Is Taxing The Rich A Lost Cause?

By: ispeculatornew
Date posted: 05.22.2012 (5:00 am) | Write a Comment  (0 Comments)

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One point I like to bring up over and over is the fact that while increasing tax rates for the top 1% might seem like a genius plan in theory, it’s a gross oversimplication. There are so many different ways to do so. Recently, I discussed the Megaship that is being built and that will remain near the US coast. It will remain in international seas making it possible to get a very advantageous tax treatment while also being able to hire very solid engineers without going through the whole green card process.

Last week, I read two more examples…

Socialist French Government

You might have heard that the newly elected Socialist party in France has been planning to create a new law that will tax all earnings above $1 million at a 75% tax rate. Imagine all of the savings right? Maybe over 1-2 years that would make sense. But not over the medium term and clearly not over longer periods of time. Why? Everyone will adapt:

Citizens: Many of the top earners in France have already announced they would be moving if this law came into effect. It’s not that difficult. They can move to a nearby country, they can create a corporation based somewhere else that will make most of their earnings, etc. All of these methods become very worthwhile if such a law passes. They are not illegal and will make it possible for such individuals to pay even less taxes than what they are currently paying.

Existing Companies: If you were a multinational company, how likely is it that money you are going to reinvest would be spent in France? Very unlikely in my opinion. Earnings made there will generate so little in the bottom line that it becomes a lot more favorable to slowly move operations abroad.

New Companies: Many in France would like the company to host the next Google, Amazon or the next Facebook. That is simply not going to happen. Bright leaders are very careful about how they setup their projects and it’s not by luck that all of these companies have very efficient tax structures. France would become as bad as it gets if such a law passes so companies or entrepeneurs would simply take their business elsewhere.

Facebook IPO

One policy that the US already has and that is being considered by many others is to tax all expats no matter if they are in the US or not. That certainly complicates life for these individuals and it has limited benefits. Take the case of Eduardo Saverin, the Brazilian born co-founder of Facebook, which you probably remember seeing in the movie “Social Network”. With the IPO only days away, he was set to owe a lot of money, especially since he currently resides in Singapore. Huge capital gains will be applicable as soon as he sells some of his stock.

What Could He Do?

In the end, Eduardo Saverin ended up letting go of his US citizenship in order to avoid the applicable taxes

A Flat World Means Extreme Mobility

In this flat world, as was described by Thomas Friedman, it becomes increasingly easy to move a person, a corporation, an activity or anything else from one country to another. Therefore, raising taxes can work in the short term but it also gives incentives to those that lose in the process to find a more efficient tax structure, which can end up meaning more lost revenues than new taxes for the government…

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