The Privacy Factor
Yet Another Reason Why The
Wealthy Are Leaving The USA
February 3, 2001
There is no doubt that the wealthy are leaving the United States and that those who remain are being saddled with an increased and increasing tax burden, as a result. But, very few people realize just how serious the situation is. After years of research on this subject and moving in the circles of the wealthy who have left, even I am occasionally faced with facts of which I was not aware.
Although I often learn of small items that I may have missed in a previous article, I seldom learn of any significant omission. Such is not the case relating to an aspect of this issue of which I became aware some time back. In fact, this situation is so significant that I felt a need to write a special article on this issue alone. But, for reasons that will become clear in this article, I was obliged to wait for some time, before publishing it.
The purpose of this article is not so much to be a stand alone feature, but to serve as an adjunct to several existing articles that have previously been written for Action America (http://www.ActionAmerica.org/).
In previous articles, I have addressed the "Fear of the IRS" and confiscation as being the major driving factors that cause many of America's wealthy to choose expatriation as their only remaining option. Indeed, my research still validates this fact. There is, however, one additional factor that affects only the super-wealthy. PRIVACY.
Every time another millionaire leaves the United States, the US tax base is reduced proportionately and the remaining taxpayers take another small hit. It is the total of all of those small hits that makes this issue significant. But, there is a side to this issue, in which each expatriation is much more significant and that could be potentially much more devastating. I'm not talking about just the wealthy any more. I'm talking about the super-wealthy. Billionaires!
According to the Forbes 400 Richest Americans list for 2000, there were 298 billionaires in the United States when this article was originally written in February of 2001, representing 1.1 trillion dollars. What I have discovered is that there would likely be a lot more billionaires on that list, paying US taxes, but for the IRS. In fact, in the year prior (1999), there were 307 U.S. billionaires and in the year since (2001), there are now only 266 billionaires on that same list, representing only 841.5 million dollars. To put this into perspective, while the number of U.S. billionaires has been consistently dropping, along with their average net worth, the number of foreign billionaires has seen a steady and significant increase in both number and average wealth. What all of this boils down to is a significant loss of tax base where most of U.S. taxes are paid - at the top.
Billionaires in Hiding
Some time back, I had occasion to conduct some business with an expatriate American, who I had known for some time to be a millionaire. By piecing together several separate pieces of information that I picked up at that time, I determined that he was, in fact, a billionaire. I don't know just how wealthy he really is. But, I do have good reason to believe that he may well be among the very few who requires 11 digits to express his net worth in US dollars. But to be fair, the only thing that I can be sure of is that his net worth is in the multiple of billions of dollars. I'll explain why this is important in a moment.
The thing that I found most interesting about this person was that his name does not appear on the Forbes World's Richest People list. In my research on native capital flight, I've spent a lot of time studying that list, and in particular, the Americans and ex-Americans on it. When I questioned him on why he was not on the list, his answer was, "Why do you think I renounced my US citizenship XX* years ago?"
It had been a long day and I was a little slow on the uptake. I suggested that leaving the United States would only keep him off of the Forbes 400 Richest Americans list and asked why he was not on the Forbes World's Richest People list, which "claims" to list everyone with over a billion US dollars in net worth. Even as the words came out of my mouth, I realized my mistake "claims."
In the discussion that followed, a whole new light began to shine. This billionaire, who I have reason to believe would rank in the top 100, of the 538 billionaires on the Forbes World's Richest People list, was not on the list at all, because of one reason. He chooses not to be. He chooses PRIVACY. But, as he pointed out to me, that would not be enough, if he were still a US citizen.
As a US citizen, he would have to report to the IRS annually, ALL of his worldwide earnings, regardless of where in the world the income was generated or where it was banked. That would mean that ALL of the financial information necessary to trace his net worth would be accessible in one place. Years ago, as his net worth approached the level that would have placed him on the Forbes 400 Richest Americans list, he found that scenario to be unacceptable; hence, expatriation. Are you beginning to see where this is leading?
PT - The Key to Wealth and Privacy
Although he had become one of the super-wealthy, he wanted to maintain the pleasures of anonymity. He has become one of a growing number of wealthy individuals who have become what is commonly referred to as, a "PT" (an acronym with many meanings, including Prior Taxpayer, Permanent Tourist, Privacy Trained, Practically Transparent and Passing Through). By this, I mean that he has structured his finances and his lifestyle in such a way that he has dropped completely off of the collective government radar screens. He has become Practically Transparent.
I must admit that, although I had known this person for some time and knew that he lived a comfortable lifestyle. Had I thought about it at all, I would never have considered him to have more than a few million dollars and even much of that not readily available. It is to help protect his anonymity (and only with his permission) that I have waited until now to even write of this.
As our discussion continued, he told me that he is pretty certain of at least four other American expatriate billionaires who are not on the Forbes lists. But what really surprised me, was when he told me that I even know one of those others. It has been some time and I'm still trying to figure out who it could be.
That's a characteristic of PT's. Only those who need to know (usually as a part of a business deal) ever learn that the PT has more than a modest fortune, if that much. Even the PT's attorneys are likely to never learn of his real wealth, because each attorney is responsible for only a portion of that wealth.
