government conservative, but he understands the importance of low marginal tax rates, free trade, and other important economic principles (whether he votes the right way is a separate question, of course, so I’m curious to see what he decides to do about Obama’s plan to increase tax rates on investors, entrepreneurs, and small business owners).

One of the topics we discussed was his proposal to create a special visa for entrepreneurs. I won’t pretend to be an immigration expert or legislative lawyer, so I reserve the right to quibble about the legislation if there are details I don’t like, but the concept is a no-brainer. America gets to bring in the best and brightest from around the world. We give a green light to people who will be creating jobs rather than people who might want to mooch off taxpayers. And we make it easier to retain job-creating foreigners who already are in the United States. What’s not to like? Am I missing something?

The Wall Street Journal has given this idea favorable coverage here and here, and here are some excerpts from an article at Businessweek.com.

A change to immigration policy could help create jobs and rev up economic growth. It’s a change that wouldn’t be hard to bring about. I’m talking about the establishment of a Startup Founders Visa program. The program would make it easier for those with great ideas and the desire to start a company to live and work in the U.S. The idea is simple, yet powerful. By letting in company founders, the U.S. would bring in risk-takers who want to create jobs and potentially build the next Google, Cisco Systems, or Microsoft. At the same time, a founder visa program could stem the tide of talented, tech-savvy foreigners who are leaving the U.S. to seek fortunes in their home countries, primarily China and India. …U.S. Representative Jared Polis (D-Colo.), himself a former entrepreneur, is developing legislation to make it easier for foreign founders of investor-backed startups to secure visas to remain in the U.S. On the other end of the political spectrum, even Newt Gingrich, the Republican former Speaker of the House, has blogged about the need to make the country “more accessible to skilled immigrants.” He wrote this after witnessing “the dynamic entrepreneurial and high-tech business culture in Tokyo, Beijing, and Seoul”—countries with which we are competing for top talent. Representatives of both ends of the political spectrum can agree on this issue. As things stand, we’re losing the battle to retain the immigrants who fueled the recent tech boom. We’re experiencing the first brain drain in American history.Other countries in Europe and South America are realizing the potential of attracting skilled immigrants and are putting together programs to snap them up.

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Even though he’s allowing the budget to grow twice as fast as inflation, some people seem to think the new U.K. Prime Minster is a fiscal conservative. I’m skeptical. Not only is spending rising much too fast (there are promises of more restraint in the future, but I’ll believe it when it happens), but Cameron and the Tory/Liberal coalition government are increasing the value-added tax and increasing the capital gains tax. Perhaps worst of all, they are leaving in place the new 50 percent tax rate that former Labor Prime Minister Gordon Brown imposed in hopes that class-warfare policy would help him get elected. But as this Daily Telegraph story suggests, it is quite likely that the higher tax rate will lose revenue as productive people escape to Switzerland and other jurisdictions not influenced by the politics of hate and envy.
One-in-four hedge fund employees has already left London to move to Switzerland, which is said to have a more stable tax regime, according to consultancy Kinetic partners. Calculations by the company claim the UK could have already forgone about £500m in tax revenues, based on the 1,000 or so hedge fund managers it says have already left the country. …High-profile departures this year include Alan Howard, founder of Brevan Howard, and Mike Platt, founder of BlueCrest Capital.
This story shows both the power of the Laffer Curve and the importance of tax competition. The greedy politicians in England doubtlessly resent the “brain drain” to Switzerland. Like their U.S. counterparts, politicians view taxpayers as serfs who are supposed to blindly produce more income for the ruling class to expropriate and redistribute.
 
While I’m obviously not a big fan of British fiscal policy, America is worse in one important way. At least British taxpayers have the liberty to leave without being raped by the U.K. tax authority. Once they leave the United Kingdom and make their home in Switzerland, they are no longer British taxpayers. Americans who want to move, by contrast, are unable to escape the punitive internal revenue code. Indeed, the United States is one of the few nations in the world to have exit taxes, an odious approach generally associated with loathsome regimes such as the Soviet Union and Nazi Germany.

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Here’s a Reuters story about the Australian Tax Office harassing Paul Hogan, better known to Americans as Crocodile Dundee, because of a tax dispute. The grinches at the tax office took advantage of Hogan’s return for his mother’s funeral to hold him hostage, refusing to let him leave the country until he coughs up some cash. It appears that the tax police in Australia are just as politicized and above the law as the IRS. Hogan has never been charged with tax evasion and there are plenty of signs that the bureaucrats want to make him a high-profile victim to justify the amount of money that has been squandered in a probe of supposed offshore evasion.
Actor Paul Hogan, star of the “Crocodile Dundee” movies, has vowed to continue fighting the Australian tax office which has barred him from leaving Australia until he pays a massive bill, saying he’s victim of a witch hunt. Hogan, 70, was served with a departure prohibition order 10 days ago while in Australia to attend his 101-year-old mother’s funeral which has prevented him from leaving to return to Los Angeles where he lives with his wife and son. The Australian Tax Office refused to comment on reports of seeking tax on A$38 million ($34 million) of allegedly undeclared income from Hogan, saying it cannot give details of individual taxpayers. But the actor went public in the Australian media this week to put forward his side in his five-year row with the tax office, saying he had done nothing wrong and the tax office was on a witch hunt for a high-profile case. …”If I was a tax evader, which I’m not, I must be the dumbest one in the world to keep coming back here instead of fleeing to a tax haven … I know they’re absolutely desperate to nail some high-profile character with money to justify the expense to the taxpayer.” Hogan, who was once a painter on the Sydney Harbour Bridge, is under investigation as part of Australia’s biggest probe into offshore tax evasion, Operation Wickenby. The operation is budgeted to cost at least $300 million. The tax office has claimed he put tens of millions of dollars in film royalties in offshore tax havens, a claim that he has denied. He has never been charged with tax evasion.
This story is symbolic of a bigger issue, which is the the unfortunate tendency of governments to create ever-more oppressive and misguided laws in response to failures of existing policy. We see this in the failed War on Drugs, which leads to trampling of civil liberties and erosion of privacy. We see it in the failed War on Poverty, which leads to more redistribution that further traps people in dependency. We see it in the failed government-run education system, which wastes more money every year as outcomes remain stagnant and children from poor and minority communities suffer.
 
In the case of tax policy, politicians impose high tax rates and punitive forms of double taxation. As anybody with a modicum of common sense could predict, this bad tax policy undermines economic performance and drives economic activity to jurisdictions with better tax law. The politicians then have two ways to respond. They can lower tax rates and reform tax systems, an approach that simultaneously would boost growth and improve compliance. Or they can tighten the thumbscrews on taxpayers, trample their rights, and conspire with other high-tax nations to punish the jurisdictions that do have good policy.
 
Not surprisingly, most politicians choose the latter approach. And the attack on low-tax jurisdictions is a particularly loathsome part of their response. As this video explains, tax competition is a liberalizing force in the world economy and the effort by high-tax nations to penalize so-called tax havens is driven by a statist impulse to prop up decrepit and inefficient welfare states.

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The Financial Times reports that the number of Americans giving up their citizenship to protect their families from America’s onerous worldwide tax system has jumped rapidly. Even relatively high-tax nations such as the United Kingdom are attractive compared to the class-warfare system that Obama is creating in the United States. I run into people like this quite often as part of my travels. They are intensely patriotic to America as a nation, but they have lots of scorn for the federal government. Statists are perfectly willing to forgive terrorists like William Ayres, but they heap scorn on these “Benedict Arnold” taxpayers. But the tax exiles get the last laugh since the bureaucrats and politicians now get zero percent of their foreign-source income. You would think that, sooner or later, the left would realize they can get more tax revenue with reasonable tax rates. But that assumes that collectivists are motivated by revenue maximization rather than spite and envy.
The number of wealthy Americans living in the UK who are renouncing their US citizenship is rising rapidly as more expatriates seek to escape paying tax to the US on their worldwide income and gains and shed their “non-dom” status, accountants say. As many as 743 American expatriates made the irreversible decision to discard their passports last year, according to the US government – three times as many as in 2008. …There is a waiting list at the embassy in London for people looking to give up citizenship, with the earliest appointments in February, lawyers and accountants say. …“The big disadvantage with American citizens is they catch you on tax wherever you are in the world. If you are taxed only in the UK, you have the opportunity of keeping your money offshore tax free.”
To grasp the extent of this problem, here are blurbs from two other recent stories. Time magazine discusses the unfriendly rules that make life a hassle for overseas Americans.
For U.S. citizens, cutting ties with their native land is a drastic and irrevocable step. But as Overseas American Week, a lobbying effort by expatriate-advocacy groups, convenes in Washington this week, it’s one that an increasing number of American expats are willing to take. According to government records, 502 expatriates renounced U.S. citizenship or permanent residency in the fourth quarter of 2009 — more than double the number of expatriations in all of 2008. And these figures don’t include the hundreds — some experts say thousands — of applications languishing in various U.S. consulates and embassies around the world, waiting to be processed. While a small number of Americans hand in their passports each year for political reasons, the new surge in permanent expatriations is mainly because of taxes. …expatriate organizations say the recent increase reflects a growing dissatisfaction with the way the U.S. government treats its expats and their money: the U.S. is the only industrialized nation that taxes its overseas citizens, subjecting them to taxation in both their country of citizenship and country of residence. …Additionally, the U.S. government has implemented tougher rules requiring expatriates to report any foreign bank accounts exceeding $10,000, with stiff financial penalties for noncompliance. “This system is widely perceived as overly complex with multiple opportunities for accidental mistakes, and life-altering penalties for inadvertent failures,” Hodgen says. These stringent measures were put into place to prevent Americans from stashing undeclared assets in offshore banks, but they also make life increasingly difficult for millions of law-abiding expatriates. “The U.S. government creates conflict and abuses me,” says business owner John. “I feel under duress to understand and comply with laws that have nothing to do with me and are constantly changing — almost never in my favor.” …Many U.S. expats report being turned away by banks and other institutions in their countries of residence only because they are American, according to American Citizens Abroad (ACA), a Geneva-based worldwide advocacy group for expatriate U.S. citizens. “We have become toxic citizens,” says ACA founder Andy Sundberg. Paradoxically, by relinquishing their U.S. citizenship, expats can not only escape the financial burden of double taxation, but also strengthen the U.S. economy, he says, adding, “It will become much easier for these people to get a job abroad, and to set up, own and operate private companies that can promote American exports.” 
The New York Times, meanwhile, delves into the misguided policies that are driving Americans to renounce their citizenship.
Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship. …frustrations over tax and banking questions, not political considerations, appear to be the main drivers of the surge. Expat advocates say that as it becomes more difficult for Americans to live and work abroad, it will become harder for American companies to compete. American expats have long complained that the United States is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income. One Swiss-based business executive, who spoke on the condition of anonymity because of sensitive family issues, said she weighed the decision for 10 years. She had lived abroad for years but had pleasant memories of service in the U.S. Marine Corps. Yet the notion of double taxation — and of future tax obligations for her children, who will receive few U.S. services — finally pushed her to renounce, she said. …Stringent new banking regulations — aimed both at curbing tax evasion and, under the Patriot Act, preventing money from flowing to terrorist groups — have inadvertently made it harder for some expats to keep bank accounts in the United States and in some cases abroad. Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision.

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Supporters of the Cleveland Cavaliers, especially the owner of the team, are upset that basketball superstar LeBron James has decided to sign with the Miami Heat. The anger is especially intense because the Cavaliers offered $4 million more over the next five years. But their anger is misplaced, because more money in Cleveland, Ohio, actually translates into about $1 million less disposable income when the burden of state and local income taxes is added to the equation. Rather than condemn James for making a rational choice, local basketball fans should tar and feather Ohio politicians. This story from CNBC walks through the calculations.
…if you match up what James’ salary would be for the first five years in Cleveland and the five years in Miami, you find that the Cavaliers are only offering him $4 million more. That advantage gets erased — and actually gives the Heat the monetary edge over — when you consider the income tax difference. …Playing in Cleveland, LeBron would face a state income tax of 5.925 percent, plus a Cleveland city tax of two percent. Over the first five years of a new contract with Cleveland, James would give back $3,953,060 combined to the state and city for the 41 games each season he’d play at home. But James would have to pay none of that for home games in Miami since Florida doesn’t have an income tax. Athletes have to pay income taxes to states that they play in on the road, so the games he’ll play away from home — whether he played for Cleveland or Miami — are essentially a wash. But there are, on average, 11 away games per season where James would have to pay Ohio and Cleveland taxes. Why? Because he has to pay when he plays in the six areas – Florida, Texas, Washington D.C., Illinois, Toronto and Tennessee – that have no jock taxes. That’s another $1,061,128 he’ll have to pay in taxes that he wouldn’t have to pay in Miami.
New York basketball fans also should be angry. With some of the highest taxes in the nation, many of which target highly productive people as part of a class-warfare policy, New York is bad news for professional athletes. The New York Post, commenting on the probability that James would sign with the Miami Heat, identified the real villains.
…blame our dysfunctional lawmakers in Albany, who have saddled top-earning New Yorkers with the highest state and city income taxes in the nation, soon to be 12.85 percent on top of the IRS bite. There is no state income tax in Florida. On a five-year contract worth $96 million — what he’d get from the Knicks or the Heat — LeBron would pay $12.34 million in New York taxes. Quite a penalty for the privilege of working in Midtown.
Now let’s look at the big picture. The calculations that LeBron James made when deciding to sign with the Miami Heat are the same calculations that companies make when deciding whether to build factories and create jobs. So when people wonder why high-tax states such as Ohio, California, and New York are losing jobs to zero-income tax states such as Florida and Texas, part of the answer should be obvious. And if we move to the global level, folks should not be too surprised that companies and investors, all other things equal, are likely to avoid the United States, with its punitive 35 percent corporate tax, and instead create jobs and build wealth in places such as Hong Kong, Ireland, and Switzerland.

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