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Thread: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

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    Default April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    (snip)"What Do We Do If the Rich Start to Leave?
    By Bill Frezza

    The numbers are small. A modern record, to be sure, and an embarrassment to some. But nothing to be alarmed about. Better to just curse their greed, slap an exit tax on their assets, and move on. There are plenty more where they came from.

    But what if more of them start to leave?

    500 American citizens and green card holders in the last quarter of 2009 said goodbye to America forever. Not many, but double the number of expatriations in all of 2008. Good riddance, other millionaires will take their place.

    But what if more of them start to leave?

    Businesses may have been shifting jobs out of the country for decades but their fat cat CEOs still live here, right? I don't believe many of them would give up US citizenship just because they refuse to pay their fair share. What are they going to do, learn Chinese?

    But what if more of them start to leave?

    1% of US income tax filers pay 40% of our nation's income taxes. It's only fair given how much money they make. So what if 40% of filers actually get handouts from the IRS? Didn't our President come out on the campaign trail and promise he was going to spread the wealth around? He won the election didn't he? Everybody knew what the deal was.

    But what if more of them start to leave?

    When the Bush tax cuts expire [ at the end of this year - sic] top marginal tax rates are going to shoot up. Add in city, state and local taxes the rich are going to have to fork over 50 cents of every last dollar earned. Inheritance taxes are scheduled to soar when death tax reform expires - all on money that was already taxed. An extra 3.8% Medicare tax got slapped on dividends and capital gains courtesy of healthcare reform. Blah, blah, let the rich squawk. We outnumber them and somebody has to pay the bills.

    But what if more of them start to leave?

    Congress is trying to triple the taxes [on the incomes of] hedge fund managers, private equity firms, and venture capitalists pay on their gains. Who cares, these tycoons don't have enough votes to stop it. Sure, the smart ones are setting up shop in Asia but they're never going to move there, right? The US will always be the best place in the world to start a business, won't it?

    But what if more of them start to leave?

    The IRS recently began strictly enforcing requirements that U.S. citizens with more than $10,000 in foreign accounts annually report all their assets to the government. Not just income, assets. Get caught failing to file and they can seize half your account balance. This data base should come in handy if rich defectors try to evade exit taxes. There's no right to privacy in the constitution, keeping an eye on these bastards will make them think twice.

    But what if more of them start to leave?

    Healthcare. Energy. Banking. Housing. Automobiles. Insurance. Pharmaceuticals. There is so much that needs to be regulated or nationalized if we hope to achieve equality. Why should we let a few exploiters make obscene profits selling essentials when so many are unemployed? We need jobs for the little man, not bonuses for the bosses.

    But what if more of them start to leave?

    How dare they leave after all we did for them! If expatriations keep growing Congress should triple the exit tax. In fact, why should we let deserters take any money with them at all? They should be thankful we let them out with the clothes on their backs. Didn't they enjoy the benefits of this great country while the getting was good?

    But what if more of them start to leave?

    Maybe we can't put up walls but there are ways to keep people from fleeing, lots of countries do it. We can lean on foreign governments to deny economic defectors citizenship. If anyone tries to sneak out the IRS can hold their children hostage. We have so many complicated laws and regulations, surely we can find some obscure rule that they broke, and if we can't we can pass more laws and make them retroactive. Even better, let's pass enough laws to make sure that no one is allowed to get rich in the first place! That'll solve the problem once and for all."(snip)

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    Of the 40% who pay no income tax, how many are receiving Social Security and are retired? Quite a few, I think. And with the low tax rate for dividends and capital gains, many of those probably are below the threshhold for taxable income if they have such income.

    Everyone is entitled to protect their legitimate income, but such a ratio between high income and average incomes are widening to unjusifiable numbers, helped along by powerful lobbyists who unfairly have governmental leverage the average person cannot have. We have many obvious examples brought to light in the many financial industry scandals.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    ^^^ you're probably right that a significant number of non-income tax paying tax filers are probably Social Security recipients. It's also reasonable to extrapolate that a significant number of non-income tax paying tax filers are probably social welfare benefit program recipients. In both cases, the situation is probably what you describe ... that their taxable incomes are above the minimum level for required filing of a tax return ( $8000 ? ) but below the level where income tax rates begin to 'cancel out' available exemptions and tax credits ( $28,000 single $50,000 family of 4 ?)

    And to be totally correct, it was 47% of tax filers who paid zero income tax not 40% ... with many of them actually receiving more money back in the form of tax credit based IRS refunds than they paid in to the IRS in the first place ( i.e. an IRS administered social welfare benefit ) !

    Either way, this only serves to reinforce one of the author's points ... that both groups have much to gain and nothing to lose by voting for the imposition of even higher income tax rates on the higher earning 'minority' of Americans whose actual income tax payments now fund their benefits. And yes, this year, Social Security benefits now depend on the additional transfer of general income tax revenues as well as 100% of SSI tax revenues in order to cover the cost of benefit checks.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    Here's what J. K. Rowling had to say about becoming an ex-pat to reduce the amount of taxes she would have to pay:

    http://www.timesonline.co.uk/tol/com...fset=12&page=2

    I chose to remain a domiciled taxpayer for a couple of reasons. The main one was that I wanted my children to grow up where I grew up, to have proper roots in a culture as old and magnificent as Britain’s; to be citizens, with everything that implies, of a real country, not free-floating ex-pats, living in the limbo of some tax haven and associating only with the children of similarly greedy tax exiles.

    A second reason, however, was that I am indebted to the British welfare state; the very one that Mr Cameron would like to replace with charity handouts. When my life hit rock bottom, that safety net, threadbare though it had become under John Major’s Government, was there to break the fall. I cannot help feeling, therefore, that it would have been contemptible to scarper for the West Indies at the first sniff of a seven-figure royalty cheque. This, if you like, is my notion of patriotism. On the available evidence, I suspect that it is Lord Ashcroft’s idea of being a mug.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    well from a purely financial standpoint, when you are one of the elite few who is able to earn $200-$300 million per year on a consistent basis as J.K. Rowling has, there isn't much change in quality of life or standard of living if that person pays a 50% effective income tax rate or a 10% tax rate. In both cases that person could spend $10,000 a DAY and still have money left over. I'm not saying that the difference in tax rates doesn't matter, only that the difference primarily shows up on a bank ledger as opposed to showing up in daily life. Either way, that person can afford multiple mansions, private jets, yachts, you name it. And in the final analysis, such 'uber-rich' individuals typically can avail themselves of legal tax minimization strategies, from green energy partnerships to tax free bonds to foundations.

    However, when you start getting down to the Obama definition of 'rich', i.e. a family earning $250k per year, then the difference between a 50% effective income tax rate or a 10% income tax rate becomes glaringly obvious in daily life. It means the difference between living in a 'nice' house versus a 'salt box'. It means the difference between driving a 'nice' car versus a practical car. It means the difference between kids attending private schools versus public schools. In other words, it means a real and visible difference in daily quality of life / standard of living.

    I would also point out that there are something on the order of a few hundred American families capable of J.K. Rowling's income level ... whereas there are something in the neighborhood of 1 million American families at the $250k income level. And while that comparative handful of 'uber-rich' pay a high percentage of their incomes in taxes, the bulk of total tax revenue dollars comes from the much larger number of people whose earnings are less than $1 million. While the 'uber-rich' are still able to buy luxury cars, yachts, fancy home furnishings etc. to help the economy, again you're talking about a few hundred families that earn so much money that their 'disposable' incomes are practically unlimited regardless of their effective tax rate. In contrast, a milliion Obama 'rich' people will not be buying upscale cars, boats, fancy home furnishings etc. because rising effective tax rates will take a larger bite of their limited 'disposable' incomes.

    Circling back on topic, it is the Obama 'rich', i.e. families earning between $250k and $1 million a year, who would see an immediate and significant improvement in their standard of living if their 50% marginal US tax rate was changed to a 10% offshore tax rate. It is also the Obama 'rich' who pay the bulk of US income tax dollars. And it is also the Obama 'rich' who have purchased the bulk of ( non-specialty ) expensive consumer goods, who have purchased the bulk of ( non-specialty ) services etc. It is they who the US economy and US non income tax payers will 'miss the most' should they leave the country.

