How ‘Bout Them Panama Papers?

April 7, 2016

By: Bobby Casey, Managing Director GWP

panama papersIn recent domestic news, someone from New Jersey moved to Florida.  This wouldn’t be news except that it happened to be New Jersey’s wealthiest billionaire: Hedge Fund Manager, David Tepper.  His net worth is estimated to be around $11.4 Billion.

40% of New Jersey’s revenue comes from personal income tax collections.  One third of those collections comes from less than 1% of the taxpayers in New Jersey.

“The state’s office of policy and management said last week that the budget deficit for the current fiscal year is $131 million, an increase of $111 million from the prior month’s estimate.”

“We may be facing an unusual degree of income tax forecast risk,” Frank Haines, Budget and Finance Officer with the Office of Legislative Services told the Senate committee Tuesday in Trenton.

(Source: Zerohedge)

The amount of revenue they expect to lose from this one man’s “expatriation” out of New Jersey inevitably will have that state reevaluating its tax regime and structure.  New Jersey has one of the highest tax regimes in the union and her wealthy are leaving in great number .  This particular loss was an unexpected blow to their coffers for sure.

Meanwhile, Florida doesn’t have nearly the same level of thievery.  This move alone could save him hundreds of millions of dollars as it sends the state of New Jersey into a financial tailspin.

Why do I share this with you? Because expatriation hurts the departed government.  The proportions are more obvious when looking at the wealthiest person in New Jersey, however don’t think for one minute that the collective, albeit uncoordinated, acts of countless domestic expats doesn’t have the same effect.  New Jersey isn’t the only one suffering capital flight.  California is also leaking her tax base to Texas, Nevada, and Arizona (in that particular order).

“More than 70 percent of the state’s net migration to Texas came from California’s south.” (Source: Manhattan Institute)

Switch over to the international side and you see the same thing.  We have discussed in exhausting detail the impetus of capital flight.  Everything from capital controls, to taxes, to regulations, to cronyism and protectionism has compelled some of America’s wealthiest individuals and corporations to pick up and get the hell outta Dodge.

What sort of impact does this have?  There are several things that happen:

  1. You literally starve the beast.
    As clearly demonstrated by the New Jersey example, you confound the government you leave as they need to figure out how to either make up the shortfall or work with less.  But in the case of the United States, we’re already operating in the red.  How can you starve the beast when taxes are merely servicing the debt?  What do you think funds things now? That’s right: credit!  Having a higher tax revenue boosts the country’s credit rating and eligibility.  So having less makes it harder to borrow.  The US still needs buyers of her debt… I mean treasuries.
  2. You provide genuine economic stimulus to the new jurisdiction.
    Not this redistributive government nonsense.  I’m talking actual stimulus through backed investments.  For every action there is an equal, or greater, reaction.  While you might be screwing over your (former) home country, you are helping your new one.  Keeping that money in the private sector only HELPS.  Obviously, you’re not jut storing your wealth under an offshore mattress.  The institution holding your assets is reinvesting it.  It’s lending it out for a profit, no doubt actually running a cost-benefit and risk analysis before doing so.  (Something the government can’t bring itself to do when it flushes… I mean, spends money.)  When government spends money, politicians and their cronies make money.  When the private  sector keeps its money, it supports productive and profitable activity.

Keeping money in any private sector is a net economic positive.  The irony is when politicians are caught putting their money offshore.  In an effort to protect their assets, they help another jurisdiction other than their own.

The whole “scandal” of the Panama Papers is that there are rich people protecting their assets offshore and among them are politicians.  The effect is the same regardless of who puts their money offshore.  I don’t know if we are meant to be offended or entertained by the fact that all these leaders are trying to avoid their “fair share” in taxes.  But all of this has been known.  Maybe the names and to what extent wasn’t known, but this can’t honestly be shocking to anyone who resides on the sunny side of a rock.

If people want to get upset about something — especially in the United States — then let’s talk about the inequitable application of FATCA.  The United States is one of the biggest tax havens in the world, to the rest of the world.  If you are trying to keep your wealth hidden from someone other than the US government, the US is your haven of choice!  Bring your money to America!  Stimulate our economy!  What’s more, while the US demands that every other country report their holdings for American clientele, the US will not reciprocate that agreement and report their holdings of that country’s people.

The US will hunt an American person and their money down to the outer edges of the universe to collect what they feel is due to them.  (And I literally mean hunt.  IRS agents are armed.) However if you are not an American person, your privacy is magically intact. Can I offer any assurances that said money wouldn’t be expropriated in a heartbeat if the right “crisis” presented itself?  Absolutely not.  Nor could I do that for any other jurisdiction… that’s a government thing.

I don’t know the intricacies and nuances of every tax code but what might be illegal for Russians isn’t necessarily illegal for Americans, and vice versa.  Perhaps there was some money laundering and impropriety.  Only time and verifiable evidence will tell.

Here’s where I get concerned:

  • The Panama Papers have not yet implicated the US or its wealthy persons.  That could change but for now it’s odd how it’s “everyone else” doing this, when everyone knows good and well America’s rich and powerful do this.  This isn’t an admonition, but rather an observation of something peculiar.
  • The timing of all this coupled with who is thus far implicated has me questioning how genuine this revelation is. I’m not denying these people are housing their wealth offshore.  I’m simply questioning the roll out of these revelations.  Is there another agenda at play?  I honestly have no idea, but it would be naïve to dismiss it out of hand.
  • This is the latest and greatest “crisis” or excuse for the US to tighten the screws on our liberty and implement further capital controls, or perhaps move us closer to a cashless society like Sweden.  To those who don’t see a problem with that, understand you do not have as much control over 1’s and 0’s as you do over a physical asset like metals, real estate, or even to some extent cash.  You’re not making an offshore transfer without a myriad of forms to fill out justifying why you are doing this.  Cash could go from suspicious to nonexistent to perhaps illegal!
  • Then there’s the rest of us.  Because of a few people who pushed the envelope too far and either got busted or sold out, those of you considering moving your wealth offshore, are left with the legislative and political aftermath.  It’s not going to come in the form of a one-page bill to stop money laundering.  It’s going to roll out as a bill that’s just been sitting around for years, waiting to be implemented.  It would be one of the many things tackled in a several thousand paged piece of convoluted legislation coupled with a few hundred pages of new tax code.

So what do I make of all this?  The short and sweet version is, get your wealth out of the US.  There is nothing immoral about starving an immoral beast, and keeping your hard-earned assets.  To be quite honest, there is nothing illegal about it either, if you do it the right way… and there absolutely is a RIGHT way.  The Panama Papers, in my opinion, are a smear campaign against cash and its holders, the way the arrest of Ross Ulbricht was a smear campaign against virtual currency and its users.  There are people who feed into the frenzied populism of class warfare, and this is their red meat.

It’s a screw-the-rich agenda hiding behind none other than the tried and true: Safety and Greater Good.  The truth is, the greater good is a death sentence.  The GREATEST good, on the other hand, is served by keeping the money in the private sector and out of Leviathan’s hands.

This is not the time to run and hide.  This is the time to dig your heels in and either fish or cut bait.  I cannot impress upon you enough, that this isn’t exclusive to the “uber rich“.  You’d be surprised at how little it takes to get the wheels in motion for internationalizing your life.  Let’s talk about your options… while they still exist!  Click here to schedule a consultation.

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