Defending the American Dream
How the Wealthy Defend Against
Taxes, Tort and Terrorism
July 4, 2002
As our elected representatives argue among themselves about how best to exert even more legislative control over citizens and corporations, in the name of "fighting terrorism", they fail to realize that just that sort of draconian legislation is actually brewing a virtually unseen crisis of terrifying proportions. Combine that with the effects of the terrorist attacks of September 11, 2001 and more data that we have uncovered and what you have is a recipe for disaster.
The wealthiest people in the United States - those who have achieved the American Dream - those who pay almost all of the taxes - those who are responsible for the vast majority of US investment capital - are leaving the United States large and growing numbers. This isn't news. We have known about the growing expatriation rate for some time and common sense tells us that it isn't the poor who are leaving. But, new data that we have uncovered confirms that it is indeed, the wealthiest Americans, who are being forced to leave. Furthermore, we can now expect to see this government induced capital flight increase dramatically in the near future, as a result of the growing media attention to this issue and the effect of the terrorist attacks.
This is a very serious problem, because as we have shown in previous articles, if only the top earning 1% of taxpayers leave (just over a million taxpayers), it will mean a loss of over one-third of income tax revenue, requiring a 50% tax increase for those who remain.
It would be a serious mistake to call those who are leaving, unpatriotic. After all, what could be more patriotic than defending the American Dream. In fact, all that they are doing is responding to a recent spate of oppressive laws, designed to punish the wealthy for having achieved the American Dream. If anyone in this equation is unpatriotic, it is our elected lawmakers, who are attacking the American Dream and forcing these patriotic Americans to defend what they have achieved, by taking it elsewhere.
Those of you who have followed our articles on Action America (http://www.ActionAmerica.org/index.shtml) in recent years are already aware of this disconcerting trend of government induced capital flight that has been growing like a cancer, just under the surface. But, rather than report on an issue and then just set back on our laurels, we're constantly looking for new sources of information that might indicate that things are either better or worse than first reported. The reason for this article is that we have, indeed, uncovered new information.
It's getting worse.
I'm sorry to have to say this, but it looks very much like the flight of wealth from our shores is much worse than originally reported; worse even than reported in our annually updated article on this subject, "The Economy Bomb - Ticking Down Faster" (http://www.ActionAmerica.org/taxecon/tickfast.shtml). There are three new facts that point to this ominous conclusion. Actually, it is two new facts and one that has been around for a while, but it took some work to uncover it.
1) The major media is taking notice.
In recent weeks, I have read numerous news articles about how Congress is considering several different pieces of legislation aimed at preventing major corporations from reincorporating in offshore jurisdictions, in order to remain competitive with their foreign rivals and punishing those corporations that leave anyway. What those corporations are doing is referred to as corporate expatriation and is not only legal, but in many cases, necessary in order to stay competitive with their foreign rivals. But, it's not corporate expatriation that this article concerns. I only mention it, because it demonstrates that the media is beginning to take notice of capital flight issues.
In previous articles on the subject of capital flight, we have pointed out that even though the number of wealthy individuals choosing to leave the United States, for more wealth friendly climates, is increasing rapidly, the worst flight will not occur until the media takes notice of what is happening and draws attention to the problem.
Oops! The media is taking notice.
Granted, the current news is not about the government induced individual expatriations that represent a true threat to our economy, but only about corporations that expatriate and cause no real harm to the economy in the process, since their jobs stay here. But, if the media is now reporting the smoke of government induced corporate expatriations, how long do you think it will be before they find and begin reporting on the fire of government induced individual expatriations?
As the media tries to bleed every ounce of interest out of the story of corporate expatriations, it's almost certain that some industrious journalist, eager to make a name for himself, will soon stumble across the facts surrounding expatriation of wealthy individuals. After all, it's not that hard to run across that info, once you start looking. For example, let's just take two likely search terms that a journalist would likely use in such research and try them on the Google search engine (http://www.google.com). Since we are talking about "expatriation" and "capital flight", let's use those terms.
