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How to Protect Your Income from Taxation?
- Thread starter adadadog
- Start date
Quote from TD80:
It is certainly a personal decision, everyone's mileage may vary. It sure depends on the country too.
People just need to be aware, it isn't just the tax today that you are giving up, it is the compound returns you are losing out on over the next 10, 20, 30 years. It is simple math really. That doesn't mean everyone should jump ship, but everyone needs to take a cold hard look at what this citizen-slave relationship is costing them. It could be 30 million over a 10 year period in tax and opportunity cost. Is your citizenship worth $30 million? Maybe, maybe not.
The simple solution here is for our government to either not tax capital gains, or tax them very lightly (particularly if they are being re-invested). I'm not sure how this country has determined that aggressively taxing the investor class is the road to prosperity but it is a ridiculous socialist notion that has lead us to our current state of affairs.
As I already said, there are numerous ways to minimize or reduce even the relatively light capital gains tax burden in the west. Many of the Forbes 500 got there by running hedge funds in offshore locations, paying not one cent in CGT whilst actively managing the funds entirely legally.
As for the worth of citizenship, it is not 30 million vs $0 or $1 million. The difference is a proportion of your earnings, not an absolute number. It is best put like this: would you rather be paid 60 million to live in somewhere like the Bahamas or Monaco for the rest of your life, and be restricted from returning freely to the USA, and lose your right to bear arms, right to freedom of speech, right to a jury trial of peers etc; or be paid 40 million to stay in the USA. In other words, will you voluntarily sell a lot of your liberty, and live somewhere you don't want to, for a 50% boost to terminal net worth. How can you complain about infringements on freedoms, when you are seriously advocating giving up your liberties, abandoning your friends, family, and fellow citizens, just for a bit of extra money? You are selling what you claim is most important to you, just for some extra dollars. Dollars are nice but they are not the highest value in life.
As for fairness, US capital gains are already at a mere 15% for long-term holdings. The investor class is the most tax-privileged in the USA, Buffett pays less % tax than his cleaner and secretary. How is that fair? Investors should be taxed no more and no less than employees or businesses. Wanting zero tax on your particular class of economic activity is just absurd special interest pleading of the type that has *caused* the Washington mess you are moaning about. This is hypocritical, you are whining about politics whilst having exactly the same 'political' me-too special pleading on a political matter that affects you.
The fact is, states (minimal states) are absolutely necessary. They cost money. That money has to be raised by taxes. A fair tax system does not favour any one class over another. Therefore, investors must pay taxes.
Socialism is defined as state ownership of the means of production, it is not something that refers to tax rates. A 15% tax on investors, levied only when gains are realised, is not remotely socialist or even particularly statist. It is a very reasonable rate.
A slave is someone whose entire life is controlled. Taxation is extortion, not slavery. The state says "pay this or go to jail", if you pay, there's no problem. A slave state says "pay this, do this, do that, go to bed by this time, wake up at this time". No comparison. Calling yourself a citizen-slave just because you have to pay 15% CGT is ludicrous hyperbole. At a 15% rate, you might actually be getting more back from the government (in value from law & order and national defence) than you are paying.
If a libertarian capitalist country existed, and restricted itself to 'nightwatchman' government functions, it may well end up with a flat tax at or close to 15%. That could easily be required for adequate military protection, law and order, and so on. IMO your philosophy is representative of the growing numbers of Americans who are basically spoiled, and moaning about things that 95% of the world's population can't even dream of having. It's just grass-is-greener whining. I recommend you spend a year or two living abroad and get some perspective, then you will realise that actually you have it pretty good and the US system is one of the best in the world.
Quote from TD80:
Swan I appreciate your contributions as it made me go back and do some more research and while I haven't found anything particularly new and positive in terms of tax avoidance, it was a nice R&D experience into the latest trends in off-shore business practices.
My posts on this topic in general basically boil down to:
I have a firm belief, based on great American precedent, that you can't trust a strong central government.
The problem is, we REALLY can't trust a strong central government in the kind of debt we find our existing one in. It is liable to do crazy things when it is put against a wall, things like seizing 401Ks, implementing capital controls (we are getting capital controls lite in 2013 already, it is law right now), devaluing the currency overnight, raising taxes to 90% for the top bracket, etc.
Do these things sound implausible and unfathomable to many of you? Well here is the scary thing, there are 20th century historical precedents for ALL of the above many of which happened here in the USA. Pension (aka 401ks and IRAs nowadays) seizures are the one thing I don't believe has happened here historically but we saw it happen in Argentina in the last year or so. Although our government has done it in a round about way with the social security tax.
I'm not a super doomer. I'm not a fairy tale believer either. I like the facts and empirical data. Too many Americans are operating on blind faith and blind hubris both of which are unwarranted at this juncture.
