I have long held the view that if a country wants to enjoy high growth rates, it has to simplify its tax code for its citizens and corporations). What started as a short-term fix in 1760 has now become an instrument of fear in our daily lives.
Traditionally, taxes were an instrument implemented to foster protectionism and sectionalism. Taxes are imposed on imports to ensure that the local industries are protected from competition. Each passing government and decade seems to find new ways for the governments to tax its citizens in creative new ways.
A recent study by two German economists evaluated a vast array of taxes and compared 100 countries across the spectrum to see which countries have the most attractive tax laws. Some countries have higher taxes yet are attractive due to exemptions it offers in other ways to make the higher rate sustainable.
Then there are countries like the United States, where not only do we have high tax rates, but we also have a penchant for zealous pursuit of tax revenue as well as desire to create the most draconian tax laws. I have written to you often about the Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank Account Report (FBAR) as some of the worst tax regulations ever written by anyone.
Back to the study, we find that dozens of countries have simplified tax codes and have attractive features that invite companies to move to their countries. Ranging over 16 different taxes that apply to individuals and corporations, the study finds that Bahamas and Bermuda share first rank. In the top countries you also have United Arab Emirates, Malaysia and the Netherlands. At the bottom of this list is Japan, the United States, Venezuela and right at the bottom is Argentina. So we rank near the very bottom.
"Capital goes where it's welcome and stays where it's well-treated," is a quote by former Citigroup CEO Walter Wriston that I found very true and have experienced in my personal life. In my 2 ½ decades in finance and global business experience, I have never found a more apt and accurate statement.
The fact that our tax code is highly complex and we as high tax rates, it has also become a way of terrorizing citizens. The government has often overreached, and with FATCA it is imposing its reign of terror on all foreign citizens as well.
It is no surprise that the numbers of U.S. citizens who are renouncing citizenship are at record high. It is not just U.S. citizens but U.S. corporations are also leaving in droves. Now we are hearing that potential citizens (green card holders) who were already treated very poorly and made to wait 10 years before being granted permanent residency are now leaving due to such draconian tax laws.
Fearing further intrusion of privacy and being forced to disclose financial details that the U.S. government has no right to tax, people and companies would rather leave than be subject to such laws.
The real cause of such laws is a country's being on the brink of bankruptcy. The worse the laws, the nearer the country is to bankruptcy.
As we see the credit bubble in the United States burst, we will watch the country decline into bankruptcy and the currency collapse.
I have diversified out of the United States and strongly urge you do the same before it is too late.
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