Fleeing from taxes

Great Debates
1

The story of Eduardo Saverin, the billionaire who moved from the USA to Signapore to avoid capital gains taxes, attracted plenty of attention on this message board and elsewhere. Sometimes it takes a single prominent cases to get people to recognize a trend that’s been in progress for awhile.

Taxes have existed since almost the start of human history. Sometimes they have funded government activity that benefits the people. Others times they have mainly served to benefit the government leader(s) and their family and cronies.

What’s certain is that almost everyone pays taxes when the government tells them to. There are ways to not pay taxes. One can choose non-violent resistance and refuse to pay, as Henry David Thoreau did. One can start of violent revolution and overthrow the government, as the American colonists did. Or one can flee the country. Typically all three options are dangerous and costly, so few people have done those things. Almost everyone simply pays whatever taxes the government levies on them.

Recently, however, it’s become easier and easier for people to move across political boundaries for any reason, including the avoidance of taxes. The most obvious way is transportation. For many it’s easy to buy a house in a nearby city or state, rent a truck, and move. Buying a horse and buggy and moving 150 years ago was a lot harder. The world is now connected by transportation networks that let anyone go almost anywhere without difficulty.

Another reason is the changing nature of resources. Not long ago, almost everyone held almost all their wealth in physical things, most particularly land. Nowadays a large and growing sharge of wealth is in digital form: numbers stored in a computer in a bank. Hence someone who moves to a new city, state, or nation need not worry about the expense of moving their wealth. It can all happen at the click of a button.

Other barriers are coming down as well. Language barriers are not as large an issue as they used to be. Many emplyoers are multi-state or even multinational, so people can move without changing jobs. Telecomuting means that many people can move and keep their jobs. Most of all, more and more places are becoming decent places to live, so there are more options for those who want to flee from taxes. With the internet, it’s much easier to figure out where taxes are the lowest and much easier to plan a move.

The upshot of this is that running a large, partially or totally corrupt government and soaking the taxpayers to pay for it simply isn’t as easy as it once was. The trend of people moving away from taxes and bad government is already reshaping America and the world. In America, cities like Detroit that impose high taxes and deliver inferior services have seen their populations dwindle. States like California see businesses running away and tax-paying citizens going with them. When facing these facts or examples like Mr. Saverin, some government bureaucrats respond by dreaming about stopping movement by force. Put up an exit tax so that billionaires can’t take their money out of the country. Officially merge suburbs into the big cities so that people’s can’t escape city taxes by moving to the suburbs. But such dreams don’t solve problems. You can’t stop progress–technological or any other kind.

2

Ummmm . . . what’s the debate?

I agree and disagree.
In a situation like Detriot, the back and future taxes on those $20 houses makes it prohibitive to buy one. If they wanted to get people to buy the houses, they would make a tax amnesty for anyone willing to move there or buy them to make improvements or offer low-cost rent, etc. In this case, the high taxes pervent people from going there in the first place.

I think the point your making is not about taxes, but the growing socialism in America. If I work my way into financial success, it wasn’t “America” that did that for me. I did it myself. And so why should I pay for welfare and social security for those that didn’t work as hard or were as smart as me?* As long as some people view their role in society through a cost-benefit analysis, you will never win because they will come up with some moral view that justifies the completely financial decision to change citizenship for lower taxes.

The real problem is that in this day and age, the benefits of being an American are front-loaded in life. Let’s say after school, I’m rich enough to be an ex-patriate. Clearly I won’t need the social welfare supports and Social Security (if it is still solvent) will buy ice for my drinks. National defense? Explain again why we are in Iraq and Afghanistan? If I’m out of the country I don’t use the interstate or national parks. So basically the only benefit being an American gives me is free public education for me (already done and paid for by the government) and my kids (I can afford private schools) and right to vote (big whoop) and hold public office (don’t care). What is there to make me want to hold on to my citizenship for the cost of huge taxes?

*Not necessarily my views.

3

This is the inevitability fallacy typical to free trade proponents. Just because globalization proceeds unabated doesn’t mean that we cannot enact sensible trade laws. Money flows according to the economic system set up not just by buyers and sellers but by regulators as well. Change the regulations and the flow of money will adjust. America has a huge economy. If foreigners want to take their football and go play elsewhere, let them. Plenty will trade with us so long as they can do so profitably. We can enact fair trade policies. We can expand the tax base of our metropolis to include the parasitic suburbs. We can enact federal laws to discourage the anti-rent seeking behavior of companies seeking to relocate to low tax states. We can, we just don’t.

It’s not inevitable. It’s money. There is a lot of money to be made in anti-rent seeking and American politics are so corrupt that when there is money on the line money almost always has its way. It’s not progress. It’s selfishness.

4

The problem is that governments are caught in a version of the prisoner’s dilemma. If all governments could unite they could keep tax rates for corporations and the wealthy at rates that would promote growth yet still provide much needed revenue. However, by posting a tax rate slightly lower than other governments, a government can actually increase its revenue by attracting the wealthy into its tax base. But then this leads quickly to a race to the bottom, where 15% total income tax is seen as too high and a company won’t think of locating in a place unless it is literally paid to do so, resulting in the rich get richer environment we find our selves in now.

When I think of corrupt government I don’t think of high tax areas that are eschewed by the wealthy, I think of areas where the government is funded by bribes paid by the wealthy and so the govemrent does all it can to make them feel welcome.

5

Don’t you think that it is more a question of regulations and not taxes that cause corporations to move? My understanding is that the reason that there are so many corporations in Delaware is not their tax rate but their corporate reporting requirements.

6

My understanding is that there already is such a tax, at least in Mr. Saverin’s case. He has to pay capital gains on his as-yet-unrealized gains at the time he renounced his citizenship.