I believe, in an effort for the government to deal with this mathematical certainty of default they have created, the scenario is going to play out approximately as such:
1. Aggressively close tax loopholes. If you are not a monster multi-national with a bag-load of lobbying cash or enough tax lawyers to keep the Feds bamboozled for the next 20 years in discovery, your loopholes are closed or you are going to be get audited eventually and the consequences could be dire.
2. Implement Test-Case Capital Controls. We have a light version of these coming into effect in 2013, see the HIRE act where they buried in this bill that you will be subject to a 30% withholding tax for trying to move any significant amount of cash out of the country:
http://www.gpo.gov/fdsys/pkg/BILLS-111hr2487ih/pdf/BILLS-111hr2487ih.pdf
3. Implement full-blown capital controls so there is no escape when the 4th stage engages.
4. When the crisis hits, devalue currency, raise taxes, seize assets, and put this thing in a such a bad state that phase 5 seems like a real good idea. For most whose assets are still in-country or within reach, there is no escape from some level of harm in this phase. Everybody loses it is just a matter of how much.
5. With the circus in full swing, come to the rescue with a new currency. Use IMF and World bank to restructure debt agreements with powerful foreign creditors to deal with trade problems stemming from the default. Stability slowly comes back and the system is effectively "reset".
6. Credit expansion, new generation of suckers, here we go again!
The chance of that happening are far lower in the USA than any other country in the world, for 3 main reasons:
First, the USA has by far the most deep-rooted pro-liberty culture on the planet. Obama, who is by no means the most left-wing president in US history, has already had to scale back many of his plans due to committed opposition from the pro-liberty section of US society. It is not just a few intellectuals who favour liberty in the USA (in fact arguably the intellectuals are on balance against it), but the grass roots have a robust freedom-loving outlook.
Second, the constitution, and the separation of powers in the US political system ensures that any wannabe Peron or NWO guy will struggle mightily to get the power needed for that kind of takeover. They would need to resort to outright violence and intimidation, because it will be too difficult to do it through legal political means.
Third, the prevalence of firearms ownership and training, the gun culture, and the 2nd amendment mean that if all else fails, any wannabe dictator or elite cabal will simply get assassinated by an everlasting army of angry Rednecks, Tea Partiers, NRA die-hards and committed constitutionalists/libertarians who will just keep on coming until their targets are six feet under.
In any case, it will almost certainly not get to that point, because if things start to get worse, more people will come to the realisation that you and others already have, and will agitate against it (as they are already doing). The system, which was designed by people far more familiar with excessive state power and oppression than we are, will push back, as it was designed to do. In a way, your fear of this outcome is good evidence for why it is unlikely to happen - as long as there are plenty of people wary of the danger, steps will be taken before it is too late. Far more dangerous to be in an Ireland or Greece or Spain, where there is no real tradition of economic liberty or fiscal conservatism in the general populace, and thus the chances of sleepwalking off the cliff edge are far higher, and the willingness of the people to use violence as a last resort to prevent it, is very low.
Quote from Swan Noir:
TB80 ...
I profoundly share your fundamental distrust. During the coming collapse of fiat currency governments the world over will attempt to salvage the old regime with astonishingly uneconomic policies that will only make matters worse.
We are totally agreed on the chances -- nearly a certainty -- of insanity ruling the day. The ongoing question is how to anticipate and react to the insanity as it unfolds.
You are too pessimistic. Problems will occur, but once they get bad enough and obvious to all, people will rise to the occasion and muster up the commitment, energy, and co-operation needed to overcome them. At first only the early birds notice the danger. Later, the smarter people in society notice. Finally, the masses notice, and desire for change becomes overwhelming. At that point, an individual arises who seizes the opportunity and leads a movement for change. In a relatively free society, they generally succeed.
Quote from lionfish42:
Reduce Taxes:
Move and set-up shop in the U.S. Virgin islands. This works, only if you can start a business and hire at least 5 locals (I think it is only 5). There are several trading operations that have done this.
Taxes are 5% on capital gains and you MUST reside in U.S. Virgin Islands for at least 6 months out of the year (non-concurrent). You must form a business that creates jobs for the local economy.
Avoid Taxes:
This way is more complex and involves trust. I know of a few that do this, but it is not worth it unless you are talking a million or more in capital gain income. While it is legal - it is also complex and costly to set-up. Several firms and even companies have set these up. So it is really out of reach of most traders or prop-traders.
Old method:
Of course there is the old tried and true ADR method from a decade or so ago. However, I think the IRS shut that door - I am not sure - but I remember those that did play that game.
Mark-to-market method:
Lastly - for mark-to-market, year-end con/rev also worked well and still does. However this is just delaying paying taxes.
