An Omen for America?

This has a similar title to an earlier blog post, but the topic is completely different. The U.K.-based Times has a fascinating story about how how tax rates are driving business out of London, thus showing the insanity of class-warfare tax policy. Two excerpts are must reading, though the message will fall on deaf ears at the White House. The first looks at the big picture, noting how Switlzerland is very attractive because of reasonable tax rates and political stability:

As the financial weather worsens in Britain — bankers are being taxed 50% on this year’s bonuses, and from April half of any income over £150,000 will go straight to the Inland Revenue — many of our super-rich are threatening to abandon London. Discreet advisers in Geneva, Zurich and the high-end Swiss ski resorts say that a steady trickle of wealthy Brits have either made the move or are strongly considering a new life in the mountains. In December alone eight British-based hedge funds decided to move there. “They want to be out of the UK by April,” says David Butler of Kinetic, which provides services for hedge funds. “There’s a lot of momentum to leave. Geneva is the most popular choice. These people are a kind of club: they go where the others are.” He predicts that up to 150 funds will follow. ...Switzerland is also enormously stable: 100-year mortgages are common, property is a safe investment, and the average income is $68,000, against $44,000 in the UK. The Swiss are unlikely to bring in the kind of arbitrary tax changes that have made London’s bankers so jumpy. ...The fear for the British Treasury is that a big international investment bank might relocate. So far, that has not happened. But Bob Diamond of Barclays Capital, one of Britain’s highest-paid bankers, warned last month: “Both financial capital and human capital are extremely mobile.”

The second excerpt is based on two conversations with former British residents, both of whom are no longer being raped by Gordon Brown and his crowd of redistributionists. This should be a warning to Obama and his crowd, but England actually is not as bad as America in one key respect - investors and entrepreneurs can leave the United Kingdom without being ransacked at the border. People leaving the United States, by contrast, has subject to onerous exit taxes (disturbingly akin to the policies imposed by the Soviet Union and Nazi Germany, albeit motivated by greed and envy rather than hate):

As a British citizen, “I’d get totally clobbered by the taxman if I came back to London”, he admits. He is not wrong. Mike Warburton, tax director at Grant Thornton accountants, says: “If he returned to the UK, he would be taxed on his worldwide income and gains as a UK resident domiciled individual.” Say James has £40m invested, and is getting a paltry return of 2% a year (£800,000); it would give him a tax bill of around £400,000. He would also be clobbered, says Warburton, “on income and gains arising after his return to the UK from any capital built up while he was overseas, and gains are taxable at 18%. Even if he put the capital into an offshore trust, he would still be caught by tax-avoidance rules in the UK. Not an appealing prospect.” In Switzerland, by contrast, life is sweet. All that is required is a deal with the local canton to pay a flat yearly forfait (forfeit). Happily for bankers, it is all negotiable: the better connected your tax lawyer is with the local canton official, the better your deal. The Swiss are famously good at keeping financial secrets, so there is no published list of which canton charges what, but the going rate in Geneva, the most expensive one, is about £180,000 a year. ...Another option is to become a resident, which is fairly simple as long as you are rich and from America or the EU, then pay tax at the local rates, which are linked to the value of property and are typically only 20% of income. ...Might her London banking friends follow her out here? “Sure, why not?” she says, sipping white wine. “They’re all pretty pissed off at the tax on bonuses and the new top rate of 50%. People like me, we’re motivated by money. If you take so much away in tax, there’s no incentive.” Just look at the tax on a bonus of £200,000. First, there is the new bonus tax of 50%, which costs the company another £87,500. Then there is employer’s National Insurance of £25,600. Then the employee pays income tax at 40% on the £200,000, which is £80,000, and employee’s NI, another £2,000. So the total tax is a whopping £195,100. This represents a 98% tax burden on the net payment of £200,000 to the employee.