Tax planning for a Bernie Sanders presidency

With Bernie Sanders as a serious contender for the presidency, it’s time to do some tax planning for an even more socialist United States

Dateline: Tbilisi, Georgia

Twelve years ago when the war in Iraq was just getting underway and Republicans were dodging accusations that it was a “war for oil”, I cynically suggested that if gasoline prices were to become high enough, the American body politic as a whole wouldn’t care if there was a war for oil.

They wouldn’t particularly care if people halfway around the world were being bombed. They would just support whatever it took to get cheaper oil.

In today’s world of politics, cheap gasoline is but a symptom of a greater, largely inevitable, issue that is the decline of the western world.

As countries like the United States fail to grow, voters are frightened by the higher prices, lower wages, ongoing inflation, and crumbling infrastructure that comes with the slow decline of a once-powerful nation.

And I’m guessing they’ll do anything to try and stop it, futile as those attempts might be or wrongheaded as their “solutions” might seem.

I’ll bet it wasn’t long ago that you figured a declared socialist could never win the Presidency of the United States. For as long as I can remember, US persons seemed to shudder at the mention of the world “socialist” as something to be avoided.

Even as Barack Obama somehow managed to get elected – and then re-elected – socialism sounded like the kind of politics that was electable in Norway or Sweden, but not in the United States.

I’m here to tell you that the old playbook has been thrown out the window, and an angrier and angrier electorate upset at the declining fortunes of their country will elect anyone they believe will turn those fortunes around.

Even a socialist.

While the economy here in Georgia was jump started by pro-business, free market ideas, western electorates don’t tend to care so much about what will actually work, but what will make them feel good.

Bernie Sanders has been the type of obscure socialist that everyone to the right of center laughed at for years. He has spent decades safely ensconced in a Vermont senate seat that he has 0% chance of losing.

But now self-proclaimed Democratic socialist Bernie Sanders is a real contender for a presidential nomination, and the idea is worthy of some tax planning… just in case.

I recently read parts of a Forbes article that discussed tax planning for a potential Bernie Sanders presidency on my podcast.

Whether Bernie Sanders ascends to the presidency or not, the idea that a self-proclaimed socialist and wealth redistributionist could garner as much as 41% of votes in his own party is quite telling. Even if he doesn’t win, the table has been set for the next previously unelectable socialist to bring his tax-the-rich agenda to the table.

It’s not so far-fetched. The UK just elected a socialist government that aligns itself with anti-austerity Greece.

Jeremy Corbyn, the new face of British socialism, just slammed “grotesque levels of inequality” and an “unfair welfare system” as he prepares to help govern his country into an era of higher taxation.

Quite simply, folks who think their system is unfair will likely always think it is unfair until the wealthy are brought to their knees. Considering much of Europe is reverting back to a socialist model of wealth redistribution, here are a few ideas Americans should consider in case a socialist were to be elected President of the United States.

Earn less money

Bernie Sanders says he’ll raise taxes on the 1% to levels that will make your head spin. Think pre-Kennedy 91% top marginal rates if he has his way. Yes, he really said that. Bernie and his ilk are so focused on how bad the poor have it that they’ll let their blind range soak “the rich” no matter how unfair it is.

Sure, you’d need an equally socialist congress to get rates that high, but I can certainly see federal tax rates getting well in the forties, which would make high-earners in places like New York, New Jersey, and California pay 60% to 65% in total taxation. I’m sure Bernie Sanders has no qualms with that considering the fact he thinks that workers with large salaries are what is causing the downfall of the United States. If you are a US resident and plan to remain one, the only way to escape his high rates is to stop being a high earner.

Sell your business and move overseas… for now

While many high earners are forced to live in the United States in order to perform their jobs, business owners may be able to either offshore their business (see below) or cash out while the getting is good.

If you believe Bernie Sanders or someone equally hateful towards wealth could become President, now might be the perfect time to sell your US business, take the money, and run. Businesses are easier to sell when 1) buyers looking to make large profits believe those profits will be taxed fairly, and 2) people actually have money to invest.

By selling your business, or moving a location independent business, you can have the freedom to live overseas and at least exempt part of your income under the Foreign Earned Income Exclusion. I doubt Bernie supports the FEIE, so this might be a short-term solution, but you could at least enjoy some tax savings while it lasts.

Move your business overseas

Bernie Sanders has long complained of what he considers a soft tax policy for US corporations. In a world of shrinking corporate income tax rates, the US has the world’s highest headline corporate tax rate… but it’s not enough for Bernie Sanders.

Bernie complains of the “loopholes” that companies like Google and Starbucks use to shift profits earned overseas… well, overseas. He’d force US companies to pay tax on their worldwide income the same way US citizens pay tax on theirs. No loopholes, just pure “territorial tax” that forces any company based in the United States to pay up.

Somehow, I don’t think he’ll extend the same courtesy to US citizens who base themselves in a foreign country, but if you run a US business that earns profits overseas, I’d strongly suggest taking a look at moving your business offshore before Bernie makes inversions and transfer pricing a thing of the past.

Move your brokerage account offshore

Bernie can’t wait to impose huge taxes on every kind of financial transaction in an effort to enact his revenge on Wall Street. Just as Barack Obama dismissed the negative economic impact of higher taxes during his first campaign, focusing instead on “fairness”, Bernie could care less about how these financial transaction taxes hurt the economy… to him, it’s all about enlarging the pot of cash for those who support him.

Under a Sanders presidency, financial speculation would be taxed, as would every stock trade at rates as high as $5 per $1,000. A $50,000 trade could cost an extra $250… every single time you execute it.

That means you’d be stuck between antiquated “buy and hold” and high-tax frequent trading, being essentially left with no good options. I imagine many traders would be looking offshore to reduce their exposure to such taxes… if they even could.

Suffer the pain of moving money offshore

Bernie hasn’t talked a lot about laws like FATCA that make moving money offshore more difficult for US citizens, but I suspect he would be in no rush to make changes to the current system that costs expats and “accidental Americans” alike a fortune in tax compliance every year.

Remember, the likes of Bernie Sanders don’t care about what’s fair or what is good for the economy. They care about economic justice and avenging minimum wage workers who can’t provide for their three kids on $9.85 an hour. They look only to the motives of the “evil rich” and never to the motives of the (much larger) constituency they serve.

If Bernie Sanders or anyone of his ilk were to become President, get ready for an even bigger spike in the number of US citizenship renunciations as expats and high-earners flee a system that will all but certainly trap their money within the United States where Bernie can “borrow” it for the benefit of the poor.

Move your IRA offshore

If you think a guy like Bernie Sanders wouldn’t salivate at the trillion-dollar pool of untapped retirement account cash, you’re crazy. Barack Obama used his MyRA program as a back-door way to confiscate retirement assets and trap them in worthless government paper, and an even more socialistic president would go even further.

Moving your IRA offshore would be a pragmatic view to get the cash you can’t touch until 59-1/2 out of the country and into more productive assets that couldn’t be so easily confiscated as value mutual funds sitting in the United States.

Protect your estate

A Bernie Sanders presidency would come with a top estate tax rates of 65%, including a 10% “billionaire surtax”. Heaven forbid people who earn money be able to decide where it goes, because in Bernie’s world, entrepreneurs enjoy working hard their entire lives to benefit a nameless, faceless government and the angry majority its politicians shamelessly support.

Peter J. Reilly suggests this proactive estate planning measure:

I think that this might be a good time to dust off the notion of forming a family limited partnership. If it is well executed it is an excellent method for separating management of wealth from its transfer. You could tee up a mega gift to make sure you use up the current exemption of $5.43 million in December 2016 while Sanders is still President-elect. There are a host of other techniques likes GRATS and QPRTs that you may have thought about doing someday. If it is something that you think was sound but have been procrastinating, you might take the Sanders surge as a prod to finally get it done.

I would take this opportunity to evaluate whether an offshore trust or foundation would help your family in the event that death tax rates were increased. If nothing else, moving some of your family’s cash offshore would offer protection against future capital controls or retirement account confiscation.

No matter who wins the presidency in the United States next year, one thing is clear: taxes are only likely to go up as the mindset of the American voter shifts to one of victimhood and the electorate continues to scapegoat anyone with change between the couch cushions as the reason for their malaise.

Voters en masse won’t come around to the idea that the Federal Reserve and bankrupt politicians are the reason for their economic woe. No matter how one election goes, taking steps to protect your wealth is a prudent measure, especially as we see previously right-leaning governments in Europe shifting back to the left.

Andrew Henderson

Andrew Henderson

Andrew Henderson is the world's most sought-after consultant on legal offshore tax reduction, investment immigration, and global citizenship. He works exclusively with six- and seven-figure entrepreneurs and investors who want to "go where they're treated best". He has been researching and actually doing this stuff personally since 2007.
Andrew Henderson
 

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