Move:
Dart family gave up citizenship and moved to the Caymans. I actually personally know someone that has done this and moved to South America. So it works and they live and travel and enjoy life (and trade). However, they don't come back to the U.S. However, their answer was - the world is a big place. They spend time in Europe during the summer and South America during the winter. Of course they have serious coin to enjoy their freedom.
The reality - it comes down to coin. You have it - you can BUY freedom. You don't you pay to play.
Ok here's another point against expatriation - your after-tax earnings are a function of two variables: your tax rate, and your pre-tax earnings. You can boost after-tax earnings either by reducing your tax rate, or increasing your pre-tax earnings.
One nice thing about 1st world countries is they contain the world's leading financial centres. Perhaps you ought to consider the possibility of finding collaborators to boost your trading results, or raising investor funds to scale your edge and boost income via performance fees.
I think the residence of the world's millionaires show that the gains to being 'in the system' actually more than offset the higher tax burden in those areas. So paradoxically, it may actually be much more profitable to pay higher taxes in places like NYC or London, than it is to trade tax free in Monaco or the Bahamas.
Finally, the idea that some offshore tax haven is more free than a 1st world country is a joke. Taxes beyond a certain point are certainly a restriction on freedom, but there are significant freedoms that are non-monetary that are just as valuable if not more. No society can tax its citizens so highly that they cannot make an honest living and afford to live, so there is a natural limit on them. The same cannot be said about restrictions on other freedoms - we see across the world that free speech, voting, gun rights, sexual liberties, usage of narcotics and stimulants, property rights, and other freedoms are oppressed indefinitely.
A tax rate of 15-35% is not a massive infringement of liberty. Obviously any pro-liberty person would prefer it to be at the lower end or below. But let's not act as though this is the 1930s or 1970s with confiscatory tax levels.
Quote from Ghost of Cutten:
Socialism is defined as state ownership of the means of production, it is not something that refers to tax rates. A 15% tax on investors, levied only when gains are realised, is not remotely socialist or even particularly statist. It is a very reasonable rate.
At a 15% rate, you might actually be getting more back from the government (in value from law & order and national defence) than you are paying.
Your post is so full of holes and assumptions, and is such a mess, that I barely know where to begin. Let's start with the two above.
1. Let me be absolutely clear, socialism has EVERYTHING to do with taxes. One begets the other. How do you expect to pay for all of this nonsense? Run up huge deficits? I don't think you understand that eventually, we are going to pay, and it isn't going to be 15%, or 35%, or 45%, it is going to be a hell of a number through a combination of taxes and inflation. Even unthinkable amounts of fiscal austerity are still not going to be enough, tax hikes or inflation are coming.
2. Your 15% rate is for long term gains, and this is of course only federal taxes. Making trading/investing decisions based on the tax code is a problem, it is a way for the state to control your capital investment choices. Factor in that if investments are your sole source of income, you may (will) end up getting slapped with AMT. At any rate, this is a ridiculous argument. I have to seriously question whether you are, in fact, a U.S. Citizen living here? You sound almost Canadian to me...
In terms of selling liberty, you must be kidding me? It has already been tendered and sold! Who do you think has more privacy, an American, or a Monegasque? An American, or a Swiss? Do you realize that Swiss have assault rifles in their homes?
Believe it or not, I consider myself a serious lover of America and what I believe is her core founding principles, which are libertarian in nature. The problem is, it has turned into a socialist police/nanny state with a massive debt overhang and things are going to get worse.
Why not change things rather than run away/move? Because a critical mass of you have become addicted to the hand-out tit. You think this is a ridiculous claim? Just watch the reactions when they try to cut some spending out that YOU benefit from. I believe we are beyond the tipping point, I certainly hope I am wrong...
Quote from Ghost of Cutten:
Finally, the idea that some offshore tax haven is more free than a 1st world country is a joke. Taxes beyond a certain point are certainly a restriction on freedom, but there are significant freedoms that are non-monetary that are just as valuable if not more. No society can tax its citizens so highly that they cannot make an honest living and afford to live, so there is a natural limit on them. The same cannot be said about restrictions on other freedoms - we see across the world that free speech, voting, gun rights, sexual liberties, usage of narcotics and stimulants, property rights, and other freedoms are oppressed indefinitely.
No one is saying become a citizen of a tax haven. Become a citizen of ANY first world country other than the U.S. and then just don't live there > 6 months out of the year. The problem is taxing you on your universal earnings and then making it very economically difficult to leave such a untenable situation. That is my definition of citizen-slavery, as practiced by other notables such as North Korea, Cuba, and Belarus.
it is funny to watch trader whine about taxes. people who derive income from capital gains are one of the most tax advantaged group of earners in the us. there are so many advantages handed to us.
it is possible to legally trade tax free. even without that it doesnt take much forethought to pay in the 15% range if you choose. the blended 23% futures short term rate is a gift. on top of that you are not required to pay ss and fica tax as other self employed people are, saving another 15%. then if you lose money your losses are subsidised.
just how little do you think you should have to pay for the services you recieve? i wish i would have had to pay a million dollars in tax last year.
it is possible to legally trade tax free. even without that it doesnt take much forethought to pay in the 15% range if you choose. the blended 23% futures short term rate is a gift. on top of that you are not required to pay ss and fica tax as other self employed people are, saving another 15%. then if you lose money your losses are subsidised.
just how little do you think you should have to pay for the services you recieve? i wish i would have had to pay a million dollars in tax last year.
