Apr 8th 2010 9:06PM Focusing on tax rates is misleading to say the least. The "tax equation" is "net taxable income/capital gains" times "rate" equals "tax dollars paid". Therefore, the real question is “What amount of money do the “Wealthy” contribute to the tax coffers?”
There is an oft quoted statement by Warren Buffett that he pays a lower rate than his secretary. This could very well be true as it would be obvious for anyone (including Warren) to structure his affairs so as to reduce the amount of tax he pays. The first step in this would be to invest so as to pay capital gains rates rather than the income tax, as they are half the rate. However if I was the government, I would rather get capital gains rates on Warren’s millions than a higher income tax rate on the secretary’s comparably small salary.
In 2007 (according to IRS information) the top 0.1% of US taxpayers contributed 17.4% of the total amount of personal tax revenue (income, capital gains, gift and estate tax). The top 1% accounted for just over 40% (aka “The Golden Geese”). The Golden Geese are not fixed to a specific location to make and grow their wealth; they can afford the best advice; are worldly enough to realize that they can reproduce their current business and personal lifestyle in many locations; and tend to be more likely to think “out of the box”.
The question that policymakers should ask themselves is “What would happen to U.S. federal, state and municipal tax revenue if the Golden Geese actually leave the U.S. entirely?” If even a small number leave, it will have a huge asymmetric impact.
The government has two possible choices. The first choice is to try to throw up barriers to departure. This will have one of two results. Either Golden Geese will consider departing too expensive OR they will rush to the exits before the price gets even higher. Considering current tax proposals, staying in the longterm is certainly more expensive than leaving now.
The second choice is to make the system more attractive to persuade them to stay. Let’s just say that there is not much political mileage these days in doing anything to help the Golden Geese. The result is that there is a huge spike in the number of Golden Geese who are heading for the exits or at least packing their parachutes. Like many things, the general public will only appreciate them when they are gone.
Aug 24th 2009 5:03PM Sorry Nyasha: It looks like CS has now left the building and abandoned his position.
Aug 21st 2009 12:02AM Sorry C.S.: I didn't see your prior post, so let me address your points.
Point One: "First, you act as if the cutesy-titled "Golden Geese" get or got nothing from their affiliation with the U.S. in amassing their wealth. As if there was no SEC, no U.S. military, no National Guard, no local police forces and no judical system to protect their interests and maintain the stability required for their businesses; no stock exchanges and no educated workforce to accomplish their goals; and no government investment in basic research and/or infrastructure to exploit."
Point One Response: You forget that up to the point of leaving the Golden Geese have been paying taxes. In fact they account for huge percentages of the total tax take. Here is a summary but you can look at the original IRS data links http://www.taxfoundation.org/news/show/250.html. So if you are trying to make the moral argument that they haven't paid for the "infrastructure for wealth", the actual numbers (based on IRS data) don't support that. Whether you like it or agree with it or not, some Golden Geese are deciding that they have already paid many times over their "fair share" for this "infrastructure for wealth" and don't feel any guilt over not continuing to pay even more for this benefit.
The Golden Geese will obviously take into account the future value they place on all of these things you mention, in maintaining and growing your wealth in their decision whether to leave or not. In addition, they will also take into account their ability to find these things in other places. Your hope is that they don't think they can possibly thrive in another other environment than the U.S. I think they can. What you or I believe is irrelevant, it is what the Golden Geese believe as they are making the decision whether to leave or not.
Point 2: "You also act as if the Golden Girls --- sorry, Golden "Geese" -- will take all of these things with them when they go, and there will be no other people willing and able to take advantage of the same benefits once the 24 karat Honkers fly abroad."
Point 2 Response: Again, I believe that whether the Golden Geese remain in the U.S. or not in no way hinders others from becoming Golden Geese. My point is that if a single current U.S. Golden Goose leaves the U.S., the one obvious undeniable fact is that this individual will no longer be contributing to the total U.S. tax revenue in the future. (You also seem to think that their capital, entrepreneural skills etc. have no economic value). Looking only at tax revenue for a moment, given the stats cited and the basic fact that the top 1% of U.S. taxpayers contributed 40% of the total U.S. tax revenue, if even a small number of these Golden Geese leave that will have an enormously assymetric impact on the total tax revenue collected. You seem to think that if they leave that another long suppressed Golden Goose will suddenly be free to blossom and will replace the tax revenue lost from the departed Golden Goose. For the sake of the U.S. government fiscal needs, I hope you are right. Unfortunately, because I don't believe in the concept of the suppressed potential Golden Goose (or the Tooth Fairy), I suspect you may be disappointed.
