From a tax standpoint, America is not the worst place to live…but it’s not the best either. The top marginal rate in France can be as high as 71%. In the United States, the top rate…including state and local taxes…reaches only up to about 50%.
But the effective rate of tax on rich Europeans is probably much, much lower. The Rolling Stones, for example, earned $450 million over the last few years, according to a report in the U.K. press. On that money, they paid just $7 million in taxes. They did it perfectly legally, by setting up a company in the Netherlands to receive their royalty revenues.
Last week, the Swiss canton of Zug came under attack because it offers resident businesses a tax rate between 11% and 12%. “Unfair competition,” says the European Union, of which Switzerland is not a part. “Yes,” responds a letter writer to the FT, “and Switzerland competes unfairly in other ways too. The trains run on time. And you can get through the Zurich airport in 20 minutes. The place is efficient, safe, and low-tax. No wonder the rest of Europe is complaining of ‘unfair’ competition.”
In Europe and the rest of the world, people rarely pay the top rates, because there is always competition. In France, rich people either jiggle their affairs until the tax rates drop down…or they lie about their wealth…or they leave. Lying to the taxmen is considered neither dishonorable nor dangerous. No self-respecting Frenchman or Italian would tell the truth on his tax declaration – not if he could get away with it.
Another article in the French press tells us two rich people leave France every day. If they don’t want to pay French taxes, they just move to Belgium or London. If they work it right, they can get their taxes down to a reasonable level. If you don’t live in France, you don’t have to pay French taxes.
But Americans cannot escape. They can’t take advantage of the competition, because the IRS maintains a monopoly; if you are born in America, the IRS claims a right to a big part of your income for your entire life. Then, when you die, it takes another big part of whatever is left.
We haven’t lived in the United States for more than 10 years. During this time, we can’t think of a single service provided by the U.S. government that we have used. We collect no unemployment insurance. We use no public health services. We haven’t even called the police.
But during that time we have paid a lot of money to the United States in taxes – nearly as much as we would have paid if we lived there. We didn’t even lie to the tax men, partly because we don’t prepare our own taxes (we can’t understand them) and partly because tax fraud is a much more serious issue in the United States than it is in civilized countries. Meanwhile, we pay taxes to France and Britain too…which at least makes some sense, since we do avail ourselves of public services in those countries.
For the moment, you don’t hear much squawking about it. The rich are getting richer. They’re not going to squeal about taxes until the bubble pops. But then, the pressure will be on, because the lower orders – who have made nothing out of the boom and will bear the brunt of the next downturn – will be in a foul mood. They’ll not only want to soak the rich; they’ll want to hang them.
The Daily Reckoning Australia