Note: To enter a two word phrase into Google, you need to quote the phrase. So, to see how easy it will be for a journalist to stumble across this information, go to Google and enter:
"capital flight" expatriation
On July 4, 2002, if you entered that search criteria on Google, you would have found that 11 out of the 42 listed links related to the increasing level of expatriation of wealthy individuals. In fact, 5 out of the 10 links on the first results page directly addressed individual capital flight.
Even dropping the quotes in the search does not significantly change the outcome of the search, other than increasing the number of results. One National Review article that was returned verifies, "As taxes continue to soak up a larger percentage of the GDP, the number of U.S. citizens moving out of the country is increasing". If National Review is reporting on this ominous trend, how long do you think it will be before other major news sources pick up on it?
The major media, in general, has not yet realized how serious this is. But, as you can see, it's only a matter of time. Whether the story is broken in the Wall Street Journal, on Fox News or through any other large news outlet, the other news organizations will jump all over it and the word will spread like wildfire. In fact, as pointed out above, it actually looks like National Review is beginning to take notice.
Many wealthy individuals are already aware of this flight, but have no idea how serious it is. Oh, most wealthy Americans know a couple of people who have expatriated, but they think that those expatriations were one-of-a-kind events and that expatriations, in general, are infrequent and of little concern. When stories about expatriations start showing up in the media every day, they will realize just how serious a problem it really is and start planning their own escape. ("Escape," by the way, is the common term used by most US expats to describe expatriation. That in itself, is a sad commentary on where our government has brought us.)
Other Americans, who are already in the process of planning to expatriate, will speed up their departure, knowing that in response to such news, the government will try to slam the door shut on expatriation. This additional boost in expatriations will certainly become part of the news, which will encourage even more expatriations and that cycle will continue until such time as the government really does close the borders. But as history shows, even that won't stop capital flight.
Unfortunately, our lawmakers are so obsessed with their own power and control, that they are unlikely to realize in time, that their attempts at control are only making matters worse.
2) New evidence proves it is the wealthy who are leaving.
As we have shown in previous articles, there is ample evidence of the growing number of expatriations. However, the amount of dollars concerned has been, until now, a matter of conjecture and projections. This new evidence actually ties dollars to these expatriates.
For many years now, Forbes Magazine has been publishing annual lists of the 400 Wealthiest Americans and the World's Billionaires. When most people look at those lists, they just look at the names and net worth of the people on the lists. But, we have discovered that those lists tell a much more important story, if you dig deep enough.
Since Forbes has been using the same basic procedures to build those lists for years, I got to wondering if those lists might reflect the same alarming level of capital flight that we, at Action America, have been reporting on. They did.
In fact, the Forbes lists show that since 1999, the number of US billionaires has dropped by over 13%, with a 7% drop in average net worth, while the number of billionaires worldwide has increased by over 80%.
November 2005 update - Both of the 2005 Forbes lists are out now and the new numbers show that since 1999, the growth in the number of US billionaires is only slightly more than could be explained by inflation, while the the number of billionaires worldwide is growing at a pace six times greater (22% vs. 132%). Furthermore, the total net worth of those US billionaires grew only 5% (not even keeping up with inflation), since 1999, while the total net worth of the worldwide billionaires grew by 76%. Also, keep in mind that the numbers for the worldwide billionaires was skewed downward, by the low numbers for the US billionaires. In other words, it's even worse than these numbers would indicate, at first glance.
Think about what those numbers say. Either wealth is leaving the United States at an alarming rate and moving offshore or wealthy people in the United States are losing huge amounts of money, while wealthy people in the rest of the world are making tremendously more money. It doesn't matter which explanation you accept, because if you accept the second scenario, how long do you think wealthy Americans will continue to stay in such an inhospitable business environment before adopting the first scenario. What it comes down to is that the land of opportunity no longer offers the greatest opportunity.