    Please feel free to nitpick. However, there is no denying the fact that the 'uber-rich' can only buy so many houses, so many cars, so many boats etc. The 'uber-rich' can only employ so many accountants, so many plumbers, so many landscapers etc. In terms of the overall economy, if 20% or perhaps 100 of the 'uber-rich' decided to expatriate, the impact would actually be minimal ( other than losing $50 billion or so in tax revenues ). But if 20% or 200,000 of the Obama 'rich' decided to expatriate, the impact on the overall economy would be devastating.

    ~
    Last edited by Melonie; 04-16-2010 at 03:14 AM.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    Where are all of these people making $250,000 - $1,000,000 a year going to go, where they can make an equivalent amount of money?

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    Quote Originally Posted by eagle2 View Post
    Where are all of these people making $250,000 - $1,000,000 a year going to go, where they can make an equivalent amount of money?
    I have thought about this too. It ain't the "working rich" who can run off.

    A couple each making 100K is usually a professional of some kind or some small business/franchise owner dependent on the marketplace they are living in for their money.

    I think the number is to low. Some family running a subway shop or an Ace Hardware should not be considered rich.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    Where are all of these people making $250,000 - $1,000,000 a year going to go, where they can make an equivalent amount of money?
    Obviously, some types of careers such as stock 'day trader', author, artist etc. can do their work equally well from anywhere in the world. There is also no shortage of opportunities for professionals in the oil & gas industry, the 'security' industry, heavy construction, mining etc. There are also increasing opportunities in other fields as countries like Dubai are beginning to emerge as an 'alternative' financial center.

    However, the basic premise of the question is flawed. It does not matter if an American ex-pat can EARN as much money offshore as they could domestically. What DOES matter is the amount of money that an American ex-pat can KEEP net of taxes, cost of living etc. If that American ex-pat is facing a situation of earning $250k a year versus a 50% marginal income tax rate, they would actually be financially ahead of the game if earning <$200k a year offshore but only being subject to a 15% marginal tax rate. At the moment, the IRS allows for the first $91,500 per year of non-US income to be exempt from US income taxes ... and some foreign countries don't levee any personal income tax.

    As pointed out above, American small business owners, American franchise business owners etc. are 'iced out' of expatriation since there is no way that they can take their business with them.

    ~
    Last edited by Melonie; 04-16-2010 at 05:10 PM.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    there is also the question of how much your money buys. many 250k+ earners can go live somewhere warm and cheap, where you don't even need 250k per annum to get 250k worth of good living.

    although it is worth noting that a noticeable minority of such earners are government leeches of various sorts who effectively are paid with tax dollars, so them paying a lot in taxes is kind of a wash.

    hell, plenty of 100-250k earners can go live somewhere warm and cheap and be amazed at what 100k in savings can garner towards a new life.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    hell, plenty of 100-250k earners can go live somewhere warm and cheap and be amazed at what 100k in savings can garner towards a new life.
    Precisely ! There is a well established US / Canadian / UK ex-pat community down here south of the border who live very well on a budget of less than US $10,000 per year.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    Quote Originally Posted by Melonie View Post
    Obviously, some types of careers such as stock 'day trader', author, artist etc. can do their work equally well from anywhere in the world. There is also no shortage of opportunities for professionals in the oil & gas industry, the 'security' industry, heavy construction, mining etc. There are also increasing opportunities in other fields as countries like Dubai are beginning to emerge as an 'alternative' financial center.
    I doubt that a high percentage high-earning Americans are in the above fields, and I'm sure there is a lot more competition from firms from countries with lower cost labor, such as China, in some of those fields, such as heavy construction and mining. Those Americans who are able to earn lucrative salaries in other countries are probably doing so already. There are already many Americans working in countries like Saudi Arabia, working in the oil and gas industry.

    The vast majority of Americans in that income range are probably high-skilled professionals like doctors, lawyers, and business executives. For those Americans, lucrative opportunities in their fields abroad are very limited.


