Friday, June 4, 2010

Taxation In An Interconnected World

Megan McArdle explains compellingly why we can't just keep taxing the rich more:
But the larger problem is that whether we feel for them or not, as noted in an essay one of my commenters pointed to, a 50% marginal rate seems to be where people get really, really serious about tax avoidance.  Paying more than half their income in taxes violates most people's sense of fairness.  More importantly, the higher the marginal rate, the bigger the payoff from tax avoidance--and the more you can afford to pay smart tax lawyers while still coming out ahead yourself

FLG, having studied foreign affairs and international economics, wonders at what point does tax avoidance mean renouncing American citizenship? People are patriotic and all, but at some point FLG thinks there are a bunch of highly productive people who'd be willing and able to leave and never look back.

A few days ago, FLG linked to a podcast about taxation. One of the people interviewed argued that raising the corporate tax rate wouldn't, in his view, result in a bunch of companies moving to Bermuda because, as he put it, there aren't good school and stuff to do there.

Well, at some point, doesn't that not matter. At some point, when marginal tax rates reach over 50% and corporations could save billions by moving, doesn't it become both a fiduciary responsibility on the part of the executives to their shareholders and also very much in their own personal interest to expatriate?

FLG's question is, he guesses, really this: Is there a point in his life where taxes will be raised so high that he and Mrs. FLG will be tempted to renounce their American citizenship and move to some tropical island? At what point do the political choices of America's politicians in solving the long-term fiscal issues, and the resulting economic situtation, make emigration and expatriation an attractive option for people like FLG? FLG loves America, but could there be a point where he simply says that America's current economic policies and regulation are too much? That it no longer resembles his vision of America anymore? He puts the odds of a permanent relocation at about 5%.

1 comment:

Anonymous said...

Well, I don't have an opinion about the passport issue, but I think we have Maryland people looking across the border to Virginia even as we speak. And I think Sheldon Silver's millionaire tax will solve Chris Christie's revenue problem as the Rollses come through the tunnel and head for Short Hills. dave.s.

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