Archive for December 15th, 2009

Investors and entrepreneurs are escaping the new 50 percent tax rate in the United Kingdom, which is just one of many reasons why higher tax rates are foolish and misguided. Sadly, Barack Obama seems determined to repeat the same mistake, which means America will suffer the same adverse consequences of slower growth and reduced competitiveness. The Daily Telegraph has the unpleasant details of what is happening on the other side of the ocean:

The number of directors of British companies who have registered in the Channel Island tax havens of Jersey and Guernsey, along with the Isle of Man, has risen by almost 500 in the past 12 months. …The British Virgin Islands, a popular tax haven in the Caribbean, has seen an 18pc rise on a year ago. Those who are fleeing what they see as the mainland’s punitive tax rates include highly paid bankers and hedge fund mangers along with entrepreneurs who run luxury travel firms, health care companies, property firms and call centres. …Stephen Hedgecock is a partner in Altis, a £1bn hedge fund company with 35 staff that has relocated to Jersey, leaving only a small presence in London. “The UK model is broken,” he said. “It’s not just the 50 per cent rate – it’s National Insurance, the treatment of pensions. . . everything. It’s just a ridiculous amount of taxation.” A new marketing brochure published by the island’s authorities promises “in Jersey, keep more of what you earn” based on corporation tax at 10 per cent and income tax at 20pc. There is no inheritance tax or capital gains tax and property taxes are also low. …According to research by Philip Beresford, compiler of The Sunday Times Rich List, using information available from Companies House, 498 directors and partners of UK companies have changed their addresses to Jersey, Guernsey or the Isle of Man. A further 91 UK companies have registered in the islands in the past year. …Meanwhile, at the other end of the income scale, new statistics buried within last week’s pre-Budget report show the number of low income families facing marginal tax rates over 90pc has doubled over the recession.

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Reckless spending increases under both Bush and Obama have resulted in unprecedented deficits. Congress will soon be forced to increase the nation’s debt limit by an astounding $1.8 trillion. Government borrowing has become such a big issue that some politicians are proposing a deficit reduction commission, which may mean they are like alcoholics trying for a self-imposed intervention.

But all this fretting about deficits and debt is misplaced. Government borrowing is a bad thing, of course, but this video explains that the real problem is excessive government spending.

Fixating on the deficit allows politicians to pull a bait and switch, since they can raise taxes, claim they are solving the problem, when all they are doing is replacing debt-financed spending with tax-financed spending. At best, that’s merely taking a different route to the wrong destination. The more likely result is that the tax increases will weaken the economy, further exacerbating America’s fiscal position.

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