Tick - Tick - Tick
The Economy Bomb

Legislative attacks upon the wealthiest 1%
of Americans could soon wreck our economy.

	Initial publication April 20, 2000 Updated annually Last update December 18, 2003 by John Gaver Note: Much important new data has emerged since last year's annual update to this article.

An insidious, creeping cancer is eating away at our economy and it is being fueled, in large part, by the facts cited above. You will notice that all but the last of those facts represent attacks on wealth. The last fact, is the logical response of the wealthy, to those attacks. It all boils down to one issue. The people who pay the lion's share of the taxes are being forced to leave and they are taking their wealth with them, thus, very disproportionately reducing the tax base in the United States.

The above facts are not some bureaucrat's pie-in-the-sky projections, but rather, they are based upon statistics and calculations derived from data released by the US Internal Revenue Service, the US Census Bureau and other government sources. In fact. it should be noted that the IRS numbers are totals of actual IRS receipts, that are released every year, about 18 to 24 months after the close of a the tax year. A link to the raw IRS data for this year and an explanation of it can be found in the article, "1986-2001 IRS Collections Data by Income Category" (www.ActionAmerica.org/taxecon/irsdata.html). Links to other credible sources are provided throughout this article.

I mention now, the very credible sources of the statistics that I will cite throughout this article, because of how incredible many of those statistics and conclusions may sound. In fact, it is the impeccable sources of the statistics presented here, that seals the case. I invite you to follow the links provided and see for yourself. The facts are real and cannot be denied. Examine the numbers, use your own assumptions and do the math for yourself. When you recalculate the numbers, using your own assumptions, you will see just how serious the problem really is. It's real and it's daunting and it could very well spell disaster for the US economy, if certain positive actions are not soon taken.

Let's start by looking closer at some of that IRS data and see how those numbers work out.

• There were roughly 129 million tax returns filed in 2001.
• The IRS collected $888 billion in personal income tax in 2001.
• The top-earning 1% of taxpayers (1.29 million) earned 17.5% of the income.
• The top-earning 1% of taxpayers (1.29 million) accounted for $300.9 billion in income tax paid
• The top-earning 1% of taxpayers (1.29 million) paid over one third (33.9%) of the $888 billion total individual income tax collected that year. Do the math ($300.9 billion / $888 billion).
• The top-earning 1% of taxpayers (1.29 million) paid almost double their share of taxes (1.9 times) in relation to income. Do the math (33.9% of taxes / 17.5% of income).
• The top-earning 1% of taxpayers (income over $292,913 in 2001) now carry 37% more of the tax burden than they did 10 years ago, when their share of the tax burden was only 24.8%. Do the math (33.9% / 24.8%).

Since the original publication of this article in 2000, more oppressive legislation, aimed squarely at the top-earning 1% has made matters even worse. This is presenting a serious problem for the top-earning 1%. But remember, these people are almost all problem solvers. So to them, this is only a speed bump. To you and me, it's quite a differnt issue. You see, it is their legitimate and justified response to the problems being created for them by, US laws and the US tax structure, that represents a ticking time bomb that presents an even more serious threat to the remaining 99% of taxpayers. If you make less than $292,913 per year, then that's you.

I know that many people who look at the above statistics will immediately say, "So, what's wrong with making the people with the most money, pay more tax?" Many people seem to think that the wealthy have, in some way committed some horrible sin, just by being wealthy and that, as a result, they should be forced to pay a larger proportional share of the tax burden, as penance. Such absurd arguments are not only immaterial, but serve to show how completely uninformed of the real problem now facing the United States, many people are. The problem that I am talking about is a direct result of the position in which the wealthy now find themselves.

The wealthy are being systematically backed into a corner by our government. They are paying double their share of taxes. They are facing frivolous lawsuits by the greedy, in ever growing numbers. Their businesses dealings are being saddled with onerous Patriot Act requirements that often take so much time that otherwise profitable deals end up costing money, if they happen at all. And, their property is being confiscated (forfeited) by the government at an ever increasing rate. Everything for which they have worked so hard, is now being threatened by the same government, whose job it is to protect citizens from just those types of abuses.

Should we then be surprised if the top-earning 1% of taxpayers, facing an untenable situation, take the only legal route left open to them, even if such a response threatens the very fabric of the US economy? I think not. Their response is really quite simple.

The wealthy are leaving.

