[FoRK] Bar Stool Economics

Jeff Bone jbone at place.org
Tue Sep 28 06:26:47 PDT 2010


Dave claims:

> You suggest that the rich should simply pick up and move their assets overseas

I have absolutely suggested no such thing.  Quite the contrary, when previously folks have responded to my pointing out various issues with the domestic situation with a pouty, infantile "well, if you don't like it here, go somewhere else" --- I have protested.  On the other hand, as Beberg has pointed out (though he's only identified the tip of the iceberg) --- expatriations complete with renunciation of citizenship are markedly on the rise.  A very small number so far to be sure.  But a bellwether. 

What is indisputable is that wealth *is* moving away from these shores.  Outsourcing is one aspect of that;  simple foreign investment and / or the setup and conduct of business offshore is another.  I have previously stated that the offshore loopholes that most uneducated (in the matter) folks suggest are so prevalent among the wealthy are in fact fictional --- and it's true, since early in this decade it has been very difficult to simply park assets offshore.  It is not, however, difficult to move *business* offshore and hence move some current and much future wealth out of the reach of the domestic anti-wealth crowd.  And this is happening increasingly.  

Doesn't say much for the value wealth places on all your supposed contacts-and-enforcement benefits, does it?

Our banking system blows;  it is ranked 108th out of ~180 in the world.  *Azerbaijan* (at 106) has sounder banks than we do!  Further there are *many* nations that are far more business-friendly (and, often in conjunction, personal wealth-friendly) than the US.  Most countries do not, for example, tax incomes or capital gains occurred offshore.  We do.  Our trust system is a leaky sieve.  Trusts and foundations in many nations --- important vehicles for estate planning --- are far more reliable in many other jurisdictions.  Inflation, perhaps hyperinflation, looms --- and, indeed, "reigniting some level of inflation" is the express goal of current fiscal policy.  Etc. etc. 

There are far "lower" places in the landscape for wealth to run and to pool up.

My point is this:  under *some* configuration of tax policies wealth *will* seek safer havens.  It's like water, seeking the lowest point in the landscape.  This is already happening, and will continue (and accelerate) the more antagonistic we become towards it.  I am not suggesting or encouraging it;  I am merely remarking that it appears to be a fact of life.


> Forcing the owner to come up with cash to pay a wealth tax on an illiquid asset would cause some undesirable consequences.

Guess what?  That is precisely what our so-called "Exit Tax" --- something the US is almost unique in having --- does.  What does this encourage?  It encourages the liquidation of assets for anyone anticipating that they may be forced to relocate.  It actively *discourages* onshore investment and *encourages* foreign investment at arms length.


> Oh, and I might add, this is all over a lousy 4.6% increase in the top marginal rate.

This would be quite silly if that's all we're talking about.  It's not.  It is (a) the increase in the capital gains rates, both in the near term and the further, accelerating future increases necessary to maintain a completely out-of-control debt spiral, and (b) the reclassification of many formerly capital gains that will now be treated as ordinary income *at whatever the prevailing top marginal rate* by many in partnerships, LLCs, and so on.  But of course, you're probably unaware of that.  You shouldn't be;  it was foreshadowed by the very comments that first set me off about Obama in primary season '08;  the supposed target is "private equity" type investors and firms, but the reality is that it will have a profound impact on small operating businesses, entrepreneurship, investing and capital markets, and so on --- there's hardly an economic activity of any sophistication that is not potentially and profoundly negatively impacted.  It is the singularly most anti-business concept that is presently in play (though there are many to choose from.)  Cf.  HR4213 and friends.

But more than that, what is driving wealth offshore is *attitude* and *ignorance*.  All the rest are the symptoms;  the disease is laziness coupled with entitlement and self-righteousness.


jb












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