by Bobby Casey, Managing Director

November 30, 2012

Even John Maynard Keynes would call Obama stupid right now. As much as I despise Keynes, even this capitalism destroyer would not raise taxes at a time when the economy is still on such shaky ground.

In my humble (but accurate) opinion, the ideas developed by Keynes that have been the basis of economic policy for decades have been the most destructive force for global well being. And yet, even this thieving parasite would not recommend raising taxes like the Obamessiah is proposing.

Clearly Obama’s economic advisers have not even attended Econ 101, where they would have learned about the Laffer curve. For those of you unfamiliar with the term, it is defined as; the curve that shows the relationship between tax rates and tax revenue collected by governments.

You can see the graph below:

Essentially what this is saying is that in order to maximize tax revenue, you must find an optimal tax rate. Too high of a tax rate will actually decrease the amount of tax revenue collected. Historically the US has collected approximately 20% of GDP in tax revenue, no matter what the tax rate has been.

Right now, that number is more like 25%, which means we should soon be seeing a reversion to the mean, or even a swing below 20% as the high earners take advantage of loopholes as well as move their businesses and investments offshore.

Take the recent example of Britain. In 2009-2010, more than 16,000 people declared an annual income of more than 1 million GBP.

Just before the last general election, Gordon Brown introduced a new 50% top rate of income tax. Guess what happened. The number of people that declared annual incomes of more than 1 million GBP fell to 6,000.

This resulted in 7 billion GBP lost tax revenue. In other words, by raising the top tax rate on high earners, Britain lost two-thirds of its millionaires.

Another consideration is not just the British millionaires that are reducing their taxable income and/or moving to more suitable jurisdictions. The country now has created disincentives for entrepreneurs and investors to put capital to work. Not smart.

In France earlier this year, Hollande proposed a 75% tax on incomes over 1 million EUR. He had a lot of resistance but responded with, “It’s a message of social cohesion…It’s a matter of patriotism.”.

In other words, I’m a socialist, get over it.

Now the US’ own socialist president is declaring war on the productive. Take a look at the chart below for comparison of 2012 to 2013 tax rates (only showing single filers for simplicity):

 20122013
$0-8,95010.00%15.00%
$8,950-36,25015.00%15.00%
$36,250-87,85025.00%28.00%
$87,850-183,25028.00%31.00%
$183,250-398,25033.00%36.00%
$398,250.00 and up35.00%39.60%
Capital gains15.00%20.00%
Dividends15.00%Personal tax rate (see above)
Obamacare tax ($200,000 up)Na3.80%

For entrepreneurs and investors, the most important thing to consider is the impact on your investment capital. In 2012, if you earned more than $398,250, your dividend tax rate was 15%. In 2013, it jumps to 43.4%, or a 289% increase. Your capital gains tax goes from 15% to 20%, or a 33% increase.

I will leave the moral issue alone for a minute and just discuss the practical side. Some pundits argue that the wealthy won’t stop investing just because of tax rates. If you listen to Warren Buffet you may even start to believe this garbage.

But the numbers don’t like. Britain lost two-thirds of its millionaires by raising taxes on the wealthy. Guess who runs companies, invests in productive assets, and hires workers? You guessed it, the wealthy.

You may argue that the wealthy have a moral obligation to fund the government because the country provided them with the ability to make so much money. Sure, that may sound nice and fluffy, but reality shows that when you go on the downward slope of the Laffer curve, the wealthy either leave the country, or move their assets offshore.

So while the libtards may stand on their moral high horse proclaiming the need for social justice, the ones that actually foot the bill are packing up shop and moving overseas – morality be damned.

Some argue that high tax rates did not have a negative effect on the US during the ’50’s-’70’s, but that is a naïve viewpoint. Keep in mind this was post-WWII when all of Europe was rebuilding. There weren’t a lot of great opportunities for investment in that region.

Communism was widely accepted globally making places like the Soviet Union unfriendly (to say the least) for investment. South America was in shambles with dictator after dictator doing his best to rob every last nickel from the people.

This left America as the bastion of capitalism and comparatively the best place to invest your productive capital. The problem today is that this is no longer the case.

Much of Asia is booming with even communist China hugely capitalistic in its economic policies. (As a side note, China just lowered its already low dividend tax rate from 10% to 5%. If redistribution of wealth is a communist ideal, who is really the communist country?). Nearly all of Eastern Europe has privatized its economies and lowered tax rates. Many have even gone to a low flat tax.

One of my favorite examples is Estonia. Estonia has a flat 21% tax rate on earned income. There is no corporate tax at all. No dividend tax. No capital gains tax. No estate tax. No interest income tax.

If you own a company in Estonia, you only pay the 21% tax on distributed earnings. So if your company earns 1 million USD in profit and you only pay yourself 100,000 USD, you only pay the 21% on the 100,000 USD. No tax on retained earnings. None.

I just had a conference call yesterday with a guy from the US who runs a software company. He is moving his company to Estonia within the next 3 months. He employs 25 people and they are all earning over 6 figures per year.

He has decided that he has had enough. His company is growing, but all future growth will be handled by the Estonian company. He will gradually transition all operations over to Estonia. And why not? The wage rate is lower as is the tax rate. Compliance issues are virtually non-existent making it much easier for him to do what he does best – provide value to his clients.

The ill-informed patriot may say this guy is un-American and a traitor for jumping ship. I say America has lost touch with reality and is driving people like this guy overseas due to their uncompetitive economic policies.

So what’s the next step, you may ask. What do you do to protect yourself from higher taxation and dwindling economic activity in the good ole USA?

Clearly if you are reading my newsletter you know my answer will be internationalization. For many, that is perceived as a huge undertaking. In reality it is not that big of a deal, and you will find much more freedom, peace and prosperity once you take the steps to internationalize your assets and your life.

If you are completely new to this, you really need to set up an offshore bank account now. Who knows how much longer this opportunity will exist. I can easily see the day where Americans are either forbidden from opening an offshore bank account, or the offshore bank will no longer accept Americans.

We have a very unique product that allows you to open a private offshore bank account holding multiple currencies and even the ability to buy and sell precious metals in an allocated holding, online. It is a great way to get started and a great bank. Email us here if you are interested in learning more.

Take steps to protect your investment portfolio today. I have personally realigned my portfolio eliminating the more risky stocks and sticking with the large, dividend paying stocks, some real estate investment trusts that specialize in government offices (no recession in government), and a couple of resource plays. Additionally, my cash savings are now being moved into physical metals and foreign currencies.

You need to consider an income stream that can be earned from anywhere. My team and myself have built Global Wealth Protection as a completely virtual company. We have products and services that can be provided to our clients from anywhere in the world, and the work can be managed working from a city apartment in Medellin – Colombia, a beach house in Ambergris Caye – Belize, or even the McDonald’s in Amsterdam.

Our team works hard to provide you with tools and strategies for internationalization of you and your assets through offshore companies, offshore banking, offshore trusts, offshore foundations, education, and offshore seminars like our upcoming Global Escape Hatch – Belize 2013.

Whatever your area of expertise encompasses, you really need to start thinking about how to make your income portable in order to free up your life to live and work from anywhere you chose. You may still chose to live in Topeka, Kansas, but it certainly won’t hurt you to have the option of internationalization for your business.

The world is clearly in a state of chaos with all that is happening now, but for you that should mean chance to improve your life and capitalize on the opportunity. Let us know if we can help you with your internationalization plans.