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The facts above are based upon the following statistics and calculations which are, in turn, derived from preliminary data released by the US Internal Revenue Service and compiled by the Tax Foundation. The information presented in this article may sound implausible at first, but read on. The existing facts, some simple calculations and conservative projections strongly support the conclusions presented here. Examine the numbers, follow the links and do the math for yourself. The problem is real.
I know that many people who look at the above statistics will immediately say, "So, what's wrong with making the people with the most money, pay more tax?" Many people seem to think that the wealthy have, in some way committed some horrible sin, just by being wealthy and that, as a result, they should be forced to pay a larger proportional share of the tax burden as penance. Such absurd arguments are not only immaterial, but serve to show how completely ignorant of the real problem now facing the United States, many people are. The problem that I am talking about is a direct result of the position in which the wealthy now find themselves. The wealthy are being systematically backed into a corner by our government. They are paying double their share of taxes. They are facing frivolous lawsuits by the greedy. And, their property is being confiscated (forfeited) by the government. Everything that they have worked so hard for, is being threatened. Should we then be surprised if top-earning 1% of taxpayers, facing an untenable situation, take the only legal route left open to them, even if such a response threatens the very fabric of the US economy? I think not. Their response is really quite simple. The wealthy are leaving. The wealthy are leaving the United States in record numbers. Is it any wonder then, that according to records of citizenship and permanent residency applications at many foreign consulates, the wealthiest Americans are leaving the USA for more wealth friendly climates at the highest rate ever? But, what's worse, is that this exodus is increasing at an alarming rate. One of the most absurd statements that I have heard in response to the above facts is, "So what? Let 'em leave." The problem is that, as a result of one of the laws (discussed below) designed to punish the wealthy for leaving, the wealthy are now taking ALL of their investment capital with them, when they leave. And, therein lies the true problem. What really surprises me is that even a few well-meaning conservatives, who realize that the real problem is Capital Flight, have fallen into the greed trap, right along with the liberals. In fact, the most inane argument that I have heard on this issue has come uniformly from both ends of the political spectrum and goes something like, "Well, we just need to pass more laws to keep the wealthy from taking their money out of the country." Duh?... As I will show below, it is precisely those laws that are some of the primary reasons why Capital Flight has become such a severe problem in the first place. So, what does all of this mean for
the other 99% of taxpayers? Why is the fact that a handful of wealthy
people are leaving and taking their money with them, such a problem?
After all, wouldn't it take a tremendous number of wealthy people leaving
to have a noticeable effect upon our economy? Until you look at the
actual numbers and do the math, it doesn't appear to be a serious issue.
So lets look at the numbers again and this time, let's do the math.
The chart to the right shows the percentage of individual income tax revenue that the wealthiest 1% of taxpayers were responsible for in 1997 (in blue) and the percentage of tax revenue that the rest of us paid (in red). The full circle represents the amount of personal income tax revenue that must be collected to fund the government for a year. It demonstrates that if only the top-earning 1% of taxpayers were to leave the USA permanently, we would all be in a world of hurt. How would you like to face a 50% tax increase. That is what it would amount to. Without that 1% of the wealthiest Americans, every remaining taxpayer would have to pay 50% more in taxes to equal what was lost. Can you afford that? Those who argue that Americans with the most money should be taxed at a higher rate will find themselves being taxed at a much higher rate, instead. If you are paying $10,000 in income tax today, then imagine paying an additional $5000 in taxes. If you are paying $50,000, then imagine paying an additional $25,000. If you are paying $100,000 - well if you are paying $100,000, there is a good chance that you already have your bags packed and your second passport, so you don't need to imagine anything. As the most wealthy leave, the additional tax burden shifts to the next level down, so lets think about the fact that the top-earning 5% of income earners pay 51.9% of all taxes collected. While the wealthiest 1% are "escaping" ("escape" is the popular term used by expatriates), do you think that the top-earning 5% will just be sitting around waiting for a 50% tax increase? Of course not. And, when they leave, your tax bite will more than double! Then, of course, there is the top earning 10%. But, I wouldn't worry about them. By that time, the government will have either repealed all of the wealth punitive laws and abolished the Income Tax, to encourage the wealthy to return, which is really unlikely, or they will have done what so many other repressive governments have done when faced with capital flight on a massive scale - they will have closed the borders to keep the remaining wealth in the country. But then, as shown by every case where that has happened, ranging from Nazi Germany in the 30's to South Africa in the 70's and 80's to to the more recent case of Malaysia, even closing the borders to capital only increases capital flight. So, maybe you should worry about losing the top-earning 10% after all, because if they can manage to get out with their wealth in tact, your taxes would almost triple! Although it's interesting to think about, for other reasons that I will explain, I seriously doubt that it will ever get that far. The problem goes much deeper. But, staying with just the tax issue for now, let's look at the numbers. Here is the math for the top-earning 1%: 100% - 33.2% of taxes lost = 66.8% of taxes leftHere is the math for the top-earning 5%: 100% - 51.9% of taxes lost = 48.1% of taxes leftHere is the math for the top-earning 10%: 100% - 63.2% of taxes lost = 36.8% of taxes leftThink about it. If only the top-earning 1% of taxpayers leave the United States, the remaining taxpayers will find that they will have to pay almost 50% more taxes. 1% is not that much. If you were to put 100 pennies on a table and then take away just one, you could not tell the difference. In fact, I will demonstrate later, just how quickly we could lose that 1%. Then, consider that if 5% of taxpayers leave the United States, the tax burden will more than double. And yet, our government is making it almost impossible for the wealthy to remain in the United States. Legislative attacks upon people with any significant degree of wealth is a ticking time bomb for our economy. The exodus really began in 1968, shortly after the riots at the Democrat National Convention in Chicago. This is not to say that it was a problem at that time. Let's just say that the trickle of expatriates that any country experiences became a noticeable flow at that time. Indications are that the flow increased steadily until the 1980's. For a short time during the Reagan administration, there was an attempt to roll back some of the wealth punitive laws and tax rates that were contributing to this exodus and indications are that it did have a small effect. But, such is the nature of the INCOME TAX and the lust for ever more power that elective office often infects officeholders with, that no sooner than President Reagan left office, the attacks resumed and have been increasing since. Evidence from foreign consulates indicate that the number of US citizens requesting foreign citizenship or permanent residence in foreign countries jumped significantly in the months after the Democrats in Congress tricked George H. Bush into a huge tax increase and the numbers have continued to rise. Another jump occurred just after the Clinton tax increase. But, there is now reason to believe that the wealthy are leaving the United States in significantly larger numbers every year. Scant information from some tax haven countries indicate that the numbers of US citizens requesting foreign citizenship or permanent resident status is roughly doubling every two years.* Although information of this sort is very hard to come by, since consular offices are very hesitant to give out such information, some have been willing to verify, not the actual numbers, but the percentages. Estimates, derived from known numbers place the number of wealthy Americans leaving the United States last year at almost 100,000. So again, let's
do the math. Approximately 100,000 wealthy Americans chose expatriation
last year. If the number of wealthy Americans that are leaving is
doubling every two years, the number leaving in one year is the number
that left the previous year, times the square root of 2 (1.414214).
Multiply it out and you will find that if that rate continues for six years,
the number of wealthy Americans that will have left the United States in
that time (including 1999) will be over 2.4 million. (See table.)
That leaves plenty of room for many of those people to be in another income group and still include all of the top-earning 1% (1.2 million). What this means, is that if this rate of expatriation continues for only six years, what appears to be a minor problem today, could turn out to be a catastrophe for the US economy tomorrow. Now, I'll admit that these numbers are based upon sparse information. But other ancillary evidence supports the numbers. For example, it used to be very difficult to find the single small bar in most foreign countries where American expats would gather. Today, they more common than car dealerships. There are quite a few in every small country. But, consider this. Even if the expatriation rate is increasing only half as fast as these numbers suggest, we still have a serious problem. Then consider that those numbers might be off in the other direction. It might be worse... Officials of the Internal Revenue and other federal agencies deny this, of course. But I ask you, if the government's claims are true, why did Congress suddenly find it necessary to add an amendment to the Health Insurance Portability & Accountability Act of 1996 (26 USC 877(a)(1)), that claims the right to tax expatriate Americans for 10 years after they renounce their US citizenship if the government claims that they "have reason to believe" that the expatriate renounced for tax purposes? Why then, did they follow-up that abominable law with the Immigration and Nationality Act of 1996 ((INA) sec. 212(A)(10) and 8 USC 1182(a)(10)(E)) which permanently denies expatriates entry into the United States if the government claims that they "have reason to believe" that the expatriate renounced for tax purposes? If hundreds of thousands of the wealthiest Americans are not now structuring their holdings in preparations for leaving the USA, why is the Senate even considering a bill like the Civil Asset Forfeiture Reform Act of 1999 (S. 1701) that demands that not only foreign nationals, but US citizens alike, disclose any and all financial information about foreign holdings that the government seeks or lose ALL FUTURE LEGAL RIGHT to challenge ANY property forfeiture in ANY US court? All of these laws are clearly aimed at discouraging wealthy Americans from moving their wealth out of the jurisdiction of the IRS and then moving offshore themselves. The words of the federal agencies on this issue are belied by their actions. If capital flight were not such a serious problem, there would be no need for such draconian laws. In fact, evidence
compiled by the US
Bureau of Consular Affairs contradict the claims of the IRS and others
who insist that expatriation is not a problem. It shows that an enormous
number of American citizens already reside offshore. The following
numbers represent only US citizens who have NOT renounced their citizenship
and that the Bureau knows about. As you read these numbers keep in
mind that there is very good reason to believe that less than one expat
in 10 ever renounces or notifies US authorities of his whereabouts after
leaving.
That list alone
numbers over ONE MILLION American expats and only the ones who have
notified US authorities of their whereabouts, at that. Then consider
that we have not even begun to touch the hundreds of small island nations
favored by expats, like Caymans, Bermuda, Grenada and Trinidad and Tobago,
that have several thousand each. How many more expats are out there
who have just dropped off of the government's radar? It can't be
denied.
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