When the wealthy leave, it creates severe problems for the rest of us, since we are the ones who have to make up the difference in taxes. I'll go into more detail on that in a moment. But, for now, let's concentrate on who is leaving and in what numbers. After all, we are building a case based upon facts.

Since most of those who leave are seeking privacy, they avoid leaving many trails and thus, factual data about expatriation is very difficult to come by. In past versions of this annual article, I have used a number of very reliable sources to come up with the best estimates available, at the time and because the numbers were so phenomenal, I only presented the most conservative estimates. As it turns out, new information that I have uncovered, originating from the US Census Bureau, indicates that I should have been using the most generous estimates.

According to the US Census Bureau, as reported in the 2000 Statistical Yearbook of the Immigration and Naturalization Service (6.2 MB download), by the Bureau of Citizenship and Immigration Services (BCIS), formerly the Immigration and Naturalization Service (INS), the wealthy are leaving the United States in record numbers. According to that report, last year, roughly 363,000 US citizens and permanent residents quietly left the United States permanently. Now granted, not all of those 363,000 expatriates were rich. But, think about it. How many do you think were poor? How many do you think were even middle class?

Personally, I think that it would be reasonable to expect that 80 to 90 percent were, at least, somewhat wealthy. But, don't use my estimates. Use your own. Just keep in mind that poor people come to the United States because of all economic the benefits that our government offers them, using our taxes. Why would the poor leave? In fact, for all of their protestations, even our middle class has it much better here than in any other country. The only class of people who can have it better in another country are those who are at least moderately wealthy - roughly, the top-earning ten percent.

Furthermore, that INS report indicates that this is the highest expatriation rate ever. Other data, such as records of citizenship and permanent residency applications at key foreign consulates support these facts and some even indicate that the problem is much worse than suggested by the US Census Bureau. But what's worse, is that this exodus appears to have increased significantly since that report; most notibly, since the enactment of the USA Patriot Act. It cannot be denied. The wealthiest Americans are leaving the USA for more wealth friendly climates at the highest rate ever.

"So what? Let'em leave!"

One of the most absurd statements that I have heard, in response to the above facts is, "So what? Let 'em leave." In fact, that attitude is actually contributing to the problem and making it much worse. You see, as a result of one of the laws (discussed below) designed to punish the wealthy for leaving, the wealthy are now taking ALL of their investment capital with them, when they leave. And, therein lies the true problem.

What really surprises me is that even a few well-meaning conservatives, who realize that the real problem is Native Capital Flight, have fallen into the greed trap, right along with the liberals. In fact, the most inane argument that I have heard on this issue has come uniformly from both ends of the political spectrum and goes something like, "Well, we just need to pass more laws to keep the wealthy from taking their money out of the country." Duh?...

It is precisely those laws that are some of the primary reasons why Native Capital Flight has become such a severe problem in the first place. To the wealthy, each such law represents yet another brick in an economic Berlin Wall, that they see being erected by our government and meant to limit their financial options. So, instead of forcing the wealthy to stay here, those laws are actually forcing them to move more of their wealth out of the US, while they still can.

This creates problems for you.

To begin with, we must look at what this all means for the other 99% of taxpayers (those who make less than $292,913 per year)? Why is the fact that a handful of wealthy people are leaving and taking their money with them, such a problem for you? After all, wouldn't it take a tremendous number of wealthy people leaving, to have a noticeable effect upon our economy? Actually, no. Until you look at the actual numbers and do the math, it doesn't appear to be a serious issue, but it is. So lets look at the numbers again and this time, let's do the math.

The chart to the right shows in blue, the percentage of individual income tax revenue that the wealthiest 1% of taxpayers were responsible for in 2001 and the percentage of tax revenue that the rest of us paid, in red. The full circle represents the amount of personal income tax revenue that must be collected to fund the government for a year. It demonstrates that if only the top-earning 1% of taxpayers were to leave the USA permanently, we would all be in a world of hurt, since those who remain would face a greater than 50% tax increase, just to stay even. Without that 1% of the wealthiest Americans, every remaining taxpayer would have to pay over 50% more in taxes to equal what was lost. Can you afford that?

Those who argue that Americans with the most money should be taxed at a higher rate will find themselves being taxed at a much higher rate, instead. If you are paying $5,000 in income tax today, then imagine paying an additional $2500 in taxes. If you are paying $25,000, then imagine paying an additional $12,500. If you are paying $100,000 - well if you are paying $100,000 in income tax, there's a good chance that you already have your bags packed and your second passport in hand, so you don't need to imagine anything.

As the most wealthy leave, the additional tax burden shifts to the next level down, so lets think about the fact that the top-earning 5% of income earners pay 53.25% of all taxes collected. While the wealthiest 1% are "escaping" ("escape" is the popular term used by expatriates), do you think that the top-earning 5% will just be sitting around waiting for a 50% tax increase? Of course not. And, when they leave, your tax bite will more than double!

Then, of course, there is the top earning 10%. But, I wouldn't worry about them. By that time, the government will have either repealed all of the wealth punitive laws and abolished the Income Tax, to encourage the wealthy to return, which is really unlikely, or they will have done what so many other repressive governments have done when faced with native capital flight on a massive scale - they will have closed the borders to keep the remaining wealth in the country.

But then, as shown by every case where that has happened, ranging from Nazi Germany in the 30's to South Africa in the 70's and 80's, to to the more recent case of Malaysia, even closing the borders to capital, only increases native capital flight. So, maybe you should worry about losing the top-earning 10%, after all, because if they can manage to get out with their wealth in tact, your taxes would almost triple! Have I got your attention? Although it's interesting to think about, for other reasons that I will explain, I seriously doubt that it will ever get that far.  The problem goes much deeper.  But, staying with just the tax issue for now, let's look at the actual numbers.

Do the math.

Here is the math for the top-earning 1%:

100% - 33.9% of taxes lost = 66.1% of taxes left

33.9% _{= 51.3% additional tax burden for those remaining}
66.1%

Here is the math for the top-earning 5%:

100% - 53.3% of taxes lost = 46.7% of taxes left

53.3% _{= 114% additional tax burden for those remaining}
46.7%

THAT'S MORE THAN DOUBLE!

Here is the math for the top-earning 10%:

100% - 64.9% of taxes lost = 35.1% of taxes left

64.9% _{= 185% additional tax burden for those remaining}
35.1%

THAT'S ALMOST TRIPPLE!

Think about it. If only the top-earning 1% of taxpayers leave the United States, the remaining taxpayers will find that they will have to pay more than 50% more taxes. 1% is not that much. If you were to put 100 pennies on a table and then take away just one, you couldn't tell the difference visually. In fact, I will demonstrate later, just how quickly we could lose that 1%. Then, consider that if 5% of taxpayers leave the United States, the tax burden will more than double. And yet, our government is making it almost impossible for the wealthy to remain in the United States. Legislative attacks upon people with any significant degree of wealth is a ticking time bomb for our economy and we haven't even touched on the issues of frivolous litigation or government confiscation of private property.

It creeps like a virus.

The legislative issues contributing to this growing exodus have gone largely unnoticed, since the growth in expatriation of the wealty has taken place over so many years. It really began back in 1968, shortly after the riots at the Democrat National Convention in Chicago. This is not to say that it was a problem at that time. Let's just say that the trickle of expatriates that any country experiences became a barely noticeable flow at that time. If it had stayed at that level, it would not be a problem today. But, indications are that the flow increased slowly, but steadily until the 1980's. For a short time during the Reagan administration, there was an attempt to roll back some of the wealth punitive, anti-privacy laws and tax rates that were contributing to this exodus and indications are that it did have a significant effect. But, such is the nature of the income tax and the lust for ever more power that often infects elective officeholders, that no sooner than President Reagan left office, the attacks resumed and have been increasing since. So has expatriation of the wealthy.

Evidence from key foreign consulates indicate that the number of US citizens requesting foreign citizenship or permanent residence in foreign countries, jumped significantly in the months after the Democrats in Congress tricked George H. Bush into a huge tax increase and the numbers have continued to rise. Other jumps occurred just after the Clinton tax increase and again, after the HIPAA legislation was signed into law. Indications are that in the first year of the George W. Bush administration, the expatriatons increased much more slowly, as the wealthy seem to think that maybe Bush would relieve some of the pressure on them. But, shortly after the President signed the USA Patriot Act into law, all of the indicators show that expatriations quickly shifted into high gear again.

Just the timing of those increases points even further to the fact that those who are leaving are wealthy, since each of those events represented an attack on wealth. The slower increases in the first year of the Bush administration indicate that the wealthy expected Bush to roll back some of the previous administration's weath punitive legislation. But, with the passage of the Patriot Act, they knew that they were wrong and expatriation spiked again.

Again, let's do the math.

Approximately 363,000 mostly wealthy Americans chose expatriation in 2002. That rate has been increasing at a rate significantly higher than the growth of wealth in this nation for many years. Even so, for our calculations, we will assume that the number of wealthy Americans that are leaving remains stable, which further assumes that Bush and Congress hold back any more legislation that the wealthy see as detrimental to themselves, their business or their rights. Granted, with the onerous Patriot II waiting in the wings, that's a very rosy assumption. But this is, after all, meant to demonstrate a best case scenario. You use your own assumptions.

Based upon past history, currently proposed legislation and other incentives, it would probably be reasonable to assume a 10-20 percent growth in expatriation every year. But, my purpose is to be as conservative in my projections as possible. So let's just stick with the stable rate assumption. Multiply it out and you will find that if that rate continues for just three more years, the number of wealthy Americans that may have left the United States in that time (including 2002) could easily reach over 1.4 million or well over the 1.3 million taxpayers that make up the top 1% of taxpayers and that number could be well over 2 million in five years (see table).

What this means, is that if this rate of expatriation continues for only four more years, what appears to be a minor problem today, could turn out to be a catastrophe for the US economy tomorrow. Remember that in 2001, the top-earning 1% amounted to only 1.29 million taxpayers. You can see that it's quite possible that most of those people could be gone by the time Bush leaves office.

Granted that not all of those expatriates are going to be wealthy. But, how many of them do you really think will be poor or even middle class? Use your own estimates, based on common sense. After all, the poor don't leave unless they have to. They can't afford it.

Other than the US Census numbers and sparse data from foreign consulates, there is a lot of ancillary data that points to the fact that wealthy Americans are expatriating at phenomenal rates. This ancillary evidence ranges from telltale social indicators to more hard numbers. For example, only a few short years ago, it was very difficult to find the single small bar or restaurant in most foreign countries, where American expats would gather. Today, they are more common than car dealerships. It seems that there are now quite a few in every small country. On the other end of the spectrum is the Forbes Magazine annual lists of 400 Wealthiest Americans and the Worlds Billionaires. An analysis of those lists in recent years shows that while the number of billionaires in the US has dropped by 13%, the number of worldwide billionaires has grown by over 80%. (See, "Defending the American Dream" at http://www.ActionAmerica.org/taxecon/defdream.html for more on this point.) There is no doubt about it. The wealthy are leaving in large and increasing numbers.

But, consider this. Let's just assume that the Census numbers are off by a whopping 50% and that the expatriation rate is only half as high as the US Census numbers indicate and not increasing, we still have a serious problem. Do the math. Then consider that in reality, those 2000 Census numbers are probably off in the other direction and that expatriation is, in fact, increasing at an even higher rate than the Census Bureau predicted back in 2000, due to events and legislation that have transpired since the 2000 Census. It might be much worse...

Actions speak louder than words.

Of course, officials of the Internal Revenue Service and other federal agencies deny that expatriation of the wealthy is a problem. But, the government's actions belie their words. Consider this. If the government's claims are true, why did both Republicans and Democrats in Congress suddenly find it necessary to add an amendment to the Health Insurance Portability & Accountability Act of 1996 (HIPAA) (26 USC 877(a)(1)), that claims the right to tax expatriate Americans for 10 years after they renounce their US citizenship if the government claims that they "have reason to believe" that the expatriate may have renounced for tax purposes? Why then, did they follow-up that abominable law with the Illegal Immigration Reform and Immigrant Responsibility Act, which modified the Immigration and Nationality Act (8 USC 1182(a)(10)(E)) to permanently deny expatriates entry into the United States if the government claims that they "have reason to believe" that the expatriate may have renounced for tax purposes?

And, what does the government use, in both of those laws, to determine if they think that the expatriate left to avoid US taxes? Income or net worth. If an expatriate had a net worth of $500,000 at the time of expatriation or earned more than $100,000 per year for the five years immediately perceding expatriation, then he is assumed, by the US goverrnment, to have expatriated to avoid US taxes.

Why did our lawmakers find it necessary to pass two such specific laws aimed at preventing only wealthy citizens from leaving, if they did not, themselves, "have reason to believe" that expatriation of wealthy citizens was becoming a serious problem? Think about it...

If hundreds of thousands of the wealthiest Americans are not now structuring their holdings in preparations for leaving the USA, why did the Senate even considering a bill like the Civil Asset Forfeiture Reform Act of 1999 (S. 1701) that demanded that not only foreign nationals, but US citizens alike, disclose any and all financial information about foreign holdings that the government seeks or lose all future legal right to challenge any property forfeiture in any US court? Fortunately, that one was narrowly defeated. But, the point is that all of these laws are clearly aimed at discouraging wealthy Americans from moving their wealth out of the jurisdiction of the IRS and then moving offshore themselves. The words of the federal government on this issue are belied by their actions.

If native capital flight was not a very real and serious threat, there would be no reason to even propose such draconian laws.

In fact, a July 1999 report titled, "Private American Citizens Residing Abroad", compiled by the US Bureau of Consular Affairs, contradicts the claims of the IRS and others who insist that expatriation is not a problem. It shows that an enormous number of American citizens already reside offshore. The following numbers represent only a very small portion of that report (only 10 cities) and only US citizens who have NOT yet renounced their citizenship and further, only those that the Bureau knows about.

Just the American expats in those 10 cities alone, numbers almost two million and only the ones who have notified US authorities of their whereabouts, at that. Then consider that we have not even begun to touch the outlying areas in those countries or the hundreds of small island nations and emerging countries favored by expats, like Belize, Bermuda, Caymans, Grenada, Panama and Trinidad and Tobago, that have thousands each.

As you read the above numbers keep in mind that there is very good reason to believe that less than one expat in 10 ever renounces or notifies US authorities of his whereabouts after leaving. According to Wall Street Journal staff reporter Barry Newman, writing in a December 28, 1998 article titled, "Renouncing U.S. Citizenship Becomes Harder Than Ever", even among the millions of expats that the IRS knows about, in 1994, they received just 257,000 returns claiming any special tax breaks for citizens overseas. There is only one reason why millions of expats would not file. They don't plan on returning.

How many more expats are out there who have not renounced and simply dropped off of the government's radar? It can't be denied. Many of the wealthy are already gone and many more are leaving every day.

Intimidation only makes matters worse.

Recent legislative attempts at forcing or intimidating the wealthy into staying have only made matters worse. As mentioned above, in 1996, Congress passed and President Clinton signed into law, two bills aimed at punishing those wealthy Americans who had the audacity to leave the United States (rather than creating economic incentives for wealthy Americans to stay). Any first year political science major can tell you that historically, disincentives almost never work.

Let's examine the effect of these two pieces of totalitarian legislation.

I will just touch on the changes made to the Immigration and Nationality Act first, since the only purpose of those changes was to discourage wealthy Americans from leaving and their only effect was to scare more wealthy Americans into leaving. The Illegal Immigration Reform and Immigrant Responsibility Act Act of 1996 included a provision that would permanently bar wealthy American expatriates from ever returning to the United States for any reason, if the expatriate was wealthy, under the afore mentioned government standards, at the time of his expatriation.

The feds, who were seriously afraid of the consequences that the continued increase in native capital flight will bring, erroneously believed that those wealthy Americans who were considering leaving, would ever want to come back to a country that treated them like second class citizens, just because they had worked hard and acquired some assets. Instead, the wealthy saw that law for what it was - a harbinger of things to come.

Instead of discouraging expatriation, that law was, in fact, the trigger event that caused even more wealthy Americans to leave. In my business, I travel offshore a lot and often to tax haven countries, where I routinely have a chance to talk with American expats (the popular term for expatriates). I was not surprised to find that among the reasons high on the list of recent expats, for leaving the USA, was this change to the Immigration and Nationality Act.

The Health Insurance Portability & Accountability Act of 1996 has much more ominous overtones. To begin with, the United States government, through this act, has the audacity to claim the right to tax expatriates for 10 years after they renounce their US citizenship, if the expatriate was wealthy, under the afore mentioned government standards, at the time of his expatriation.

Do you see what this says? The US government is claiming the right to tax foreigners, who have absolutely no connection with the United States.

The United States long shared with Libya the infamous distinction of being one of only two countries in the world that claimed the right to tax the income of its citizens regardless of where in the world that income was earned or banked. But, even Libya was not so tyrannical as to claim the right to tax ex-citizens. In fact, even Libya was smart enough to realize that such autocratic laws were causing an unacceptable amount of native capital flight and has now dropped its claim to the offshore earnings of its citizens. If a self-absorbed despot like Gadaffi can understand that, what does that say about our government?

It should be noted that the Wall Street Journal reported, in the December 28, 1998 article, "Renouncing U.S. Citizenship Becomes Harder Than Ever", that only two other countries in the entire world attempt to tax the offshore earnings of its citizens. One is the Philippines. The other is Eritrea. Since that Journal article was published, South Africa has also implemented such a tax regime. But enough of the sad company that our government keeps.

The real problem is not the abhorrent nature of this law. It's the effect of it.

When word of the Health Insurance Portability & Accountability Act of 1996 reached the wealthy, they saw this law for exactly what it was - not just another brick in the economic Berlin Wall that our government has been erecting to keep wealthy Americans from leaving with their wealth intact, but in fact, a large section of that rhetorical wall. Many wealthy Americans who had been hesitant to leave saw this provision in the law as the last straw and began making preparations to leave. The government's claim to the right to tax ex-citizens for 10 years gave the wealthy no pause at all. After all, they had a solution.

For many years, when wealthy Americans chose expatriation, they most often left as much of their wealth as practical in some sort of tax sheltered investments in the United States, so capital flight did not represent as serious a threat as it does today. The wealthy would leave, but at least a portion of their investment capital stayed here. And that portion, though somewhat sheltered, still generated a significant amount of taxes and funded many US jobs. But since 1996, wealthy Americans who have chosen to leave, have had no choice but to take ALL of their wealth with them when they leave or risk it being confiscated by the IRS.

Let me emphasize that word.  ALL!

Expatriates can no longer afford to leave anything behind. They sell ALL of their real estate, US stocks and bonds,... EVERYTHING! Over a period of time, they move ALL of their wealth into offshore investments. Then, when they leave, there is NOTHING left behind for the IRS to confiscate. Unfortunately, it also leaves nothing behind to fund US businesses or pay US taxes.

The government, of course, pouts and claims that these expatriates are being very un-American, just because they had the audacity to protect what was rightfully theirs, from IRS confiscation. The government fails to realize or at least refuses to accept, that it was their own attempts to grab more power, that made it impossible for these wealthy Americans to leave any money in the United States. So, instead of preventing wealthy Americans from leaving, they not only encouraged them to leave at an even higher rate, but they forced them to take ALL of their wealth with them when they leave. And, there is the root of the real problem.

When the wealthy take ALL of their money out of the United States, it has many undesirable effects. The most obvious, as pointed out above, is the loss of tax dollars. But, there are far more serious consequences that lay beneath the surface. Most of the wealth that we are talking about is what we refer to as investment income. Regardless of whether that money is in a passbook savings account, an IRA, mutual funds or stocks and bonds, it is almost certainly money that is funding business somewhere in the United States. That money effectively represents JOBS in the United States. When that investment capital moves offshore, several things happen. Most notably, JOBS that the investment capital funds move offshore, as well.

Some of that investment capital will be replaced, it might be argued. In fact, some, though not all of it, will be replaced. But, it is the source of that new capital that creates yet another problem.  When US based capital is not available, businesses look offshore for investment capital. Since US expatriates can no longer safely invest in US businesses, foreigners move in to fill the gap, temporarily. As more and more wealthy Americans are forced to flee the United States, Americans will find that they are increasingly the labor force for wealthy foreigners who, by the way, generally pay tax only on what they earn in the US. But, once the tax rates are forced up, by the lack of wealthy citizens to tax, even that foreign investment capital will dry up.

Add to all of this, the appalling increase in frivolous lawsuits by the greedy, the recent rash of government confiscations (forfeitures) and the heavy burden of the Patriot Act and you discover that increasingly, the wealthy are finding that their only choice is to leave. It's like a snowball rolling down hill. Right now, it's just a little glob of snow. But if we don't create some major incentives to keep US capital in the United States, it will soon become an avalanche.

The problem is very complicated and there is no single solution. But, there are two issues that, far and away, represent the most pressing problems surrounding native capital flight. Those issues are the abuses of the IRS and the USA Patriot Act.

I mentioned earlier that I have interviewed many American expats about their reasons for leaving. Until this year, the number one reason for leaving, cited by EVERY expat that I talked with, was the IRS. Not the Income Tax. The IRS. When I asked them to be more specific, they cited IRS abuses, lack of privacy in their financial dealings and, let us not forget, the Health Insurance Portability & Accountability Act of 1996 and the Illegal Immigration Reform and Immigrant Responsibility Act Act of 1996.

Every last expat that I have talked with told me that the "deciding factor" that pushed them over the edge had something to do with the "not to be sufficiently damned IRS." That phrase in quotes, by the way, seems to be common in the expat community.

So, if we eliminate the "deciding factor" that is causing these wealthy citizens to expatriate, it would go a long way toward keeping any more wealthy Americans from leaving. Every previous attempt to solve this problem has been aimed at strengthening the power of the IRS. It should now be obvious that any proposed solutions to this problem that leave the IRS intact should be summarily dismissed. The single most important thing that we must do to stop native capital flight is ABOLISH THE IRS.

That would mean replacing the Income Tax with some system of taxation that does not require such an organization looking into the personal finances of every individual. The Flat Tax would not work, since it retains the source of the problem, the IRS. There are, in fact, only three tax plans that would fit this requirement - excise taxes on imports, letting the states do all the tax collecting as their voters choose and then taxing the states according to their productivity and a National Retail Sales Tax.

Since broad use of excise taxes have generally been found to have a negative impact upon the economy, they are not a practical solution. Taxing the states, instead of individuals, would probably work and the competition between the states would serve to keep the system efficient, but no such bill has ever been proposed in Congress. That leaves the National Retail Sales Tax, that has been proposed in every Congress for years and gains supporters every year.

The findings of a CATO Institute Policy Analysis on "The Economic Impact of Replacing Federal Income Taxes with a Sales Tax" predict that the shift in tax structures will raise the stock of US capital by at least 29 percent and potentially by as much as 49 percent. Another recent study found that if the United States were to implement a National Retail Sales Tax, 80% of the largest corporations in Europe and Japan said they would build their factories in the United States and 20% said they would move their international headquarters to the United States.

A National Retail Sales Tax would not only create the incentive for wealthy Americans to keep their assets right here at home, but it would actually have the effect of reversing native capital flight and bring a lot of expatriated capital back into the United States.

But, here is the important thing. A National Retail Sales Tax must be implemented soon, before the expatriation snowball picks up too much speed to be stopped. If we wait until the economy begins to react to this capital flight, it will be too late. You saw what happened when the markets reacted to tech stocks being overpriced. Imagine what will happen when the markets take notice of native capital flight. Once that slide begins, all that you will be able to do is pick up the pieces.

WE MUST ACT NOW!

Contact your Congressman TODAY and tell him/her that you want him/her to support the Fair Tax Act of 2003 (HR 25) and the Individual Tax Freedom Act of 2001 (H.R.2717). Either of these bills will go a long way toward reversing capital flight, eliminating IRS confiscations and getting the IRS out of our personal lives. I urge you to tell your Congressman that it is imperative that one of these two bills MUST be passed this session.

It is no longer simply a matter of equity in taxation.
It has now become a matter of the
SURVIVAL OF THE
UNITED STATES OF AMERICA.

Support the National Retail Sales Tax
(or start packing your bags).

* To make confiscation seem less severe, the government has taken to calling it forfeiture.  The term, "confiscation" connotes taking something that belongs to a citizen.  The term, "forfeiture" connotes giving up something that was not the citizen's property in the first place.  Who says subliminal messages are dead?

See related articles and supporting documents:

The Privacy Factor
More Attacks on the Wealthy
US Taxpatriates List
1986-2000 IRS Collections Data by Income Category
Expats in tax exile face crackdown
American Citizens Residing Abroad (US Bureau of Consular Affairs) (Dead Link)
Health Insurance Portability & Accountability Act of 1996 (26 USC 877(a)(1))
Immigration and Nationality Act of 1996 (8 USC 1182(a)(10)(E))
The Economic Impact of Replacing Federal Income Taxes
      with a Sales Tax (CATO)
Fair Tax Act of 2003 (H.R. 25)
Individual Tax Freedom Act of 2001 (H.R.2717)
Americans for Fair Taxation
National Retail Sales Tax Alliance
How to Hide Your A$$et$ and Disappear
Escape From America

See Expatriate sites:

The Sovereign Society
Escape Artist
Expat World
Second Passports

Contact your Congressman here.