You won't find the above information quoted in any major media source. I had to take it upon myself to do the research. For your information, the lists that we used were the Forbes 400 Richest Americans and the Forbes World's Billionaires for 1999, 2000 and 2001 (since original publication, we have added each year's Forbes data to our analysis). Since the information was not easily downloadable, we had to copy and paste the Forbes data for the last few years, from dozens of web pages, into a single worksheet. We totaled up the number of billionaires in the US and worldwide for each year, along with their combined net worth and used that to calculate an average net worth for each group. If you want to go to that effort (3 to 12 hours, depending on the speed of your Internet connection), you will come up with the same results.
By doing the research yourself, you eliminate a lot of the spin. This is especially true, when you use non-political data, such as the Forbes lists. Perhaps it is for that reason that nobody in the major media ever thought to use the Forbes lists in such a manner. I certainly don't believe that Forbes has been tweaking their lists to make a political statement, just waiting for someone to stumble across that data. In fact, such unbiased information from a non-political source soundly substantiates the information that we have derived from many other sources that might be considered political.
3) Since September 11, more people who can afford it, are leaving.
Within a month after the attacks on the World Trade Center and the Pentagon, we learned that foreign consulates of a couple of favored haven nations had noticed a significant rise in the number of requests for information concerning how to obtain citizenship and/or permanent resident status in their countries. At that time, however, we could not get further information from other countries, so we did not report on our assumption that these two countries were likely representative of other haven nations, as well.
But today, ten months after those terrorist attacks, we are just beginning to see positive signs of a significant increase in expatriations of wealthy US citizens. That ten month delay is just about how long it would take most semi-prepared wealthy people to get their affairs together, in preparation for a move.
But, to make such preparations in that short a time, a person would have to already have a good idea of who to talk to and what to do. In other words, the only people who could prepare that fast would be those who were already considering expatriation as a risk management move, prior to the terrorist attacks. Since many tax consultants advise their wealthy clients to maintain an up-to-date exit strategy, as a worst case scenario, it is reasonable to believe that a significant number of wealthy people could, in fact, prepare that fast.
What's more troubling is that many wealthy people, who might have already left, were totally unprepared and are still planning their move. That number could be small or large. There is no way to know until they leave.
But, one thing is for certain. This is adding to an already serious problem, caused by an out-of-control IRS and unrestrained frivolous litigation in this country. In fact, if it were not for those more serious threats, I am sure that few of those who are leaving today would be fleeing the terrorist threat alone.
It is important to understand that the terrorist threat is not the primary reason that those people are leaving. Terrorism is just the proverbial "straw that broke the camel's back". If it were not for the out-of-control IRS, the terrorist threat alone would not be reason enough to cause most wealthy people to leave.
So, added together, here is what we have:
The wealthiest Americans are under attack in several ways.
IRS records show that the wealthiest 1% of Americans pay over 35% of taxes and the wealthiest 5% pay well over half of taxes.
The US taxes the wealthy just for dying.
Frivolous litigation is at an all-time high, with the US having far more lawyers, per 100,000 population, than any other country (ex: 307 in US, 82 in Germany, 12 in Japan).
The IRS is the most hated and feared agency in the history of the world.
2000 Discovery Health Channel Study of fears and phobias shows that Americans fear the IRS more than they fear God!
1999 survey of most despotic government agencies of all time (no longer available online) shows that Americans rank the IRS number 2, close behind Hitler's Gestapo and far ahead of the former Soviet KGB.
The USA is the only nation in the world where citizens risk losing all of their assets, due to a signature of a single non-elected bureaucrat, regardless of where those assets were acquired or may be domiciled. Worse yet, in a court challenge, the burden of proof is on the citizen.
Wealthy Americans are taking all their money and leaving in ominously large and growing numbers.
Expatriation increased from less than 40,000 in 1995 to about 100,000 in 2000.
Since the wealthy are most under attack by government, most at risk to frivolous litigation and most able to afford to leave, it follows that most expatriates are probably wealthy.
The Forbes data confirms the conclusion that wealthy individuals are indeed the people who are leaving.
Signs are that capital flight is getting worse.
The terrorist threat is causing an increase in capital flight, over and above expatriation caused by the IRS.
Expatriation will likely increase dramatically when the major media eventually delves deeper into this story and begins reporting the facts.