One other thing to consider for those of you who think you have the moral high ground here (the "be happy you are here, put a smile on your face when you write the check you selfish bastard" types):
Our country purposely (throughout the imperial phase of our history) seeks security (risk/return) for our interests rather than operating under a moral or ideological framework. We only use our delusional moral high ground when a dictator stops behaving.
So much like you are a citizen here, our country is a global citizen. Your tax dollars are going to support dictators and unsavory regimes all over the world to this very day. Note: Democracy, liberty, pursuit of a higher standard of humanity, none of this really matters unless it is of political use (i.e. 2nd Iraq war).
In fact, truth be told, we really don't like democracies elsewhere. They are unpredictable and they tend to get a larger cut for their participation in whatever scheme we are running versus a well oiled dictatorship. We have even toppled democracies and put dictators in power! Oh the humanity!
So look today at what is going on overseas. This is what our borrowed money from Asia and our future children is going toward in the name of our "Interests". Oppressing people so that we can protect our vital economic interests.
So please tell me, given a hypothetical situation of an EU passport holder domiciling in Monaco such that is better serves their economic and security interests, even though Monaco is run (ostensibly) as a dictatorship, how this is any different on a micro-scale?
It isn't any different. Morality and capitalism simply do not mix. Capitalism is a-moral. It is a brutal system that has been adapted from nature. Certainly there is room for a layer of humanity on top, but frankly it is outside the scope of pure economic interests, as displayed by our Government (and many others) and certain private citizenry throughout history.
Our country purposely (throughout the imperial phase of our history) seeks security (risk/return) for our interests rather than operating under a moral or ideological framework. We only use our delusional moral high ground when a dictator stops behaving.
So much like you are a citizen here, our country is a global citizen. Your tax dollars are going to support dictators and unsavory regimes all over the world to this very day. Note: Democracy, liberty, pursuit of a higher standard of humanity, none of this really matters unless it is of political use (i.e. 2nd Iraq war).
In fact, truth be told, we really don't like democracies elsewhere. They are unpredictable and they tend to get a larger cut for their participation in whatever scheme we are running versus a well oiled dictatorship. We have even toppled democracies and put dictators in power! Oh the humanity!
So look today at what is going on overseas. This is what our borrowed money from Asia and our future children is going toward in the name of our "Interests". Oppressing people so that we can protect our vital economic interests.
So please tell me, given a hypothetical situation of an EU passport holder domiciling in Monaco such that is better serves their economic and security interests, even though Monaco is run (ostensibly) as a dictatorship, how this is any different on a micro-scale?
It isn't any different. Morality and capitalism simply do not mix. Capitalism is a-moral. It is a brutal system that has been adapted from nature. Certainly there is room for a layer of humanity on top, but frankly it is outside the scope of pure economic interests, as displayed by our Government (and many others) and certain private citizenry throughout history.
Quote from Free Thinker:
it is funny to watch trader whine about taxes. people who derive income from capital gains are one of the most tax advantaged group of earners in the us. there are so many advantages handed to us.
it is possible to legally trade tax free. even without that it doesnt take much forethought to pay in the 15% range if you choose. the blended 23% futures short term rate is a gift. on top of that you are not required to pay ss and fica tax as other self employed people are, saving another 15%. then if you lose money your losses are subsidised.
just how little do you think you should have to pay for the services you recieve? i wish i would have had to pay a million dollars in tax last year.
You are going to be paying a lot more than 15% unless you are doing some tax-oriented buy and hold scheme which is not efficient (even considering the tax benefits). It is also a disgrace to have to structure investment decisions based on the tax code.
23% is a gift, I do agree, but only if you are a pure futures trader (in my personal case this is only about 35% of my trading), and it doesn't include other taxes.
At any rate, look at the big picture. You are a business, you are paying taxes, in theory, to provide this supposedly safe and trustworthy environment that we have to speculate in. Now here comes your foreign competitor, who has unfettered access to your marketplace, and gets to participate with no tax implications.
Does that bother you? This is like your government saying if you build a car here, we're going to tax you x%, if you build it in China and then import it here, we are not going to tax you a dime? What the hell? It is friggin ridiculous! You had better hope your foreign competition is a lot less sophisticated (and I assure you, they are not!), otherwise in the long run we will be completely owned through only our own idiotic policies.