Point 3: "Second, you act as if they are fleeing in greater numbers now than they were before --- which, as I stated before, is highly questionable. But since you are in such a unique position, I wonder if you've ever asked your clients "why now"? Why weren't these same folks fleeing in the 90s? Why weren't they fleeing in the late 80s? Why not in the 70s? 60s? 50s? Basically, I guess I'm asking why the rich now are so much wimpier now than they used to be. Don't they know the taxes the Kennedy's paid? Or the Rockefellers? Why are they so whiny?"
Point 3 Response: Since 2004, the numbers of individuals who give up their U.S. citizenship are actually published in the Federal Register. (I know it is available on-line, maybe one of our better searchers can find the link and post it). It is worth understanding that from the time a U.S. Golden Goose severs their U.S. tax liability by renouncing at a consulate or embassy, until the Certificate of Loss of Nationality is issued, the information gathered from the State Department and the delay until the next quarterly Federal Register publication there is approximately a 9 to 12 month lag time before the public announcement of the departure of that Golden Goose. Since it does take some time to get the elements in place to expatriate (i.e. another citizenship, tax structuring etc.), you could not possibly see the official statistical reporting of this uptick in expatriation until 2010 at the earliest. Up to that point you are stuck with deciding whether you chose to believe the anedotal reports of the likes of Mr. Krause or myself.
Since doing my first expatriation in 1991, I has actually been in my own interest to understand the "drivers". The conclusions that I have reached is that because of the "flattening effects" that Thomas Friedman described in "The World is Flat", the ABILITY of Golden Geese to not only reproduce their lifestyle but also to maintain and growth their wealth post-expatriation has greatly increased.
What has happened since the current financial crisis began is that the Golden Geese have concluded that the U.S. government (and other governments as well) have greatly increased their fiscal requirements to pay for bailouts, stimulus packages etc. Since the Golden Geese are clearly the only potential source for tax revenues, they believe that they will be the ones asked to pay for all this. Their fears are confirmed each day by the President and Congress (and their counterparts in other countries). They are also seeing the expiration of the 2001 US estate tax reforms at the end of next year. The Golden Geese pay 100% of the estate tax and any hope that the previous reform will be extended has died. In addition, as the IRS stats indicate, the Golden Geese are contributing the highest percentage of the total tax revenue in U.S. history and the current proposals will ask them to contribute even more.
Another significant factor that my clients cite is a desire to engage in strategic philanthropy. The major factors here are: a)The Gates Foundation's demonstrated effectiveness in solving social problems (both in the U.S. and globally) has made them understand that they can have a real and demonstrable positive personal impact on the world; b) the increasingly common recognition by many individuals that their happiness and sense of fulfillment in life is better increased through philanthropy rather than increased consumer consumption (possibly driven by the ethos of the aging Baby Boomer population); and c) the widespread acknowledgement that government's are not terribly effective or efficient charitable vehicles. Every dollar legally saved in tax is another dollar that is available for that Golden Goose to use effectively in strategic philanthropy.
As a result of these factors and the fact that many have seen a noticeable large drop in their wealth large numbers of Golden Geese have taken stock of the situation and have come to the realization or conclusion that they do not remain in the U.S. in order to reproduce (or heaven forbid even improve) their personal lives; engage in strategic philanthropy; or to maintain and growth their wealth. In fact if they eliminate the U.S. tax burden (and with proper advice and planning do not replace it with another country's tax burden) they can either a) have higher income and wealth growth (since gross income will equal net income in a tax-free situation) or b) slide down the risk return curve and enjoy the same returns they were happy with before but from substantially less risky investments.
Point 4: "Third, you conveniently forget that to the extent your numbers are credible, they are not indicative of how important these Golden Goslings are to the economy or the U.S., but rather how incredibly much more money they have been allowed to amass than other folks, especially considering a tax structure designed by their friends and cronies."
Point 4 Response: I invite all readers of this thread to look at the Forbes List of the wealthy people in the U.S. and decide in each case whether that individual has no other positive impact on the U.S. economy aside from contributing tax dollars. Even if we agreed to CS's argument (which I think is ludicrous) that they don't, the lost tax revenue alone would be devasting.
Point 5: "Fourth -- thanks for the nice "barnyard animals" reference. You're classy."
