A few weeks ago I went to the local mall here in Tartu to buy some dress clothes. I am not what you would call a ‘suit kinda guy’. But I was going to an investment conference in Zurich and thought the usual jeans and a t-shirt may be a bit too casual.
Whenever I am at the malls in different countries, I enjoy looking around at what the locals spend money one. In this mall of about 50 stores, there are 5 electronic stores and another 6 that sell mobile phones and accessories. There are also shoe stores, clothing stores, luggage, jewelry, several food establishments, and a really nice bookstore. Anytime I am at a mall, my thoughts go to consumption and taxation.
Lately I have been contemplating a major flaw in the US tax system. We provide incentives for consumption and restrict production through our tax system. Right now in the US if you put your money in a savings account you will earn less than 1% annually, not exactly a motivator to save. And you can get a 30 year fixed mortgage on your house for 5% interest. With money that cheap, that is a pretty good motivator to borrow. We also have the highest corporate tax rate in the world and one of the highest personal progressive tax rates. Companies are even taxed on dividends paid, and the investor is taxed again when he receives dividends!!! We are taxing production and incentivizing consumption.
Contrast this with Estonia. (Don’t get me wrong, they have their problems too, but the methodology of taxation is vastly different). Estonian companies pay no corporate income tax! If they retain earnings for reinvestment, there is zero tax. Personal income is taxed at a flat 21% for all people regardless of level. If a company pays shareholders dividends, they deduct the 21% from the dividend payment but the investor pays nothing additionally. There is a 20% VAT (national sales tax) on all consumption. You can borrow money at about 7% to buy a house, 20% to buy a car. And you can earn 8% in your savings account. The Estonian policymakers penalize you for consumption and reward you for savings. Interesting concept… Who do you think has a higher savings rate?
The point is the US tax system is backwards. Just like the taxation of alcohol and cigarettes, the more you tax it, the less you get. Do we want to keep taxing our productive activities like investing and saving money, and provide incentives for consumption? Isn’t that what got us into this mess to begin with?
But more importantly, how do we profit from these situations and what is the implication for our asset protection planning? Really, the options are virtually endless. You can start by moving money into an offshore bank account and save and invest in another currency. You can structure your business either domestically or offshore to provide you with the maximum tax advantages. You can even move overseas to a low cost country where your money goes further. In the near future I will discuss a couple of these strategies.
In the meantime, you should be considering how to implement your own asset protection planning strategy in order to minimize your risk and maximize your gain from this perverse tax system. As stated before, there are several tools available to you depending on your level of wealth. Call today for your free 30 minute consultation.
Excellent post, I think this is tremendously helpful. Keep up the invaluable work!
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Valuable info. Lucky me I found your site by accident, I bookmarked it.
Well, I read blogs on a similar topic, but i never visited your blog. I added it to favorites and i’ll be your constant reader. :)
Would it be cool to provide some more info on this in the future? Thanks
Generally I do not post on blogs, but I would like to say that this post really forced me to do so, Excellent post!
Another new write-up with good points, I’ve been a lurker here for quite a while but wish to become much more engaged in the future.