PT's most often do business through an intricate web of surrogates in dozens of countries. They will have at least two passports and possibly more. Very little of what the PT owns is in his own name and little, if any, is invested in the country where he lives or has a citizenship. And, most importantly, the PT is NOT a United States citizen, nor does he have a US residence. In such a manner, the PT can continue to control and grow his fortune and yet, continue to live a comfortable, somewhat normal lifestyle.
Expatriation for Personal Privacy
The point is, that beyond fear of the IRS and their confiscatory powers, the super wealthy have a far more powerful reason for choosing expatriation - their desire for Personal Privacy.
Certainly, not all billionaires desire the privacy of anonymity. In fact, quite a few of the people near the top of the Forbes lists seem to thrive on their notoriety. Although they must still fear the IRS, it is not those people who I am talking about, at this time.
The people who I am talking about are not people of whom you have heard. They are the people who have managed to maintain their anonymity, despite their enormous wealth. But, most importantly, they are NOT US Citizens and they are NOT paying US taxes.
We don't know how many of them there are. We don't know what is their combined net worth. We don't know where they are. All that we can be sure of is that, thanks to the IRS, they are NOT in the United States and NOT paying US taxes.
Three Questions for You
I ask you to think about this question. "If you had a billion dollars, would you want to publicize that fact to the world and have to drive around in bulletproof limousines, place you children at risk of kidnapping and never leave home without your bodyguards or would you do your best to keep the extent of your wealth a secret and continue to live a somewhat normal and private life?" Think about it...
Next, I ask you to consider this question. "If you had a billion dollars and could live comfortably anywhere in the world, would you stay in the United States and allow the full extent of your wealth to become known (bodyguards, kidnap risk, bulletproof limousines and all) or would you spread your wealth around banks, IBC's and trusts in dozens of countries around the world and move to a jurisdiction where you are not required to report your income and you could be just another somewhat wealthy person?" Think about it...
The final question should now be obvious:
How many super-wealthy Americans do you think have already left the United States and taken their wealth with them, so as to protect their privacy by not having to reveal the extent of their wealth, through being required to report their worldwide holdings to the not to be sufficiently damned IRS?
Think about it...
And, while you're thinking, remember that these are the people who would be paying the lion's share of the taxes... IF they were still here. Think about the above questions and then ask yourself, "How much of what you pay in taxes do you believe is due to the mere existence of the IRS having already forced many privacy concerned billionaires offshore?"
The important factor to remember is that due to the mere EXISTENCE of the IRS, in order to remain anonymous, a billionaire must NOT be a US citizen. So, we have yet another reason why the wealthy are leaving the United States at the highest rate in history.
Foreign Wealth is Leaving Too
It gets even worse. Due to the IRS implementation, earlier this year, of "Qualified Intermediary" (QI) Regulations, privacy concerned foreign billionaires (and millionaires), who have until recently been responsible for large amounts of foreign investment in the United States, are now moving their investments to more "private" jurisdictions, as well. The reason is simple. The QI Regulations require foreign financial institutions who invest client money in the United States to reveal the true identity of individual investors or lose the right to serve as a "Qualified Intermediary" for US investments. Those billionaires (and millionaires) who want to preserve their privacy are just directing those financial institutions to invest their money elsewhere.
So now, not only is the IRS driving privacy concerned US billionaires out of the United States, with all of their investment capital and tax base, but they are driving privacy concerned foreign billionaires (and millionaires) to invest their wealth offshore, as well. In today's market, there are many other places where the wealthy can invest their money for a similar risk and return, without having to sacrifice their privacy as part of the price.
As I pointed out in the article, "The Economy Bomb - Ticking Down Faster," the wealthy are leaving the United States in record numbers because of the IRS and that the level of taxation had little to do with their decision. But, it now seems that the super-wealthy (Americans and foreigners) have an even greater reason to, not only flee the jurisdiction of the IRS, but to invest their enormous fortunes offshore, as well. It seems that every time the IRS makes a new ruling to try to discourage Americans from taking money offshore, the end result is to actually force even more wealth offshore, increasing the tax burden on those lower and middle class taxpayers who remain.
It's a Natural Effect When You Tax Income
As long as there is a tax on income in the United States, a privacy invading agency like the IRS will be necessary to collect that tax from individuals. Regardless of whether the income tax is a progressive tax or a flat tax, such a privacy invading agency will be required. And because of that, capital flight (from both native and foreign sources) will continue to increase, leading to the eventual collapse of the US economy.
If we are to stop this massive capital flight before it reaches critical mass and destroys the whole US economy, we must abolish the Income Tax and with it, it's evil progeny, the IRS.
If the wealthy continue to leave and move their wealth offshore at the current rate, it won't be long before the taxes of those who remain will be forced up by 50%, 100% or even more.
The Spiral Has Begun
How much more are you willing to pay in taxes? Of course, when those taxes start to rise, what effect do you think it will have on capital flight? Will the wealthy just stay and pay the higher taxes or will they move themselves and their money to more profitable jurisdictions, forcing US taxes on those who remain even higher? It's a big spiral. But, by the time the general public realizes what's happening, it will be too late.
The only chance that we have, is to very soon remove the cause of this looming crisis in capital flight and abolish the Income Tax and it's evil progeny, the IRS.
The only solution that has been proposed, that will eliminate the Privacy Factor, discussed here, and all of the other issues that are driving wealth offshore, is a National Retail Sales Tax (NRST), such as proposed in the FAIR Tax (HR-25).
BEFORE IT'S TOO LATE.
Copyright 2011 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: