If the Democrats have their way, rich Americans are going to be paying more in taxes.
The idea is gaining support both to fund government spending and to reduce income inequality. But which types of taxes would rise and by how much is up for debate. Some proposals include a 2% tax on fortunes of more than $50 million and a 70% marginal tax rate on income over $10 million per year.
How will those affected respond? We might anticipate more spending on political contributions to candidates who oppose tax increases. Certainly, there will be increased emphasis on tax avoidance strategies. But if these measures don’t help, what are the stinking rich to do? A runner, if what we’ve witnessed in Europe is any prediction. France, for example, was forced to drop its tax of 75% on incomes over 1 million Euros after wealthy executives fled to more attractive locales like nearby Belgium.
In the US, flight is a rarity. Very few wealthy people choose to abandon the wealthiest country in the world. The US is the epicenter of many global industries and birthplace of much of the world’s technological innovation. Unlike Europe, the country doesn’t have comfortable tax havens right next door.
Some people posit that Canada could become a likely tax haven. Canada has trouble keeping their top talent, as the brightest minds often seek to ply their trades in the neighboring US. If Canada could lure rich Americans northward, it would be a coup. Attracting the soon-to-be-rich, like aspiring entrepreneurs and top managers, would also be a boon.
While some Americans equate Canada’s single-payer healthcare system with high-tax socialism, the top federal income rate in Canada is 33%. If taxes are raised significantly in the US, this could start to look pretty darn appealing. Remember though, that the long arm of Uncle Sam will reach into your pockets no matter where in the world you try to hide. Americans are taxed on worldwide income. The only way to escape and truly enjoy the benefit of living in a low tax country is to renounce American citizenship.
For more on Canada’s potential as a tax haven, please visit:
Imagine Canada Becoming a Tax Haven for Americans | ThinkAdvisor