The Essence of Liberty, Part 90June 19 2007 at 8:52 AM
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GyG (Login Dick Gaines)
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The Essence of Liberty, Part 90
A Summary of: Those Dirty Rotten Taxes:The Tax Revolts that Built America by Charles Adams
Summarized by Ashlee Worley
Edited by Dr. Jimmy T. (Gunny) LaBaume
The Rebellion of the Rich (Patriotism Is Soluble in Taxes)
The fairness argument has arisen again from the debate over tax reform. A popular belief amongst the general population is that the United States is a tax haven for the wealthy. Corporations and the rich and powerful don't pay much tax. Therefore, any tax reform that shifts tax burdens away from the rich is taken as being automatically bad.
Bill Clinton used these arguments to successfully push his 1993 tax increases through the Congress. He claimed that his increases would only fall on the top 1.5 or 2.0 percente.g. those who could easily afford to pay more.
Tax reformers have tried to dodge the fairness issue and, in the process, bungled the debate. They tried to emphasize the benefits of increased savings and capital formatione.g. the opening of new businesses, improving old businesses, and making America more competitive in world markets. The essence of their argument is that a dollar in the hands of an enterprising capitalist is more beneficial to the nation than that same dollar in the hands of a federal bureaucrat. However, just about everyone already knows that the wealthy and corporate America pays very little taxes by using large loopholes in the law. They also know that the poorer and lower middle classes get clobbered with taxes they have no way of avoiding.
Progressive taxation against the wealthy in America is much greater than in any other countryeven including Sweden. Corporate profits in the uS are taxed heavier than any in any other Western nation. Property taxes are the highest in the worldand fall primarily on the rich. America collects more taxes from estates and gifts than any other country and has for decades. Marginal income tax rates are the lowest in the Western worldwhere they usually start at 30%. So much for soaking the poor.
In the final analysis of the fairness argument, it is the rich who are getting soaked with heavy taxeseven in comparison to other high-tax Western democracies. The rich in other high-tax jurisdictions simply move to low-tax countries. However, that doesn't work for Americans because the IRS follows them.
Income and death taxes are a residence taxes in every other country in the world except the uS and Eritrea (a flyblown, 3 rd world hell hole in Africa). In all other countries, residents are required to pay their share of the costs of the government that provides services and protection for them and their property. They consider that, when residency ceases, there is no longer any moral justification for these taxes.
But America is different. It exacts taxes like Louis XIVof France. When he was told about the people's resentment of his taxes, he replied that all the wealth of his subject's was his, and when he took it he took only what belonged to him. The same attitude prevails in the uS. How else do you justify taxing nonresident citizens who take essentially nothing from the uS governmentespecially since they also pay taxes to the country where they reside for the protection and services they use?
When Robert Rubin (Clinton's secretary of the Treasury) was asked about the injustice of the estate tax, he replied that he could not see any injustice at all. He even pointed out that the government let citizens keep some of their propertythe obvious implication being that the government could take it all if it wanted to. In other words, right now the top estate tack bracket is 55% of the taxable estate. But, the government could take the other 45 percent if it wanted to.
There are many countries that are in worse fiscal shape than America (for example, Canada, Australia, and New Zealand) that have repealed death taxes because they consider them unwise and unfair confiscation of capital and previously taxed income.
The data shows that 90% of family businesses disappear after the founder dies because the family can't keep the business and pay the death taxes. As far as congress is concerned, family businesses and farms don't seem to matter much. Their view is that the government needs the money more than the country needs family businesses and farms.
Sooner or later Americans will learn that the other nations will welcome them with open arms and tolerable taxes. Doesn't it seem ironic that a rich Englishman can leave England, rearrange his affairs, and come to live in New York, with a greatly reduced tax burden, and similarly, a rich American can leave New York, take up residency in London, give up his citizenship, and live in England with extremely moderate taxation?
So how do the rich survive in America? Most set up tax-free foundations because they have no other choice. The Ford and Rockefeller Foundations are the most famous, but thousands more have been formed by less notable families. The final result is total tax avoidance on a huge bloc of wealth. Is this a good policy even from the government's point of view? It would not seem to be because it deprives the Treasury of even modest tax revenue from this source.
Soaking the rich is the obvious objective of progressive taxation. But, this objective has turned against its proponents in that the rich have simply disappeared as if by magic. Where it really backfired on them, however, is that the middle class has fallen into the ditch they dug for the rich.
Many of the rich have rebelled with their feet. They have transferred their wealth (and often themselves) to more favorable tax jurisdictions. Residents of many of the world's tax havens read like a Who's Who among the world's rich. Even those who do not choose to change residency manage for their wealth to find its way to a new low-tax home.
Aside from repealing these oppressive tax laws, the only way to check the flight of wealth would involve more tyrannical force. For example, the emperor Diocletian was faced with the flight of Roman taxpayers out of his system around A.D. 300. So, he curbed the Roman citizens' freedom to travela freedom they had enjoyed for seven hundred years. Another approach to the problem has been to require exit permits (along with severe exchange controls) as the Communists states did. Unless the high-tax nations take similar measures, wealth can (and will) take flight to low-tax countries. There are several types of exchange control systems but, generally, exchange control requires approval from the central bank for the citizen to exchange his local money into foreign money. The result is essentially a freezing of the citizen's holdings in local currency.
The flight of the rich to tax havens is harmful to any nation simply because it drains revenue. But, the brain and enterprise drains have a far greater impact on the nations economy. This was one of the bad consequences of too much taxation that Adam Smith pointed out in his Wealth of Nations.
There has been (and continues to be) a steady exodus of fed-up with being overtaxed citizens from America. But, the heavy taxation itself is not the only problem. Many have fled solely because of the arrogant, hounding bureaucracy and its perpetual tax audits, and threats of prison.
After Bill Clinton pushed his 1993 tax bill through Congress, 306 taxpayers left the country and renounced their citizenship. However, since the super-rich have always had the means to avoid confiscation by taxation, no matter how hard a government tries, it was the upper middle class who eventually got clobbered. Only one time in history has a government been able to prevent the rich from finding a means of avoiding wealth confiscation. That was the case of the Bolshevik (Communist) revolution in Russia. They simply exterminated the bourgeoisie after having confiscated their wealth.
The world's tax havens are heavily populated with the super-rich. They, and their money, are welcomed with open arms. America is not alone. The British have lost thousands of their rich and famous, for example the Rolling Stones and Sean Connery who resides in the Bahamas.
Nowadays, tax havens are like the biblical cites of refuge where the rich seek protection from avaricious tax systems that are trying to extort and plunder their wealth. Tax havens are not new. Overtaxed people have been fleeing to more favorable tax jurisdictions since ancient times. America was the great tax haven for Europeans in the early modern period. In its first 150 years, the united States was a refuge from European taxes. Tax havens will go away only when taxes become reasonable and fair. If the national sales tax ever replaces the income tax, you can expect a wave of new immigrants. The rich and famous are waiting and wanting to return home.
At the time this work was completed, Ashlee Worley was a student in the School of Agricultural and Natural Resource Sciences at Sul Ross State University where Jimmy T. LaBaume, PhD, ChFC is a Professor of Economics and Statistics.
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