Tag Archives: Golden Geese

Progressive Taxation Explained

The term ‘progressive taxation’ sounds so decent, so right, so positive, so fair, so progressive(!). How could anyone object? Socialist politicians love to talk about progressive values – because it sounds like they are talking about progress. In fact, more often than not so-called progressive values are highly regressive. To the Golden geese, progressive taxation means the rich pay more: not just proportionally more, but exponentially more – the ultimate conclusion being the Pomperipossa Effect (see below).

In the hands of greedy politicians, particularly when under fiscal pressure, progressive taxation inevitably leads to a drop in tax revenue. We justify this rather bald statement by using a metaphor of ten friends from various socio-economic groupings who regularly meet up in a bar. We have lifted this description of progressive taxation from the Net. Supposedly posted by 
Dr. David R. Kamerschen, Professor of Economics at the University of Georgia, the good professor actually denies authorship. To quote his website: “Contrary to Internet folklore, Dr. Kamerschen is NOT the author of Tax Cuts: A Simple Lesson in Economics or Bar Stool Economics or anything similar to that. Additionally, he does NOT know who wrote it and he has no opinion on its merits”. Since we too have failed to track down the original author, therefore he/she must remain anonymous, and we feel free to quote the story with impunity.

Every day ten men go out for beer, and the total bill comes to $100. If they paid their bill progressively, that is the same way we pay our taxes, the tally would go something like this:
       The first four men (the poorest) would pay nothing.
       The fifth would pay $1.
       The sixth would pay $3.
       The seventh would pay $7.
       The eighth would pay $12.
       The ninth would pay $18.
       The tenth man (the richest) would pay $59.

So, that’s what they decided to do. The ten men drank in the bar every day, and all seemed happy with the arrangement, until one fateful day when the bar owner complicated matters. ‘Since you are all such good customers’, he said, ‘I’m going to reduce the cost of your daily beer by $20. Your drinks will now cost just $80’.

The group decided they would still wanted to pay their bill progressively. Hence, the first four men would still drink for free. But what about the other six paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share’? Dividing the $20 equally between the six who paid would mean they would each save $3.33. However, that would mean the fifth man and the sixth man would each end up actually being paid to drink his beer.

So, the bar owner suggested that it would be fair to pay the new bill progressively, which meant reducing each man’s bill roughly in proportion to the amounts he paid. So he suggested that:
       The fifth man, like the first four, now paid nothing (a saving of 100%).
       The sixth now paid $2 instead of $3 (a saving of 33%).
       The seventh now paid $5 instead of $7 (a saving of 28%).
       The eighth now paid $9 instead of $12 (a saving of 25%).
       The ninth now paid $14 instead of $18 (a saving of 22%).
       The tenth now paid $49 instead of $59 (a saving of 16%).

Each of the latter six was better off than before, and the first four continued to drink for free. However, once outside the bar the men began to compare their savings.

‘I only got one dollar out of the $20’, declared the sixth man. He pointed to the tenth man, ‘but he got $10!’

‘Yeah, that’s right,’ exclaimed the fifth man. ‘I also only saved a dollar. It’s unfair that he got ten times more than I!’ He ignored the fact that originally number ten was paying 59 times as much.

‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’

‘Wait a minute’, yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’

The nine men surrounded the tenth, and beat him up.

The next night the tenth man, who incidentally had made the smallest percentage saving, naturally didn’t show up for drinks. So the nine sat down and had beers without him – good riddance! But when it came time to pay the bill, they were in for a shock. All together they didn’t have enough money for even half of the bill!

And that, boys and girls, is how the progressive tax system works. The people who pay the highest taxes get the most benefit from a tax reduction – although they also pay the most of any increase. However, tax them too much, attack them for being wealthy, and they may just choose not to show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.

Surely the population at large, or at the very least their representative politicians understand the moral of this story? Raising taxes beyond a certain level will precipitate a backlash amongst the rich, which consequently will lead to a drop in tax revenue. Do they understand? No they don’t. Hence politicians are stuck between a rock (the markets) and a hard place (the voters). The good times are now over, and the financial trouble facing all western economies mean that austerity is staring them all in the face. Be sure they won’t share out the pain equitably – they will be ‘progressive’ about it, and you can expect to see that word liberally scattered throughout political speeches as the moral justification for robbing the rich – who luckily for democratic politicians form only a small minority of voters, although it is a minority who unluckily for those politicians can fly away.

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The best tax is what the other guy pays

“Don’t tax you, don’t tax me. Tax that fellow behind the tree.” (Russell B. Long)

Before the crash some 700,000 Greeks who worked in jobs deemed hazardous to health were allowed to retire on a full pension at the age of 50 (women) or 55 (men). The 580 categories of job includes radio and TV presenting because of ‘toxic bacteria in microphones’! You couldn’t make it up. Ultimately the cost comes out of taxes. Welcome to the world of strong trades unions and weak governments. Welcome to the European Union.

German tax-payers are indignant because they know that some of the debt will fall onto them when the basket-case of the Greek economy goes into meltdown. Although they shouldn’t feel too virtuous. It’s Greece today, but Germany is also over-generous with its union-organized brothers. What happens when all the dominoes fall: Spain, Italy, France, Germany, the UK? Although different, the United States also has problems with its own pension and healthcare obligations, as 78 million baby boomers retire.

All these countries are in denial over their obligations to the elderly – take them into account and the real government debt shows up vastly greater than official figures – many greater than six-fold. With pensioners living longer, and consequential health-care costs set to soar, international creditors are now very wary of government debt. It won’t be long before government credit-ratings take a nose-dive, sending up interest rates, and making the debt problem even more acute.

Apart from devaluing the currency, there’s only one thing governments can do – target  the poor benighted taxpayer. The economics of the UK public sector is a case in point. According to the UK Audit Office, in 2008-9 the average British worker paid £516 towards the pensions of retired teachers, civil servants, the health service and the military – a total of nearly £15 billion. That is more than private sector workers pay for their own pensions, always assuming they have one; here is another group that is getting angry.

However, the ordinary worker can’t be bled dry because they make up the bulk of voters. So this only leaves the middle classes and the high net worth individuals. The writing is on the wall. To pay for residential care for the elderly the UK government is proposing an extra 10% death tax on all estates of more than £500,000. This is on top of the inheritance tax levied at 40% on estates worth more than £275,000.

The message is there for all  high net worth individuals to see. These geese that lay the golden eggs, I call them Golden Geese in my upcoming book, must fly away, for sooner or later those that remain will find their wings clipped, and they will have become Sitting Ducks.

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A three-letter word ending in X

What word is on the lips of every businessman and woman as they enter New York? A hint. It has three letters, and ends in X. That’s right: TAX.

Not satisfied with bleeding their own citizens white, the tax authorities in Albany want a bite out of any business that crosses the state line to a meeting in the Big Apple. Whatever fraction of the work year a businessman/woman spends in New York, then he/she owes that proportion of income tax. This tax law has been in place for decades, but it is enforced only on celebrities and sports stars because chasing them is cost-effective. However, the net is now widening, and they can do it because the technology is in place to track down defaulters.

In the past it was too expensive to trap anyone other than big earners. Lots of states are doing it. Their taxmen used newspaper reports to track movements of stars. But now they have big brother data files on real-estate deals, license plates, IRS files, CCTV, contracts, company audits etc.; and data mining can bring them all together. Tax officials routinely request travel logs for highly paid employees during payroll audits. Government contractors pass on the information as a legal requirement, and withhold the tax at source. As far as every authority is concerned, the best tax is one that somebody else pays to collect.

The only good news is that there is no double taxation. Although there are no interstate agreements, it is general policy to allow the deduction of income taxes paid to another state. The real problem is the huge administrative overhead. 50 states means 50 different sets of laws; it’s a nightmare to keep on top of this – particularly for small to medium sized companies.

Of course not all states are aggressively chasing taxes. However, once the word is out, the dog in the manger attitude means they’ll all be at it. The end result will be no net gain in tax revenue, but a huge tax overhead that will make Corporate America less competitive.

Is this the beginning of the end of the American Dream?

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The World after Kieber and Falciani

Heinrich Kieber and Hervé Falciani – hardly household names, but after the actions of these two desperados, the world of tax evasion will never be the same again.

 Heinrich Kieber and Hervé Falciani – hardly household names, but after the actions of these two desperados, the world of tax evasion will never be the same again Kieber had worked in the IT department of the Liechtenstein Global Trust bank in Vaduz between 2000 and 2002, surreptitiously downloading the financial details of clients onto four DVDs.  In 2006 he was paid nearly 5 million Euros by the German tax authorities for a list of German clients of the bank. (I wonder if he paid tax on that sum?) As a bonus he was given a new identity. Kieber was also paid £100,000 by the UK tax authorities for a list of 300 British clients. Kieber also spilled the beans on LGT’s operations on behalf of American clients to the US Senate Permanent Subcommittee on Investigations, where he described in detail the bank’s procedures for obfuscating the provenance of assets.

As for Hervé Falciani, late in 2008 he was arrested for data theft by Geneva police. When he was working as a software engineer at HSBC’s private bank in Switzerland, Falciani illegally downloaded details on 24,000 clients. He skipped the country, and then passed the details on to the French authorities, and consequently they recovered nearly 500 million Euros in unpaid taxes. The French have also forwarded information to their counterparts in the UK and elsewhere.

By no stretch of the imagination could Kieber and Falciani be described as honourable whistleblowers, but were they sordid blackmailers and extortionists? It really depends which side of the line you stand on tax-evasion – Falciani is seen as a hero in France. Despite the data being stolen, the authorities in Germany, England, France, the USA and elsewhere were not above using the details to demand money with menaces from their tax avoiders/evaders caught in the net.

That net dragged UBS into the firing line, and on June 19, 2008, Bradley Birkenfeld, an American employee, pleaded guilty to conspiring with American billionaire Igor Olenicoff to evade $7.2 million in taxes by helping him conceal $200 million of assets in Switzerland and Liechtenstein.

And the moral of this story? Putting your un-taxed money into an offshore account is now like playing Russian Roulette. Are you willing to take the chance that the authorities don’t already know of your subterfuge. Should you volunteer to pay up, do you cross your fingers and hope, or what?

This is a no brainer. There is no such thing as a secure computerized database – eventually they all leak like sieves. Sooner or later somebody will pass on your details – possibly even the bank itself, should they be placed under enough pressure. That’s why people who work in banks are called tellers – eventually they tell the government everything.

There are only two sensible strategies. If you want to remain a citizen of your high-taxing state then just pay up. For when they find out, and they will, you’ll have to pay anyway; they may also add on a hefty fine, and possibly leave you languishing in jail. Remember the case of Lester Piggott, the British champion jockey, who was sentenced to three years jail over a mere £3.5 million tax fraud. In 1983 he agreed to ‘settle’ his tax bill, at which time he stated he had only three bank accounts. He persisted with this story until 1986 when he admitted to having three more large bank accounts. Subsequently he was found to have a further 14 undisclosed accounts. Lester was caught because he settled his tax bill with a cheque drawn on one of the undisclosed accounts!

However, if you want to keep your hard-earned money then you can’t remain a citizen. You will have to become a Golden Goose, and legally separate yourself from the state. That means being properly advised on all the rules, to ensure that you don’t accidently stray back into the firing line. Otherwise their tax collectors will take a malicious pleasure in hunting you down.

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Angell’s Law of Patriotism

“The depth of an individual’s patriotism is inversely proportional to his/her wealth.”

Back in 2010 Helena Bachmann wrote a fascinating article in Time Magazine about Americans who feel guilty when considering giving up their U.S. citizenship. Nevertheless, many return their passports despite any misgivings. 502 of these expatriates turned their backs on the country of their birth in the fourth quarter of 2009 – that’s twice as many as in the whole of 2008. And there are many more queuing up at US embassies around the world. In the second quarter of 2013, that’s right in just three months, no less than 1131 US citizens jumped ship.

No guesses as to why? The IRS! Expats are sick and tired of having to pay taxes on income and wealth earned outside of the US. And it’s not just about the money. The sheer complexity of the regulations means they have to spend huge amounts of time filling in labyrinthine forms – and time is money. Furthermore, it’s so easy to make mistakes, and then they face possible fines, or at the very least yet more time is wasted sorting out problems.

It’s not just a simple matter of handing over the paperwork to an accountant – they too are becoming wary of involvement because of the implications of even the smallest error on their business. Those who choose to represent expatriates can be expected to charge ‘an arm and a leg’. The same is true for non-US banks – American clients are more trouble than they’re worth, for they bring with them a raft of paperwork, and horrendous implied liabilities.

As the date for filing tax returns approaches an aura of hysteria blankets the globe. The more money the expat has/earns, the bigger his headache. Some Golden Geese will decide that the sheer scale of the time and money equation has become ludicrous, as the cost of their commitment to the US stands out clearly in profile. They have reached a tipping point. Angell’s Law of Patriotism comes in to play. Many will choose to fly away. The higher the taxes, the more complex and intrusive the regulations, the more will join the exodus.

Some of the escapees interviewed said that the only thing that initially held them back was the reaction of their families; they were made to feel like traitors. But they gave up US citizenship anyway. And what’s so virtuous of unquestioned patriotism anyway? I’m with Dr. Samuel Johnson: “Patriotism is the last resort of the scoundrel”. Despite the snide and sanctimonious rebukes from the self-righteous scoundrels in their families, you can bet those very same relatives wouldn’t have the principles to turn down any largesse from the newly-untaxed and much richer ex-patriot expatriates.

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Rats or New Barbarians?

According to the newspapers, hardly a day goes by without some company considering a move to escape the UK’s increasingly complex and expensive tax regime. This comes fast on the heels of the non-dom tax fiasco. A decade ago I was warning that a time was soon approaching when companies would be jumping ship in large numbers to escape penal taxation. All taxation is theft, and if firms tire of being ripped off then they will simply move! When will British idiot socialist politicians realize they do not have the power to intimidate global corporations. Escaping ‘UK Inc.’, these companies are not rats leaving a sinking ship {although it is sinking}, they are simply taking on the role of New Barbarians.

Let me quote a few paragraphs from my book The New Barbarian Manifesto:

“A spectre is haunting the Globe – the spectre of New Barbarians. All the Powers of the old world have entered into a holy alliance to exorcize this spectre of enlightened self-interest: churches and monarchies, capitalists and socialists, populists totalitarian nationalists, militarists, and spies for the state.

Where is the party in opposition that has not been decried as self-interest by its opponents in power? Where the Opposition that has not hurled back the branding reproach of self-interest, against the more advanced opposition parties, as well as against its reactionary adversaries?

Two things result from this fact:

I.The New Barbarism is already acknowledged by all World Powers to be itself a Power.

II.It is high time that New Barbarians should openly, in the face of the whole world, publish their views, their aims, their tendencies, and meet this nursery tale of the Spectre of New Barbarians with a Manifesto.”

{With apologies to Karl Marx and Friedrich Engels, authors of The Communist Manifesto.}

“We all have two choices: follow ‘new barbarians’ and advance to an uncertain future, or obey ‘old barbarians’ and their fundamentalist gospel of a false past. The new barbarians represent the winners in the new economic reality, leaving the losers to circle their wagons around old values and rituals, easy prey for the old barbarians. The outcome of their coming battle will be a world of three zones. The First World is the libertarian realm of new barbarians that supports the rights of the individual, not of the tribe. The Second World is an uneasy compromise between old barbarian ideologies and the modern world. Their mode of governance focuses exclusively on the rights of the collective. Might is right in the Third World, a place of terror and repression. Putting it brutally, the three worlds are an open society, a closed society and no society.

If trapped in the two lesser Worlds, you will be forced to conform to old barbarian rituals. Therefore, you must throw in your lot with the new barbarians. The alternative is to be left to the mercy of the masses, forced to accept the mind control of religious, political and ethnic bigotry – or suffer the consequences. The history of every human society has been of the tension between the individual and the collective, between the self and the tribe, between private aspirations and social norms. Today you are again faced with the three evils of religion, ethnicity and socialism. You must flee to the First World of ‘Smart Regions’, to prosper in a climate of individualism and of intellectual and financial freedom. Should such individuals fail to escape in large enough numbers, then a new Dark Age will engulf us all.

Welcome to the future. Welcome to the ‘Brave New World’ of The New Barbarian Manifesto.”

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A Camel in the Tent

How do the disillusioned high net-worth individuals interpret the behaviour of governments? One very appropriate metaphor is the old Arabian story about a Bedouin and his camel.[1] One freezing night in the desert, the nomad who was tucked up nice and warm in his tent suddenly felt a draft. Looking up he noticed his camel’s nose poking through the flap. ‘It’s bitterly cold outside; please may I keep my nose in your lovely warm tent?’ Being a kind man he agreed to the pitiful request. The camel’s whole head was inside on the next night. Then on the following night the animal’s head, neck and shoulders. By the end of the week the camel had completely taken over the tent, and the Arab was outside in the freezing cold. The moral of this tale is that no good deed ever goes unpunished.

For camel read government, and for tent read the wealth slowly but surely stripped off its owner. Give governments and inch, and they’ll take a mile. Agreeing to meet them half way, even over a small, and seemingly reasonable minor request, will usually prove to be the first step on the road to perdition. On December 3rd 1998 the British Inland Revenue opened an exhibition in Somerset House on London’s Strand to ‘celebrate’ the Bicentenary of Income Tax. According to the press release, it was open to the public and admission was free – the irony of that latter statement was obviously lost on the organizers.

December 3rd 1798 – a black day for the British people, a black day for the world. Pitt the Younger announced a ‘temporary tax’ to pay for the Napoleonic Wars. It was introduced in June 1799. Income tax was to be applied in Great Britain (but not Ireland) at a rate of 10% on the total income of the taxpayer from all sources above £60, with reductions on income up to £200.[2] Pitt’s advisors claimed it would raise £10 million – in 1799 it raised just £6 million. Tax and wishful thinking inexorably linked yet again. A short-lived peace in 1802 led to the tax’s abolition by Pitt’s successor Henry Addington, but when hostilities started again in 1803 it was back on the books. The tax was repealed in 1816, the year following the Battle of Waterloo, but it was too good to last. In 1842 Sir Robert Peel brought the tax back, again as a temporary measure, and it’s been ‘temporarily’ on the books ever since. The Inland Revenue really had some gall to set up the Somerset House exhibition; did they really think that their ‘customers’ would join in the celebration of two centuries of tax collection? Customers? Customers have a choice; taxpayers don’t.

Meanwhile in the U.S. income tax first appeared during the American Civil War – wars are always expensive. It came and went intermittently, however when it reappeared in 1894 it was ruled unconstitutional by the Supreme Court. But the government couldn’t let such a good idea go, and it became permanent in 1913 with the Sixteenth Amendment to the Constitution, although it must be admitted that the tax take didn’t become substantial until World War II.

 According to Benjamin Franklin “in this world nothing can be said to be certain, except death and taxes”. That may be so, but the Golden Geese see no reason why they should just lie down and take it. They should call on their fellows to reject any claim to a moral justification of taxation, and instead see merit in the stand of Henry David Thoreau. He had been imprisoned for non-payment of taxes, and Ralph Waldo Emerson was visiting him in jail. Emerson couldn’t understand Emerson’s stubbornness, and was taken aback when Thoreau asked why Emerson too was not a tax dodger. Thoreau saw himself as a political prisoner, jailed for objecting to an intrusive government. He thought that all men of conscience would agree with him in that “I heartily accept the motto ‘That government is best which governs least’; and I should like to see it acted out more rapidly and systematically carried out, it finally amounts to this, which I also believe, – ‘That government is best which governs not at all’.”

That was a vain hope. Government effort will increasingly be focussed not only on tax evaders, but also on those who avoid paying. Tax evasion is illegal; tax avoidance is not only legal, it is sensible on the part of the taxpayer. We are not obliged to overpay. Of course governments see tax avoidance as simply exploiting ‘loopholes’ that they haven’t managed to fill yet. Hence they fail to spot the irony when they try to introduce General Anti-Avoidance Rules (GAAR), which imply that the spirit of tax law in respect of corporations is that they should not seek to claim rebates. What would happen if they pulled the same stunt and demanded an end to spousal/dependant deductions, retirement funds, depreciation, allowable business expenses and other legal deductions on general personal/business taxes, for by the same token these too are tax avoidance schemes? We could ask why there isn’t an allowance on the taxes charged against investment income that takes losses due to inflation into account.

In their panic to collect votes, politicians will succumb to the intense pressure applied by representatives of the mob, such as the Trade Union Movement[3]; just read any of the brothers’ propaganda trumpeting the politics of envy, and a seething fury against tax avoidance is unmistakeable. In the U.K. they rant about the “Monaco Boys” and want to “Introduce a new law called a ‘general anti-avoidance principle’, or GAntiP, that treats all tax avoidance as unacceptable and therefore open to challenge”. Furthermore “Any such rule must also include significant anti-avoidance rules so that those leaving the U.K. to live in a location with low or no taxes and no history of tax cooperation with the U.K. should face considerably higher obstacles before being considered non-resident than do those leaving for locations such as other E.U. countries”.[4]

This logic is just one step from the body-taxes imposed by the then Soviet Union on Russian Jews emigrating to Israel. There the pathetic excuse was that the state was merely attempting to recover some of the investment made in educating the émigrés. Of course the sums demanded were far greater that the identified cost. Indeed most Golden Geese would be only too happy to pay sums calculated along the principle of recouping sunk costs. When body-taxes are finally introduced by Western Countries at the behest of ‘socialist’ politicians and trade-unions in an attempt to stop the brain-/capital-drain caused by the Flight of the Golden Geese, like in Russia the sums demanded are likely to be a large proportion of each goose’s total capital assets, and hence will verge on extortion.

They want to clip the wings of each Golden Goose before it can fly away to more attractive climes – in other words to turn each goose into a Sitting Duck. This book then is simply relaying the call of the Golden Geese to other HNWIs, Talent Workers, and the ‘comfortably off’: to recognize the signals; to be aware of government propaganda for what it is; to see through these ‘lies my country told me’; to detect the duplicity in the rhetoric of politicians; to free themselves from any sense of guilt towards wanting no part of the ‘common good’; to recognise the government camel slowly wheedling its way into their financial tents; and thereby to DO SOMETHING ABOUT IT, protecting their wealth for the long-term benefit of themselves and their families before it is too late.


[1] The camel story has similarities to the Dr. Seuss story: Thidwick, the Big-Hearted Moose.

[2] See: A tax to beat Napoleon on http://www.hmrc.gov.uk/history/taxhis1.htm.

[3] Richard Murphy, Stemming the Flood? Touchstone Extras, TUC, London.

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