We tax your worldwide income regardless of where you have moved your capital.
In the same breat5h you seem to lament tghe lack of federally funded health care while complaining about the “HUGE” government sector. Which is it? Is government bloated or isn’t it? It seems to me that if you have a problem with our military spending, then just say you have a problem with our military spending and nto confuse that with big government.
Our taxes are significantly lower than most other industrialized western nations. You think other places don’t have state and local income taxes? sales taxes (see VAT)? estate taxes? These taxes are not novel to the USA.
Actually, half the argument against increasing taxes on the rich generally and hedge fund manager’s carried interest specifically was that these people would all move to London.
Pardon me if I’m a little skeptical that the people moving from New York City to the South are equally willing to move to Ireland, if only the tax benefits were good enough.
In fact, one were to make a list of why people are moving to places like Florida or Texas, I think things like the weather and cost of living would be way up high on that list, and things like how much the sales tax is in those states would be way down on that list. So no, I don’t believe there are many people relocating within the United States because of state tax policies. The movement of people among states, IMHO, has very little to nothing to do with state tax policies – it is just a coincidence.
Likewise, I’ve seen nothing which would make me think that there is a public policy problem in the relatively few people who move from one country to another to avoid taxes.
What, really ? You mean, in Yurop they don’t barter with cowrie shells and such ? Huh. I’m sceptical, do you have a cite ?
Why should rich Europeans move to the USA for tax purposes when Switzerland is closer, much easier to move to and have lower tax rates? And indeed many-to-most of the richest Danes have moved to Switzerland (and other low tax places in Europe). There are also many that have moved to the USA, but those are usually more entrepreneur types of persons who want to take advantage of a lower tax and a more business friendly environment.
I don’t know about your contentions in this thread. It is undeniable that if you’re a millionaire most immigration systems have ways of accommodating you. It is also true that a millionaire has the resources and perhaps the desire to move to pay lower taxes. However Canada’s taxes on the wealthy have to be weighed against the taxes on the wealthy here (which are actually often lower than taxes on the middle class–mind most of the truly wealthy here are taxed at the capital gains rate and not at the income rate for the vast bulk of their earnings), and given the fact that many of the wealthiest Americans pay sub-20% tax rates I’m not sure they would be better off moving to Canada. One year Warren Buffet (a left-leaning individual), and typically the country’s 1st or 2nd wealthiest man mentioned that his effective tax rate was just under 18%, on $50m of earnings. Many of his employees who earned far less than him were paying just south of 33%. So while in the aggregate Canada may be lower tax, unless it has sweetheart deals like that for the uber-wealthy it may not be as attractive as the United States.
Middle and upper middle class Americans would probably be better off right now if they could move to Canada, but if you’ve looked unless you have some connection to Canada genuine immigration to Canada is extremely restrictive. I actually was amazed at how essentially if you’re American and have no Canadian relatives you basically need to be a multi-millionaire or one of a very select number of high demand professions (doctors–the other lists of in demand professions have their quotas met essentially instantly every year) to have any chance. Given Canada is known for having a high immigration rate, I am very confused as to how that happens given the insanely restrictive immigration law.
Unlike the United States, which has lower legal immigration than Canada, in browsing the Canadian immigration web pages I saw no mention of any sort of general lottery or et cetera that allows non-refugee, non-wealthy, non-high demand professionals to immigrate. In the U.S. there is always the chance that essentially anyone can get in through the lottery system.
Cite?
I read a paper that said that tax rates were not the leading reason people chose location, more it was the businesses in the region, the neighborhoods, the schools, etc… Tax rate had very littler to do with it. I will try to find the paper, but I am busy at work, and since you are asserting it, I am sure you can provide a cite…
I think it undeniable tax factors in, but I think it will be very hard to say how large of a factor it is. If I’m a rich entrepreneur from Sweden or Finland I may want to live elsewhere not just because I want to pay less tax, but also because entrepreneurship and a desire to be a fierce business competitor is anathema to the personality of modern Scandinavian culture.
At the same time of course most of the super wealthy will stay where they made their riches, but some do move and the question is what motivates them. A desire to avoid prohibitively high taxes is definitely one of them, but many of the people who seek to avoid prohibitively high taxes will also be looking at improved business opportunities and a culture a bit more in line with their personality, so it will be hard to say which is the dominant factor.
