Millionaire Entrepreneurs Become Refugees By Fleeing High Tax Jurisdictions

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A progressive tax system, is a tax system that modifies the rate of tax based on the taxable earnings of individual. In progressive tax jurisdictions, wealthier people pay a higher tax rate than lower income earners. The guiding philosophy behind progressive taxation, is that higher income earners should bear more of the responsibility than lower income earners when it comes to paying taxes. The majority of OECD member countries use a progressive tax rate (as opposed to a regressive tax rate, where the more you earn, the less you pay). 

Governments Are Becoming Too Aggressive With Taxing Wealth

We dive deep into this topic in more detail in our free offshore tax planning mini-course, but one worrying trend we see is that many governments are becoming increasingly aggressive with taxing wealth. New “wealth taxes”, designed to be levied on top of already high tax rates, are causing many millionaires to migrate to jurisdictions with more favorable tax laws. 

Generally, governments can get away with aggressive taxation when they are taxing high net worth employees (the working rich), because those employees are heavily dependent on their job and have often spent many years building up to their current position and salary. To quit, or to start over at a new company, in a lower tax jurisdiction, might not be worth the risk. Essentially, the government can tax the working rich at high tax rates and impose wealth tax on them, simply because they can get away with it. 

However, many entrepreneurs have a strategic defense against any legislation they feel too aggressively taxes their income. Entrepreneurs, have a mobility advantage, and can often take their business, money, assets, and often themselves, elsewhere. 

Easy Win With Populist Governments Looking For Votes 

Wealth taxes, and “tax the rich” agendas, are often an easy sell for populist governments looking for votes and support. There are simply substantially fewer high income earners compared to low or middle income earners. Therefore, when voters realize the problem at hand can be pinned on a group of individuals, other than themselves, it becomes an easy sell. It doesn’t hurt that the people generally don’t have much financial sympathy for wealthy individuals either. Wealthy individuals are simply the perfect target for government tax increase plans. 

At the time, there might seem to be no noticeable social upheaval among the wealthy people who are being effected by these new tax laws. However, that’s because the real change is happening quietly behind closed doors as wealthy individuals plan ways to exit their wealth by moving money to offshore bank accounts

Short Sighted Political Win With Obvious Consequences

Wealth taxes are often short sighted and have many unintended negative consequences. When governments create rules that punish people for their success, or provide financial disincentive for them to do business there, these rules generally act as a deterrent for new wealth coming into the country. 

It’s hard to imagine a world, where taxes would not be considered as part of the risk assessment of doing business in a particular jurisdiction. Taxes are usually the single biggest expense for most businesses and entrepreneurs. 

Whether governments like it or not, our global economy allows entrepreneurs to shop around for jurisdictions that have more favorable tax environments, which entrepreneurs might feel would better reward them for their investment and risk within a country. The wealthiest people in the world, are much more mobile than the middle or lower classes, and they often have the freedom to put their assets, businesses and personal wealth in jurisdictions that provide the best financial incentive for them to do so. 

As we can see, money, often will not only stop coming into a high tax country, but it will also generally find ways to leave. Strangely, countries are pushing out the very people they are most dependent on as a tax source under their progressive taxation systems . This is likely why, out of the 14 OECD member countries that imposed a wealth tax on it’s richest citizens in 1996, 10 have since abandoned their programs.

If you own a company and you’re looking for ways to legally reduce your taxes then please visit our offshore company formation

Thanks for stopping by Moola Financial Group’s blog today! 

 

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(*Learn how to dramatically reduce your corporate taxes by using the various restructuring blueprints that we’ll provide you in our FREE offshore tax planning and training mini-course.)

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