    Quote Originally Posted by Melonie View Post
    However, the basic premise of the question is flawed. It does not matter if an American ex-pat can EARN as much money offshore as they could domestically. What DOES matter is the amount of money that an American ex-pat can KEEP net of taxes, cost of living etc. If that American ex-pat is facing a situation of earning $250k a year versus a 50% marginal income tax rate, they would actually be financially ahead of the game if earning <$200k a year offshore but only being subject to a 15% marginal tax rate. At the moment, the IRS allows for the first $91,500 per year of non-US income to be exempt from US income taxes ... and some foreign countries don't levee any personal income tax.
    An American earning $250k a year pays a lot less than 50% taxes. The proposed tax increases are only on income above $250k for married couples. In addition, a family earning $250k can get significant tax deductions, especially if they have a mortgage on an expensive home. High income families are also more likely to earn a significant amount of income from capital gains and dividends, which have much lower tax rates.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    you are incorrect about what americans earning 250k per year pay. even many americans making 100-250k pay 50% or more in taxes. federal aren't the only ones levied, y'know.

    you are also incorrect about job options for doctors and lawyers and execs if they went abroad. there are always international jobs for them. sorry, but i know tons of american-born people working in europe and asia, in some cases at higher salaries than they'd get in this country and with less tax taken out.

    america really doesn't have the 'only game in town' when it comes to retaining highly skilled professionals. there are lots of other options and people are willing to take them, perhaps more as the tax burden gets crazier and crazier.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    Miabelle,

    Please document (with references) how someone making $250k can pay more than 50% in taxes. A single person making $250k pays about 25% of their income in federal income taxes, even less for a married couple making that much, and that's without any deductions.

    http://www.calcxml.com/do/inc02?skn=#results
    Based on the above calculator. Please document where the other 25% is going to come from. Also, remember, there are a number of states in the US where there is no state income tax.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    ^^^ well, I'll take a stab at answering your question based on a theoretical 'serious professional dancer' working in Manhattan i.e. a $200k gross income . I'll use the assumption that we're talking about 2011 ( since this will be the first tax year that can be fully avoided by a decision to expatriate), and further assume that tax laws for 2011 remain on their 'current track'.

    Social Security tax 15.3% of first $(106,800 + 6.2% increase ) = $17,354

    self-employment tax 2.9% ( -.65% deduction ) = 2.25% on $200,000 = $ 4,500

    federal income tax 15% of first $35,020 = $5353
    federal income tax 28% on ($85,872 - $35,020 ) = $14,239
    federal income tax 31% on ( $177,006 - $85,872 ) = $ 28,252
    federal income tax 36% on ($200,000 - 177,006 - $5700 @ ) = $6226
    @ federal standard deduction vs itemized deduction vs AMT limits for 2011 still up in the air
    less federal personal exemption - $ 3,650
    less effect of NY state and local income tax deduction - ( 12,330 + 6,448 ) * 33% = - 6,196
    probable total federal income tax = $44,224

    total of federal taxes $17,354 + $4,500 + $44,224 = $66,078 or 33.0% on $200,000 income


    NY state income tax rough estimated 6.85% on ( $200,000-$20,000 ) = $12,330
    NY city income tax rough estimated $1,706 + 3.648% * ( $150,000-$20,000) = $6,448

    probable total state and local income tax = $18,778 or 9.4% on $200,000 income


    NY city sales taxes 8.875% on perhaps $25,000 expenditures = $2,219

    Federal and NY excise taxes on utility bills / phone bills etc = $ 300

    Federal and NY gasoline taxes 500 gallons * $.72 = $ 360

    Imputed local property taxes included in rent 12 * $150 = $1,800

    TOTAL FEDERAL, STATE and LOCAL TAXES = $66,078 + $18,778 + $2,219 + $300 + $360 + $1,800 = $89,535 or 44.8% on a $200,000 income.


    Obviously the result isn't 50% ... but then again the income level being talked about is $200k per year not $250k or $500k or 1 million to which even higher marginal tax rates ( and new penalty taxes ) would apply. So Miabella's 50% figure could very well apply to this group of Obama 'rich' higher earners.

    Another obvious result is that the tax rate is nowhere near the 25% you mentioned. And while I will grant you that being married to a low earning spouse, owning an expensive home thus paying expensive local property taxes which are deductible from federal and state income taxes along with mortgage interest expense, having several children,etc. could lower my 44.8% effective overall tax rate figure, these situations are not typical of the vast majority of 'serious professional dancers' who read Dollar Den.