[…] Lately I have been contemplating a major flaw in the US tax system. We provide incentives for consumption and restrict production……(read the rest here) […]
[…] Lately I have been contemplating a major flaw in the US tax system. We provide incentives for consumption and restrict production……(read the rest here) […]
[…] Lately I have been contemplating a major flaw in the US tax system. We provide incentives for consumption and restrict production……(read the rest here) […]
[…] Lately I have been contemplating a major flaw in the US tax system. We provide incentives for consumption and restrict production……(read the rest here) […]
I don’t see how anyone would trust anything for investment. In my opinion investment is dead. There is no longer the idea that we have real freedoms anymore. After the bank bailout the free market changed. We are no longer a free market monetary economy. Politicians have decided the Banking Institutions are too essential to allow it to fail. Yet they are the guys who were betting and assuring it would fail. Just look at the charges against Goldman Sachs. Republicans who once stood for pulling up our bootstraps have sold out their principle. They borrowed from the State. In todays world we have to consider. Why do we invest in the first place? Why do we want money in the first place? Easy questions? Sure you say…to make money. But really it boils down to this. We all want to build ourselves wealth in order to have a way out in the event of an Emergency. Our whole life and living is based on this fact. Everyday is an Emergency. Getting up out of bed each day is an Emergency. We need jobs to avert disaster. We need Depression proof and Recesion Proof Economics, in order to avert disasters. Yet we live in disasters everyday. America is nothing but an arguement. I call that a disaster in the financial sense of the meaning. Sure invest your hard earned money into the Stock Market so you give all those bankers and brokers the outrageous salaries they collect. It’s your money right? They will come through for you in the end right? How I see it, they took your money, lost it and now borrowed more money from you, called TARP Funds that you don’t have; to give you the confidence to keep investing in their bailed out Wall Street Schemes. Well if you are that gullible, then I say you might as well change your name to Swiss Family Robinson instead of moving overseas. Our System needs to change to an Emergency Based Economic System. Think about it. The free market sells things to make profits. Yet when Emergencies strike which they do, the profits are never enough to take care of the Emergency. So how is it that a Market Economy is said to be the choice in the given Economics of today? It can’t work, that’s why we have so much crime and unable to take care of the people when disaster does strike. Katrina is the perfect example. Now we have Financial Earthquakes, not to mention Healthcare Tsumani’s, and Military Terrorism along with the real earthquakes and natural disasters including erupting volcanoes in iceland. Anyone have a clue to how many volcano’s are in the world? There are more volcano’s in the world than you can count the number of bees in a bee hive. A lot. Remember Katrina, Hurricane Ike? There has been 12 hurricances since the year 2000. And with Global Warming peakng over our shoulders I just can not fathom the idea that we are in a mode of recovery when we are essentailly in a perpetual state of an on going emergency. And let’s not forget the day of September 11th, or the Oklahoma City bombing, or the day Joe Stack flew his plane into the IRS building in Austin Texas. Disasters happen all over the world. Our most recent in Haiti’s Earthquake, and Chile’s Earthquake, and China’s Earthquake in YuShu. We have drought in the southern regions of China, and drought in Kazakhstan which has dried up the 4th largest lake in the world. We are headed for a water shortage, not to mention the people suffering already from the lack of available water supply. You know we are looking at a World Emergency, and we should be basing our lives around Emergency Management Economics. When the US finally realizes this, they will see that this daily Emergency Economics Market will establish no more debt or deficits from any country. They will see that Governments are the banks, and that the distinction between Privatism and Public is but the same domino. CIties and communities will see that their jobs revolve around rescue and helping people, than fantasizing they will make millions from some Wall Street Hedge Fund. The money supply will come from a Grant System of payment to Emergency Designated Hubs, spent on projects that benefit their communities in Emergency Readiness. Real Estate Speculation will end, and homes will become peoples residences, tradable for another home, to the place you want to move to. Families and Communities will work to support themselves and the jobs that are created for Emergency Relief. Of course farmers work for the food production, large trucks and Heavy Construction Equipment will provide the muscle for Emergency Relief efforts. And the many jobs that affect us will be involved in the Emergency Economy Support System. I think it has arrived, it’s just people don’t realize it yet…with the constant bickering over the lie about the War on terror, the failed banks and Wall Street, the Huge number of unemployed in the US, not counting around the world, and the cost of healthcare clearly falls within the Emergency Market thinking. We face another real threat and that is terrorists on the loose exploding bombs within Volcano’s to make them erupt. With the recent iceland volcano it shut down Europes Airline Industry for over a week, and they believe other volcano’s nearby have the potential to also erupt. They loss billions in revenue and airlines filing for bankruptcy. I would not stick my head in the sand on this, and think terrorists would not do try to do this. There are several in Afghanistan, Iran, and Syria, that could cause a major Global Nightmare, unless we as a people start making friends with our enemies, instead of bombing them and killing their innocent people. The Emergency Economy is at our door whether we want it or not. and is a matter of time before people realize they need to tear down that Wall Street and use the bricks and motar to attend to the New Emergency Market.
I Will have to come back again when my course load lets up – even so I am taking your RSS feed so I can read your site offline. Thanks.