Dateline: Tbilisi, Georgia
If you are still living in the US, today is your last day to file taxes. But while tax season may be over, the future of the US tax system is still on the table.
Unfortunately, the tax plans of most of the remaining presidential candidates are anything but promising for successful business people like you.
We’ve spoken before about how Bernie Sanders has promised to raise taxes on the 1% to levels that will make your head spin. (Yes, he really said that.) In fact, under Bernie, I can see federal tax rates getting well into the forties, which would mean that high-earners in places like New York, New Jersey, and California would pay 60 to 65% in total taxation.
We’ve also discussed that while Trump has proposed a tax plan that certainly has some pro-growth measures — such as cutting the business tax rate to 15% and eliminating the estate tax — his approach to the presidency, in general, could be disastrous for the American economy.
What we haven’t discussed is the horribly complex tax system that Hilary Clinton has whipped up.
As is expected, Clinton’s plan would increase taxes for those on the top of the income ladder. Her campaign theme of making the wealthy “pay their fair share” can mean nothing less.
The “fair share” as defined by Hillary Clinton
For the top 20% — those who make $209,000 or more — taxes will go up by an average of just $4,527. The top 1%, however, will receive an average tax hike of over $78,000.
In fact, if Clinton is elected, the top 1% of income earners in the US will pay for three-quarters of the changes brought about by her plan. And the top 0.1% will pay for 50% of those changes, with an average tax increase of over half a million.
In other words, the US will continue to increase its hostility toward the wealthy.
Clinton’s plan will also make the already complex tax system even more complicated. There will be a 4% surcharge on adjusted gross income over $5 million and filers with AGI above $1 million will be held to the “Buffet Rule”, a 30% effective tax rate.
Her plan would also decrease the value of certain deductions and exemptions and introduce higher capital gains taxes, higher estate taxes, and higher taxes on investment funds.
Looking to Europe for the solution
You know, there is a lot of talk in US politics, especially on the left, about how we should be more like Europe. And believe it or not, I wish Hilary Clinton and the United States government, in general, would actually follow Europe’s example.
What most people don’t realize is that once you get east of Germany, the tax policies throughout Europe are incredibly simple and more business-friendly than anyone stuck in America could believe possible.
That’s not to say that everything is super easy, but the taxes are almost universally low. In Lithuania and Latvia, the corporate tax is in the teens. And in Estonia it’s 20%, but only after you take money out of your company. Across Eastern Europe, corporate tax rates in some places are at 15%, 12%, 9% in Montenegro and 10% in Bulgaria.
So when people say, “let’s be like Europe” … unless we’re talking about France and Spain where no one has a job and they’re all getting high in a park somewhere, I’m going to assume we’re talking about the business-friendly tax laws that have propelled the development of the region.
It’s becoming far easier to do business in Europe than the United States, yet US presidential candidates are winning their races based on promises of making it more difficult.
Why can’t we learn from a country like Estonia where you can do your taxes online in five minutes?
It seems Estonia is doing everything right when it comes to business these days. I wrote an article a while back about Estonia’s zero percent corporate tax. And then there’s Estonia’s incredibly streamlined e-residency. When I got mine, I was in and out in a matter of minutes. And, as Jeb Bush pointed out when he was still in the race, the average person in Estonia takes five minutes to file their tax return.
And then you have Georgia. They’ve slashed taxes and now they’re changing their tax policy to make the process more straightforward overall. It will be more difficult in one regard in that you will need to file some monthly returns, but the Georgian government will now allow you to withhold paying tax on money that’s not distributed.
Look at these two countries. Where were they 25 years ago? They were a disaster. Both have grown by leaps and bounds. Estonia is certainly more advanced than Georgia — Estonia is pretty much as first-world as you can get — but both have flourished under capitalism. It’s remarkable!
Simplicity is key
Look at what any country that has taken on business-friendly laws and tax rates has done in a matter of years. Singapore and South Korea are legendary success stories. Panama is halfway there (although they should be further along). And even Nicaragua has decided it wants foreign money and has made the move toward greater simplicity.
Where is this simplicity in the US — the world capital of innovation?
About a month ago I wrote an article about Stripe and how they have recently started offering to help you remotely open a US bank account for your company. It was marketed as an earth-shattering, revolutionary change. What are they talking about? That’s not innovation, that’s just US banks finally catching on to what the rest of the world has been doing for years.
And why have all these other countries become so innovative and business-friendly?
Because they had to.
Estonia and Georgia are just an example two countries that were formally part of the communist empire the US fought against in the Cold War that are now some of the most capitalist countries in the world. How times change!
They figured it out. They figured it out in Nicaragua, Panama, Serbia and a whole list of other countries because they had to. They made the move toward freer markets because they realized it was the way forward.
Their past taught them that.
If you’re going to live in a country and pay tax, at least live in a country where people remember what it’s like living under a crazy government.
Until then, most people in the US are going to vote for whatever sounds better. And for now, taking down the rich and promoting a $15 minimum wage is what sounds good to people.
Voting for Donald Trump is not going to solve all your problems, either.
When George W. Bush won the election in 2000, it was seen as a momentous victory when he managed to reduce the marginal tax rate from 39.6% to the 35% it is at today. That was and is a crowning achievement in US tax policy.
Trump promises tax cuts to the rich and a 15% business tax rate, but the US is such a big country plagued by gridlock, debt and a mentality of entitlement that I doubt even The Donald could pull something off like that — not without running the country’s finances even further into the ground.
Heck, even at 39.6% the US ran a deficit!
But you don’t need Trump or anyone else to win the election and strong-arm the US government into lowering its tax rates to get enjoy lower taxes. There are countries out there, in Europe and elsewhere, that have tax rates as low as nine and ten percent.
And you still have the freedom to benefit from that and go where you’re treated best.
That’s my endorsement.
If you needed a reality check, this was it. The US tax system is a mess. If you’re making decent money and you don’t live in Estonia or Georgia or one of these countries in Europe where they’ve slashed taxes, you need to put some kind of plan in place.
The plan is not going to create itself. Design your strategy and then execute it before the next tax season rolls around.
If you’re ready to take action, apply for a personal Strategy Call to see if you qualify as one of the few people I select to work with each month. If you’re ready to act, so am I.