    I would also add that every single one of the above taxes could be legally avoided on income up to $91,500 on the basis of ex-pat residency only ... or avoided altogether via expatriation plus renouncing of US citizenship.


    references











    ~
    Last edited by Melonie; 04-17-2010 at 09:04 PM.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    Melonie,

    Your tax brackets are incorrect. The link below has the current tax brackets:

    http://taxes.about.com/b/2008/10/21/...-announced.htm

    If you're estimate is based on Bush's tax cuts expiring, they are only expiring on income above $200k and $250k for married couples.

    http://www.usatoday.com/news/washing...bama-tax_N.htm

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    ^^^ reading comprehension 101 ...

    I specfically stated that I was using 2011 tax brackets since this would be the first full year that future expatriation would allow income tax avoidance. My data for likely 2011 tax brackets came from the fivecentnickel link above.

    (snip)In case you weren’t aware, the Bush tax cuts of 2001 and 2003 are set to expire at the end of 2010. Thus, if Congress doesn’t act, the relatively low income tax rates that we’ve been enjoying (hah! enjoying?) will soon be a thing of the past. They will be replaced by the pre-2001 tax brackets.

    In other words, the 10%, 15%, 25%, 28%, 33% and 35% tax brackets that we’ve grown accustomed to will be replaced by 15%, 28%, 31%, 36%, and 39.6% brackets. It’s hard to say exactly where the income cutoffs will lie, but if we base the numbers on the 2010 income tax brackets and add 3% for inflation, the 2011 tax brackets might look something like this:

    Tax Bracket Married Filing Jointly Single
    15% Bracket $0 – $70,040 $0 – $35,020
    28% Bracket $70,040 – $141,419 $35,020 – $84,872
    31% Bracket $141,419 – $215,528 $84,872 – $177,006
    36% Bracket $215,528 – $384,860 $177,006 – $384,860
    39.6% Bracket Over $384,860 Over $384,860
    (snip)


    are only expiring on income above $200k and $250k for married couples.
    I know that this is what President Obama has promised, and this is what mainstream news media has reported. But without new legislation being passed, what you'll get is an across the board expiration of the GWB tax cuts which will in fact result in the tax brackets shown above ... which DO raise tax rates on Americans earning as little as $35,000 a year. Present conditions in Washington strongly point to a 'logjam' developing over changes in the tax code, making actual passage of any new legislation unlikely. The 'gold foil hat' crowd will tell you that liberal members of congress want to see across the board income tax increases take effect via GWB expiration to support continued high gov't spending, and that conservative members of congress also want to see across the board income tax increases take effect via GWB expiration in order to make high taxes a major 2010 election issue. Neither group wants their voting record to show that they actually voted for income tax increases, and GWB expiration avoids the need for any new votes.

    ~
    Last edited by Melonie; 04-19-2010 at 02:44 PM.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    Quote Originally Posted by eagle2 View Post
    I doubt that a high percentage high-earning Americans are in the above fields, and I'm sure there is a lot more competition from firms from countries with lower cost labor, such as China, in some of those fields, such as heavy construction and mining. Those Americans who are able to earn lucrative salaries in other countries are probably doing so already. There are already many Americans working in countries like Saudi Arabia, working in the oil and gas industry.

    The vast majority of Americans in that income range are probably high-skilled professionals like doctors, lawyers, and business executives. For those Americans, lucrative opportunities in their fields abroad are very limited.



    An American earning $250k a year pays a lot less than 50% taxes. The proposed tax increases are only on income above $250k for married couples. In addition, a family earning $250k can get significant tax deductions, especially if they have a mortgage on an expensive home. High income families are also more likely to earn a significant amount of income from capital gains and dividends, which have much lower tax rates.
    It's not a mass exodus, yet, BUT a number of American doctors are looking to off-shore their practices.

    The expiration of Bush's tax cuts, absent new legislation, means as ACROSS THE BOARD tax increase for ALL taxpayers. Look for Obama to pull a Clinton and renege on his promise not to raise taxes on those making less than $250,000 a year based on the increasing budget deficits. All he has to do is NOTHING and we ALL get a tax increase.

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    Default Re: April 15th thread - 'What Do We Do If the Rich Start to Leave ?'

    They cut one tax and then go on about how they are cutting taxes. Meanwhile they secretly let other taxes creep upwards. It's a farce.

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