Point 5 Response: It is an easily understandable frame of reference vehicle, not a moral judgement. In fact I often refer to myself with pride as a "plowhorse". If you truly took offence at this, may I often the suggestion that you may want to grow a bit thicker skin.
Point 6: "Fifth, please explain why we should grant your rantings any more credence than those of the fellow quoted in the article, given that your website brags about relocating rich people?"
Point 6 Response: As stated above, I concede that "official confirmation" cannot be provided until 2010. The readers can either decide on whether what I outline above rings true and put themselves mentally in the shoes of a Golden Goose and conclude whether considering expatriation is a logical response OR they can decide that individuals like Mr. Krause and myself have all independently decided to report a fantasy that somehow improves our own income. IOW, believe the message or shoot the messengers because you don't like the message they are reporting.
Point 7: "You help rich people dodge taxes, right?"
I help clients who chose to retain me to LEGALLY organize their affairs to minimize their future global tax burden. I see no moral difference in what I do than what an advisor who suggests an IRA to you or a car salesman who suggests that you participate in the "Cash for Clunkers" program.
Point 8: "And what do you do when you "Consult on and proposed changes in economic citizenship legislation with the elected officials of several Caribbean nations"? Does that mean that you lobby elected officials to change their country's tax structure for the benefit of your clients who aren't even citizens?
Point 8 Rebutal: It means that when asked by various governments I have made submissions on how they can improve their LEGAL residence and citizenship programs to make it more attractive for Golden Geese. Unlike yourself these democratically elected governments have reached the conclusion that the attraction of these Golden Geese does have a positive economic impact on their country.
Point 9: "Elected officials who don't earn much money, live in a poor but beautiful country, and might be accustomed to a lesser degree of oversight with regard to the conduct of their business than officials in the U.S. -- sorry, in deference to your location, I should say "officials in the U.S. and Canada"? Because that's what it sounds like from where I sit, so I just wanted to ask. "
Point 9 Rebutal: You are lurching dangerously close to a debate faux pas called an Ad Hominem attack (http://en.wikipedia.org/wiki/Ad_hominem) which undermines your credibility. In addition, I will let pass the inherent slight against the intelligence and sophistication of non-U.S. elected officials and note that I have made written submissions and appeared in front of what you feel are "real" officials and government committees in countries such as Canada and the U.K.
Point 10: " 'It is a fact that in America personal fortunes (which are also the greatest) rarely last more then two generations; due to inhibiters like death and inheritance tax.' This is the kind of thing which begs for a citation."
I believe that the poster was referring to the well know "Shirtsleeves to Shirtsleeves in 3 generations" concept. There is a wealth of academic articles supporting that. However I will add that a major contributing factor to this phenomena is that the following generations are often not trained in how to maintain and grow wealth.
CS the floor is yours.
Aug 19th 2009 7:42AM Riddler: Your reply says quite a bit about you and your misconceptions and prejudices. I would suggest that you pick up a book called "The Millionaire Next Door", which is a distilation of a huge academic research study regarding wealth in the U.S. It may give you some insight.
In the meantime, can you please solve a mystery that has been raised by one of your comments. Exactly how does the fact that someone else is a Golden Goose (whether inherited or earned) stop you or a college grad or anyone else from also becoming a Golden Goose?
Aug 18th 2009 7:01PM In the U.S, the top 0.1% paid 17.4% of the total tax revenue (according to 2007 IRS data). So it is not a stretch to call them "the Golden Geese". No matter who you think is responsible, all levels of U.S. government are now looking at the ugly combination of decreased tax revenues and increased revenue requirements for the foreseeable future. Since the bottom 90% of taxpayers contribute only 6% of the total tax take, the Golden Geese know that everyone is looking to them to pay more. All the current proposals in Congress are requiring the Golden Geese to give up even more of their golden eggs.
Each Golden Goose makes their own decision as to when "enough is enough". Whether the Farmer (aka: Government) or the other barnyard animals (aka: the 99.9% of the Voting Public who are not Golden Geese) think "its just one more golden egg", doesn't come into the equation. Also at some point the Farmer's statements that "the golden eggs are for the common good" or "this farmyard is the best place on earth to live" will no longer be effective in keeping the Golden Geese in place. As an advisor to Golden Geese who are eying the barn door in unprecedented numbers, I often question the long-term wisdom of the Farmer and the barnyard animals. Once the Golden Geese have flow away they contribute NO MORE GOLDEN EGGS in the future.