One of the major things that lead to so called “Canadian brain drain” (I only reference it because Sam did above–I don’t think it was a ludicrously rampant problem but more of a mild statistical one) is for certain very key professions America just pays much better. I’m too lazy to dig up the cites but the last time we had a thread talking about such things I believe I found that Canadian doctors might average $100k a year while American doctors would push $200k. So for doctors, who aren’t what I would consider the true wealthy, and being people who actually need to worry about money (especially early on, and even continuously if like most people they expand their lifestyle to match their discretionary income) they are probably more prone to moving for increased financial reward than are billionaire industrial magnates. Sweden has its industrialists and not all of them live in Switzerland.
I’ll preemptively answer the cite question on my generalization about Canadian versus American physician salaries (and I’m copy and pasting these cites from a post of mine made in a previous thread on a similar topic…)
“Scalpels and salaries: where do doctors cash in the most?” (Compares U.S. and Canadian salaries for specialists)(Link)
“How Much Do Doctors in Other Countries Make” (Link)
FWIW, I know that several poker professionals have changed countries to avoid stupidly-high tax rates - Patrik Antonius comes to mind, moving from Finland to Monaco, as did Gus Hansen. WSOP winner Peter Eastgate moved out of Denmark for similar reasons, or at least he tried (in between his making the ‘November 9’ and the final table playout - this was a cause of some controversy when it happened).
So the answer probably is, ‘it depends’ on how mobile the person is (that profession isn’t exactly known for anchoring its participants to a particular country).
Almost the entire Formula One field lives in Monaco, too, even though nearly all the constructors are in about a 150-mile radius circle in England.
Unless you’re a poor person in a big city. This study from the CFO of DC tries to figure out the total state/local tax burden in the 50 cities that are the largest in each state, plus DC. Looks to me that the burden is largely flat by income in each city (though regional variation is significant) except for the hypothetical family with $25K of income, which has significantly higher tax burden.
Is this Wikipedia article incorrect about Canadian taxes? Among other things, it contains an OECD chart showing taxes for the mean income family to be much lower in the US for a couple with 2 children. There is another chart that shows tax revenue vs GDP much higher for Canada than the US. Also, it looks like inheritance is taxed as ordinary income, with no cap gains exclusions–you do know that US estate taxes exclude a significant chunk of the estate, and the basis for any capital gains is “stepped up” to the date of the decedent’s death? That effectively reduces the estate tax to zero for a very large majority of estates.
Don’t you also have a huge extractive energy industry (oil sands)? It’s easy to have a very low tax burden on individuals when you’re pulling natural resources out of the ground and selling them to more populated locales (cf Alaska, Saudi Arabia).
I would love to live in Canada, but not because of low taxes. On the other hand, having health care that’s not tied to my job would be quite nifty.
Is it really? I never heard that, but if true it’s a special case (the hedge fund mgrs, that is). Still, they’d have to pay at least the same amount of tax in total if they moved to London until the became British subjects and renounced their US citizenship.
Well, Sam Stone has not come back to offer a cite yet, but I thought I could offer a counter cite. From the Planet Money blog a few weeks back:
Studies: Rich Don’t Flee High-Tax States.
Here is a choice quote from the blog:
[QUOTE=Planet Money Blog]
“Taxes [have] essentially no impact on causing people to leave a state,” says Jeff Thompson, of the Political Economy Research Institute at the University of Massachusetts, Amherst.
In a study tracking 18 years of migration between states in New England, Thompson found that people mostly move for job-related reasons. They go where the jobs are, regardless of whether it’s low-tax New Hampshire or higher-tax Maine.
“If you’re living in a state and your tax bill goes up by a thousand or two thousand dollars,” he says, “that … pales in comparison to what it would cost you to actually move. And it might not be worth it to have to be farther away from your job, farther away from your friends.”
[/QUOTE]
The blog cites two studies in particular (one of them is the one I referred to up thread):
[ul]
[li]Jeffrey Thompson, “The impact of taxes on migration in New England”, Political Economy Research Institute University of Massachusetts, Amherst, April 2011.[/li]Key Quote from the Executive Summary:
[li]Cristobal Young and Charles Varner, “Millionaire Migration and State Taxation of Top Incomes: Evidence from a Natural Experiment,” 64 National Tax Journal 255-83 (June 2011) (Working Paper).[/li]Key quote from the conclusion:
[/ul]
The OECD data doesn’t contradict anything I said. I said that Canada’s taxes are less progressive than the U.S., because we have a national sales tax (the GST), and we raise a higher percentage of our tax revenue from excise taxes. The GST and excise taxes make up 20% of Canada’s total federal tax revenue. The GST alone makes up 12% of all tax revenue, and it’s a flat tax that applies to everyone.
