Trickle Down Wealth
- Posted by Jeff Carter
- on July 23rd, 2012
There was a study done by the Tax Justice Institute that says wealth doesn’t trickle down. What they mean by that is that wealthy people don’t keep their wealth in the country that they earn it in. The left has seized on that data. Why? Because Republican President Mitt Romney has Swiss bank accounts.
But if you think about the conclusion, wealth not trickling down, and think about the data, you will see that there is no correlation at all between the two that is meaningful.
First, look at the societies where most of the wealth has left the country and gone into tax havens. Russia, China, Turkey, Iran, Hungary, Poland, Ukraine, Kazakhstan…. If I was very wealthy, I might spirit a little money out of the country if that’s where I was a citizen too. Some have citizens where living behind the Iron Curtain was a reality. Others have systems of government that don’t value property rights and don’t have systems of law that are like the US Justice system. Government tyranny is a real worry. Don’t believe me, ask business owners that were on the wrong side of Putin. Or even the US trial lawyers.
At least if you are in the Gulag and you have a bunch of money in a Swiss or Cayman Island bank account you have some hope.
When the themes of the Tax Justice Institute are perused, it reads like a social justice manifesto.
1. We support sustainable finance for development
2. We support international co-operation on tax, regulation and crime
3. We oppose tax havens and offshore finance
4. We support transparency and we oppose corruption
5. We support a level playing field in competitive markets
6. We favour progressive and equitable taxation
7. We support corporate responsibility and accountability
8. We favour tax compliance and a culture of responsbility
This is an anti-business big government pro bureaucrat type of organization. Wonder how they feel about less government spending and smaller government? I bet not friendly.
As per usual with organizations that have an agenda, many of the items they tic off are hard to argue against. Look at number four. Who isn’t against transparency and corruption? But when you read what that actually means, it’s pretty easy to be against it.
We want companies to be made more open about their financial affairs and to publish data on every country where they operate. We want the finances of wealthy individuals to be visible to their tax authorities, so they pay their fair share of tax. Markets work better, and companies are more accountable, in an environment of transparency. Secrecy hinders criminal investigation and fosters criminality and corruption such as insider trading, market rigging, tax evasion, fraud, embezzlement, bribery, the illicit funding of political parties – and much more. We want to expand the commonly accepted definitions of corruption so that they no longer focus only on narrow aspects of the problem such as bribery. We must bring tax, tax avoidance and tax evasion decisively into the corruption debate.
Uh-huh. This is really an excuse to see what everyone has to make it easier to confiscate and redistribute wealth.
In this 24/7 world, capital doesn’t know borders anymore. It goes to the most advantageous spot to return wealth to the entity holding it. Governments try and erect synthetic fences to capital. But, corporations and super wealthy individuals can find ways around it. Sometimes they have to pay a small tariff, like wealthy Chinese do in Macau, but capital goes to where the entity thinks it best serves them.
The US doesn’t have a huge problem with off shore wealth. Multi national corporations do keep a large cash cache outside our borders. Some of that is because of the corporate tax discrepancy between the US and the rest of the world. But much of the reason for having off shore assets is because the companies business is growing faster there, and having ready capital available is important to the life of the business.
As far as wealthy individuals go, most of American wealth is tied up in American banks. But some hyper wealthy do have accounts in overseas banks. The reason they do that is risk. Suppose the entire American government failed, and it’s system of banking with it. When you have a lot of money, do you want it tied up in one place?
“Any sophisticated person interested in an asset protection plan should consider Swiss banking,” Lodmell said. “The point is to remove the money from the U.S. system with an international asset protection trust … whether you’re a business owner, [an] employer in California where laws are particularly harsh, or a doctor who could be sued for malpractice.”
If there is a tremendous failure, you want to be able to pick up the pieces and start again. That’s why a lot of folks put money offshore. A small percentage use it as a tax dodge. But, they are probably doing other illegal things to earn their money, like Marc Rich for example. Having an offshore bank account is the least of your worries.
The wealthy in America, and corporate America hold the lion’s share of their assets in the US. If one looks at the percentage of wealth that leaves the country on a GDP basis, and compares it to other countries in the world it’s no contest. America has the best capitalized financial system in the world and it’s not overseas assets that are killing our economy.
What’s killing our economy is big government debt, lousy law and regulation, poorly designed government programs, and a terrible response to the financial crisis over the past four years.
The fact is, the more wealthy people you have in a country, the better. It’s a sign that there is income potential in that country. When I hear of new millionaires being minted because they created a business that went public, it gives me hope. When I hear about how someone made a bunch of money from milking the government, it makes me cynical.
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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
Jeffrey Carter is an angel investor and independent trader. He specializes in turning concepts into profits. He co-founded Hyde Park Angels one of the most active angel groups in the United States in April of 2007. He previously served on the Chicago Mercantile Exchange Board of Directors. He has done market commentary for (More...)
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