This seems (reasonably) fair to me. We normally don’t tax gains until they’re realized, but if you’re moving outside our jurisdiction, then that creates a taxable event. He’s on record as saying he’s going to pay “hundreds of millions of dollars” in taxes. I believe that’s what he’s referring to.

In the long term, I expect that governments will respond to this sort of thing with treaties and agreements that effectively increase the size of their tax jurisdiction. You can already see this in things like the various states passing laws to collect taxes from Amazon. Amazon eventually came around and has made agreements with a number of larger states, presumably because they can’t thumb their noses at them forever or they risk a band of powerful states pushing a national law through. It’s obviously much more complicated than that, but basically I’m saying that local governments have some leverage in this fight, too.

I’m also kind of looking forward to what happens when, say, Peter Thiel and his billionaire friends set up their floating Libertopia. That seems like the natural endpoint of this trend, and I think it’s going to be an awesome social experiment. Maybe it’ll teach us something really important about how governments should work.

7

I disagree. You can stop progress. You just have to cut off its funding.

People like Saverin were perfectly happy to live in the United States and receive all the benefits this country offered. But when they reached a certain level of success and were asked to pass something on so the next generation could enjoy the same benefits, they decided to skip out on the check.

I don’t care who you are or what you’ve done - nobody has ever succeeded solely through their own efforts. Every person had a helping hand extended to them at some point. And if you have been successful you have a moral obligation to now extend your hand to help somebody else.

8

That’s not why we pay taxes. Taxes are not supposed to be a wealth redistribution scheme to help the downtrodden.

The reason we pay taxes is that there are services like highways, roads, police and public education that we feel should be available to everyone and not subject to market forces. When you privitize everything, what you end up with is something similar to Brazil where you have a very rich minority living in gated communities with private security, going to private schools and with private doctors, while the rest of the population wallows in shantytowns (favellas).

The reason people succeed is not so much a “helping hand” as it is access to roads, electricity, security, education and other services.

It sounds like the underwater city from the Bioshock games.

9

Oddly, overall taxes in the USA are lower than in almost every other Western Industrialized nation.

Note that Singapore rates only “Partly Free”:

Pretty much every industrialized “Free” nation has taxes higher than the USA does. It’s one of the costs of freedom.

10

Of course, that has been around for 10 years or so and is still in planning stage.

11

We also have a long history of sacrifice and contribution to the well being of the community, both large and small; and of honoring those who make such sacrifices. Yesterday was Memorial Day. We still ask some people to give up their lives for this country; I don’t know why it seems taboo to ask others, who can most afford it, to give up some money.

There seems to be an attitude among some people that the rich have already sacrificed, through the mere act of getting rich. They are the noble “job creators”, and we should lessen their contribution to the community as a gesture of thanks, and to encourage them to continue.

12

I dunno about that, he hasn’t been in the US for a while, about 4 years by my count. The US is still demanding that he pay US taxes, though, which is something I’ve always thought odd. He certainly isn’t using any US services, not any more than I am, and I don’t have to pay US taxes. So as tax dodges go, I think Saverin isn’t all that.

13

And you don’t feel that things like roads, electricity, security, and education are benefits? Those are exactly the kinds of things I’m talking about.

14

As for the first three, they’re not benefits if you don’t live here.
As for the last, I’ve said the problem is education is at the beginning of your life so you need to decide does taxes pay for their own a person’s personal education or for education of society as a whole for the improment of society. In either case, hasn’t Serverin already paid back what he took? Or do you think he should support America’s educational system in the future even if he is not a resident?

15

So you’re saying it’s okay to gather up all the benefits you need and then walk away when you’ve had enough? That’s what I was talking about when I said some people skip out on the check.

As for paying back what he took, Saverin achieved some pretty major success in his life. And I doubt he achieved it all single-handedly without anyone else’s help.

Saverin was originally from Brazil. His family moved to America because they feared kidnapping threats in Brazil. I guess it’s lucky for them there was a country waiting to take them in that had a solid legal system and economic system in place, huh? Saverin went to Harvard - lucky for him some people got together and founded that college in the seventeenth century. Saverin made his fortune by developing Facebook - of course Facebook would be useless if there hadn’t been a computer-literate market already in place. And now Saverin lives in Singapore - a country that was occupied by Japan until the United States defeated that country in World War II.

Every step of the way, Saverin was walking down paths that other people have spent decades or even centuries building for people to use. If Saverin had had to pay out of his pocket for everything other people have done for him in his life, his entire fortune would be gone and he’d still be deep in debt.

16

Well, if he gets kidnapped or something, the US won’t send the Sixth Fleet to rescue him or impose sanctions.

17

The right overestimates the influence that tax rates have in people’s decisions. How many people would seriously consider moving for the sake of tax avoidance? I don’t think many. Sure, there will be a notable exception here and there. Most people live where they work and aren’t mobile. If the fat cats who don’t punch a clock want to move, let 'em go. If someone wants to live in a repressive society to avoid taxes, who cares?

Detroit keeps getting mentioned as a place where the wealth flows away from. Then how do you explain a guy like Mike Ilitch, who has poured a boatload of money into the city?

18

I never said I agree with Saverin’s thinking. I was merely pointing out that if (notice I said if) taxes were looked at through a cost-benefit analysis then Saverin has already paid back his public education costs and he is not currently using any American resourses that are maintained with tax money.

Oh and Harvard is a private school. Don’t know what that has to do with taxes.

19

Outlier. Maybe he should help some of the Detriot Public Schools pay their bills so their electricity doesn’t get shut off again.

20

It may be a private school but without the federal research money it takes in, tuition would be even higher. A Harvard education is subsidized, albeit indirectly, by the government.