In addition, your chart ends in 2007, and Canada has undergone numerous tax reductions since then, including cuts to corporate taxes (with more cuts planned for next year). We’ve cut $6 billion in tax since 2006, In the meantime, the U.S. is borrowing almost 10% of GDP to fund current expenses, and this should really be considered an implied tax, since will eventually have to be paid back. The market certainly sees it that way, and Democrats certainly believe they should solve the deficit problem with tax increases.
As I said in the original post, Canada and the U.S. are currently within a couple of points of each other, but once the U.S. has to start eliminating the deficit and tackling the debt, there’s no question that the U.S. will wind up with higher taxes than Canada overall, and if you insist on paying for the deficit solely on the backs of the rich, the rich will be taxed dramatically higher in the U.S. than they are in Canada.
The U.S. government passed Canada in terms of overall size of government as a percentage of GDP in 2009, and the gap is growing dramatically. Ultimately, your taxes have to match that fact. BY 2016, you are still projected to be borrowing about 6% of GDP, while Canada and Germany will have the only balanced budgets the G8, and Canada will have the lowest debt in the G8. Cite. If you don’t cut spending dramatically, you’ll eventually have to make up that difference with higher taxes. Of course, the U.S. has cut taxes as well, so it’s hard to see where they currently sit on the taxes-as-percentage-of-GDP front since the data isn’t yet available. However, the U.S. increased its size of government dramatically in the past three years, and Canada did not.
As for the estate tax, I’m not an expert on it, but my understanding is that the estate is sold off, and the assets treated as capital gains on the estate. So if a house cost $1 million, and it was bequeathed to a child and was valued at 1.2 million at that time, the estate would be taxed a capital gain of $200,000. Capital gains for individuals are taxed at half the individual’s marginal tax rate. So the total tax on the 1.2 million dollar home would be 29% of $100,000, or $29,000. Of course, if the estate had a bunch of capital losses in it (say, a rich uncle dies this year, and his stock portfolio is worth $10 million but was purchased for $11 million), then the beneficiaries would get the $10 million and there would be no tax whatsoever. But as I said, I’m not a tax expert so there may be some nuances in there that I don’t know about.
This is an eminently sane way of dealing with estates, because it doesn’t insert any bias due to taxation. If I let my estate accrue until I die, the tax implications are no different than if I liquidated it before I die. The same is not true in the U.S., where an estate tax may cause people to modify their retirement or investment behavior to avoid the tax. And again, Canada’s system is less progressive - in the U.S., no one pays an estate tax unless they are quite wealthy, when suddenly a large tax kicks in.
As for middle class couples in the U.S. paying less in taxes - that’s what I said. The U.S. tax system has many tax advantages for married couples and people whose mortgages are a big part of their expenses and income. So you’ve got a big donut hole - the poorest pay a reasonable percentage of tax on their income because the FICA taxes predominate, and the rich pay a fairly high percentage in taxes as well. But the middle class is getting off with a very light tax burden, and they make up the bulk of the population. The result is that your tax revenue is down, the tax burden on the rich and on small corporations is high, and the largest corporations don’t pay much in tax at all because they’ve managed to lobby for so many loopholes. It’s really screwed up. The people who really take it on the chin the most is the entrepreneurial class - small and medium sized businesses and owners who aren’t large enough to take advantage of the tax advantages the big corporations get, so they are stuck with one of the highest corporate tax rates in the world. And the successful entrepreneur who may have a million dollar income gets hit with highly progressive taxes and again, doesn’t fall into the ultra-rich category where he can shelter his income from tax.
Those are the people who create 70% of the jobs in America, and they’re the ones getting hammered by all the new regulations, proposed tax increases, and the Obama health care plan. And you wonder why you can’t create jobs.
The left’s answer to this is to tax the rich even more and try to tax corporations even more. And that brings me back to my point - if you keep raising taxes on the richest people and your most productive enterprises, you might just find that they move north where our tax system is more sane. Then all those middle class people with the low tax burden will suddenly find themselves stuck with a 14 trillion dollar bill, and massive tax increases just to close the deficit.
Alberta makes a fair chunk of coin from our energy resources, but as a ‘have’ province we also give a lot of that money to the rest of Canada. In comparison, Quebec gets more money in transfer payments from the rest of Canada than Alberta makes from oil minus the money we sent to Quebec, yet Quebec’s big government, high tax economy is always struggling.
Did you know that the U.S. government spends more per person on health care than does the Canadian government? And we’re not that much more ‘socialist’ than you in this regard: Canada’s health care system is about 70% publicly financed, whereas the U.S. is about 50%. I think when Obama’s health care plan comes fully into effect, you’ll be spending about as much as us in terms of government percentage of overall costs, but your government will be spending a LOT more than ours does per capita, because you spend more on health care overall than we do.
Interesting data. I see those two studies are being republished all over the internet right now, and they seem to have some good data. I want to do a wider literature search and see if I can find any opposing studies, and read these more carefully to see the assumptions they are making or whether there are actually confounding variables (i.e. do the higher tax states use the money to provide perks to the rich?).
The other possibility is that the effect doesn’t exist when the difference between the highest and lowest taxed states isn’t that great in terms of top marginal rate, or perhaps because the wealthy can find ways to shelter their income from state taxes anyway.
But you also mentioned that the people tend to go where the jobs are, and that could be another factor. Do lower-taxed states create more jobs? Do they create more millionaires because of business growth? It’s a complex issue.
But for now, I’ll take your studies as the last word and say that the evidence right now is that the current differences between tax rates of the states is not causing significant migration of the wealthy.
There are some papers I found that showed that retired people would move based on tax rates for their investments and also because of estate tax rates. You can find the studies in the references of both the above papers. That does seem to have a correlation.
Regarding the rate issue, the “millionaire’s” tax that was the focus of one of those papers was a very large increase. Something like +2.6% for income over 1 million, and it did not have a noticeable affect on migration of those in that bracket.
Regarding you last questions, I read another study a year ago or so that I have not been able to find again regarding TABOR in Colorado (the taxpayers bill of rights). Basically, it showed that lowering and limiting taxes in Colorado was correlated with business and income growth, but only for a few years. After a 3-5 year period where business growth in CO outpaced the rest of the country by several percent, the growth dropped below the national average for over a decade. The researches posited that this was because Colorado schools (48th in the country with regards to funding) and other infrastructure (our roads bite!) was not attractive to businesses and thus we were losing out… I really wish I could find that study again, it was fascinating…
Anyway, I do agree that it is a complicated system.
You’re actually off base here for several reasons:
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The super-wealthy do not have to take advantage of any “loop holes” they just have to structure their compensation so that the lion’s share of their income is in the form of capital gains. That’s essentially the norm for anyone who has made it to the upper levels of a large Fortune 500 company, they make a $100-300k salary and their total compensation is $2-3m. (I won’t include the major brokerages like Goldman Sachs who have off the chart compensation even for non-executives.)
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The non-wealthy entrepreneurs who might be running a small business are probably not wealthy enough to easily immigrate to Canada. You are expected to be able to make a C$800,000 investment to take advantage of the investor/entrepreneur clause in Canadian immigration. I can tell you because I am someone who is part owner in a small business you can easily be “asset rich” and have no realistic means of getting a $800,000 stack of bills in cash (actually $823k US dollars.) Additionally, most small businesses are reliant on knowledge of their local market for success. I can tell you for a fact not knowing anything about the zoning laws, not knowing the procedures of local building commissions, not knowing anyone on town councils (do Canadians even have those) not having local banking connections..I would not even know how to begin to operate my business in a Canadian town.
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Corporations may locate some facilities in Canada, but in all honesty I find it unlikely there is to be a “mass exodus” of major American corporations to Canada. Corporations would be more prone to off-shore some things to the developing world.
Yeah, I think renationalizing somewhere else is the point behind all the arguments behind welath fleeing America for other places.
This argument is pretty stupid for people eaening active income.
There are very few ibanking jobs, for example, where the banker can say “I’m sick of paying US taxes, I’m going to move to a tax haven and take my job with me” If the banker wants to leave, they will be leaving their job behind and more often than not, they will not be successful trying to start a business in the Caymans versus somewhere in the USA.