Major media sources are now beginning to take notice of expatriations.
There is only one conclusion that can be drawn from all of this.
The United States is on the verge of a crisis of calamitous proportion, created by an out of control IRS and draconian laws aimed at government control of all wealth.
The additional fear of unbridled frivolous litigation and the more recent fear of terrorism, though not principal causes, hasten the approach of this looming disaster. But, rather than repeal the laws that are causing this capital flight, our lawmakers only make matters much worse by passing even more oppressive legislation, which actually has the effect of making matters worse, by driving even more wealth offshore.
History has shown that no government has ever been successful at using force and intimidation to keep citizens with means from leaving the country and taking their wealth with them. Furthermore, every time that any government has attempted such tactics to keep the wealthy from leaving, their attempts, as has our government's, have had exactly the opposite effect. The only thing that will keep wealth from leaving any country is the same thing that generated so much wealth here and attracted so much foreign wealth to the United States in the first place - greater freedoms and less oppressive laws.
Since the root cause of this capital flight is clearly the IRS and since the IRS is a requirement of any method of taxation that is based on income, the obvious solution is to adopt a method of taxation that is not based on income and therefore, does not require such an abusive agency to insure the payment of taxes, through the use of intimidation of citizens, prying into their private financial affairs and summary confiscation of their property.
There are several such viable replacements. But, since time is of the essence, we must concentrate on those proposals that already have some support, are part of the national discussion and exist as proposals in Congress.
There is currently only one such proposals that is expressed in the form of a bill in Congress. That two bill is the Fair Tax Act of 2005 (H.R.25) which will eliminate the IRS by completely replacing the income tax with a National Retail Sales Tax. Note that the much touted flat (income) tax is not a viable replacement for the current income tax, since it is itself, still an income tax, and as such, would NOT eliminate the IRS. On the same note, Americans should remember that our current income tax started out as a flat income tax. The income tax (both flat and progressive) has failed. It is now time to replace it with something that will solve the problems that the income tax has created.
Expatriation of our wealthiest citizens and the loss of our largest companies will continue until either the income tax is replaced with a method of taxation that does not punish citizens for the successful acquisition of wealth or the US economy finally implodes from lack of native investment capital. Failure to soon replace the income tax with a NRST is a recipe for certain economic disaster.
This has become a critical issue. Action America encourages our readers to study the Fair Tax (NRST) proposal. To learn more about the proposal, go to Americans for Fair Taxation (AFFT) and Citizens for an Alternative Tax System (CATS). Most of all, we urge you to contact your Congressman and Senators and let them know that, come the next election, you will register your dissatisfaction in the voting booth, with any of your elected representatives, regardless of party, who fail to actively support the Fair Tax.
Copyright 2013 John Gaver
All rights reserved
See related articles and supporting documents:
1986-2008 IRS Collections Data by Income Category
Obama agenda drives record expatriation
Tick - Tick - Tick / The Economy Bomb
Tax Freedom Day Builds Case for FairTax
US Tax Freedom Day Clock Web Widget
UK Tax Freedom Day Clock Web Widget
US Tax Freedom Day Clock
US Tax Freedom Day Clock Widget (for Mac)
UK Tax Freedom Day Clock Widget (for Mac)
The Privacy Factor
More Attacks on the Wealthy
US Taxpatriates List
2000 Statistical Yearbook of the Immigration & Naturalization Service (6.2mb PDF)
2003 World Wealth Report (Press Release)
American Citizens Residing Abroad (US Bureau of Consular Affairs)
Health Insurance Portability & Accountability Act of 1996 (26 USC 877(a)(1))
Immigration Reform and Immigrant Responsibility Act of 1996 (8 USC 1182(a)(10)(E))
Heroes Earnings Assistance & Relief Tax Act (Public Law 110-245) (8 USC 1182(a)(10)(E))
The Economic Impact of Replacing Federal Income Taxes
with a Sales Tax (CATO)
Fair Tax Act of 2011 (H.R. 25)
Americans for Fair Taxation
National Retail Sales Tax Alliance
See Expatriate sites: