In 2017, American taxpayers paid a total of $1.6 trillion in individual taxes, and despite new laws such as The Tax Cuts and Jobs Act of 2017 and an IRS reform bill that was signed into law in 2019, people in the United States still tend to view taxation as theft.
Unfortunately, taxation is a necessary part of a modernized society. Taxes are needed to pay for government workers, first responders such as firefighters and police officers, roadways, schools, libraries, parks, and for the funding of programs such as Medicare and Medicaid.
Tax the rich
The American tax situation is a complicated one, especially for the wealthy. In society today, the wealthy are seen one of few ways: they are either seen as being unfairly taxed or they are seen as not being taxed enough. The government seems to be leaning towards the latter, especially since they are now proposing new taxes on the wealthy.
These new taxes are targeting the wealthy to help fund various programs while also making up deficits due to COVID-19.
While Americans might seem disgruntled about this proposal, the truth is that the United States is not the only country considering this move. Just this month, Argentina passed a new tax on the rich to help cover COVID-19 measures. People holding more than 200 million pesos in assets will be paying up to 3.5% on assets in Argentina with up to 5.25% of taxes on assets held outside of the country. The United Kingdom is also considering to the same.
It is interesting to note that Argentina was once one of the wealthiest nations in the world, but today, it barely ranks in the top 100 richest countries. It is easy to see what they have done. They have essentially used the pandemic as an excuse to implement taxes on the wealthy. It is also important to note that many other countries are also considering this tactic, including Canada, New Zealand, and even the United Kingdom.
But this has been done before. Several European countries have tried implementing wealth taxes in the past, and they failed miserably. For instance, when France tried such an endeavor, an estimated 42,000 millionaires left the country, and eventually, President Emmanuel Macron did away with the tax. Today, just three countries in Europe have a wealth tax, whereas twelve countries there had a wealth tax in 1990.
Enter Elizabeth Warren, who says that her wealth tax would be effective. Not only has she proposed a whopping 6% annual wealth tax on billionaires (which chalks up to $60 million per year if you have $1 billion in the bank), but she has also proposed an exit tax. So, if you are ready to leave the country after paying a massive amount in wealth taxes, you would then be paying 40% more on your wealth over $50 million if you abandon your U.S. citizenship for another country.
This begs the question: is it fair?
The short answer, and perhaps the most obvious one, is NO. How is it fair to be taxed on wealth and value you have worked hard to cultivate and create? It is not fair.
The problem is that here in the United States, there is a culture that tells people that the wealthy are evil. People look to the wealthy and then the impoverished, and suddenly, the rich person is the bad guy. The government is okay with letting this culture exist, because by supporting the people’s will, politicians only stand to gain. At the end of the day, both politicians and a surprising number of people in the United States would support such a wealth tax.
Right now, with the pandemic and other tensions in the U.S., it is easy to see that a wealth tax could be implemented to the delight of the general public.
Some states have already voted ‘YES’ on wealth taxes, but a federal wealth tax could be devastating for high-net-worth individuals. Regardless of whether it is fair or not, be prepared: it could be coming soon.
So, what can you do?
If a move towards the wealth tax is made, and you are serious about protecting your assets, then perhaps the best tax strategy is to take your wealth offshore. That might not be enough, however; you might also need to consider taking your entire citizenship to another country. As scary of a premise as that might be, it could end up being the best financial decision you could make, depending upon your situation.
If the options are to either stay in the U.S. and watch your wealth be blown away by unfair taxation or to move to another country and enjoy the rest of your life, what would you choose? These are the kinds of considerations you should be making as the United States continues forward with a new administration that is okay with taxing the wealthy.
DEC
2020
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