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Exit From the Road to Fiscal Serfdom

March 10, 2010

Tim Kane has a thought-provoking post on how the young will react when it comes time to finance Generation-Me’s entitlement debt. He says they’ll leave:

Consider: almost everyone younger than the Baby Boomers expects to get the short end of the fiscal stick. We were laughing about the unlikeliehood of getting Social Security Checks when I was in high school in the 80s. So now that the reckoning is all but unkickable, do the Boomers think their kids and grandkids will just become fiscal serfs?  Think again.

The consequences of U.S. fiscal calamity will go hand-in-hand with globalization. The world is in the early stages of globalization, but already member states in the EU are feeling the effects of combining tax competition with the right of movement. A 2006 BBC report noted that nearly 10 percent of Britons lived aborad, a million in Spain.  Two emigrant types dominate: retirees and workers!  Here’s a more recent report from the OECD

… the share of immigrants in the OECD population almost doubled from just over 4.5% in 1975 to 8.3% in 2005. It is also noteworthy that 45% of immigrants living in OECD countries in 2008 came from other OECD countries.

The threat America faces is a world that competes for our greatest natural resource: it’s young. If we make the tax climate hellish, the U.S. is going to suffer outmigration as places like Canada, Australia, Brazil, Mexico, Chile realize what an opportunity they have to cream our entrepreneurial talent. If we don’t, and let the deficit spiral out of control, the dollar will fall and workers will go elsewhere for value reasons.

Kane doesn’t mention seasteads or free-economic zones or charter-cities. But if they’re around, they’ll be all the more attractive to the young and innovative. (HT: Bryan Caplan)

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7 Comments
  1. NOTAL permalink
    March 10, 2010 6:09 pm

    John, I think you missed the point in your blog. Yes the tax rates right now are higher in Canada, Mexico, etc. But as the baby boomers start using Social Security and Medicare more, the US tax rate will have to rise, either through direct taxation or through monetizing debt and raising the “inflation tax.” Kane is talking about the future, he’s not saying that people have left already because the tax rates are better elsewhere.
    If Canada or Mexico seize this opportunity to reduce tax burdens, they could attract a lot of the disgruntled young workers from the US. Nobody is saying that they have done this yet.
    Of course charter-cities or seasteads would almost inevitably have less of a tax burden, and would have great potential for those looking to leave the hellish tax climate that the US will need to become to fund all of it’s liabilities.
    Running away was a great solution for those who left Europe and came to the new world, and it still is a great solution–That is, it is if there is anywhere left to run to. If traditional states don’t turn themselves into destinations for those looking for exit, then hopefully charter-cities or Seasteads will.

  2. kurt9 permalink
    March 10, 2010 9:49 pm

    Kane has the right idea, but the places he mentions suck. All of them are more socialistic in some regard than the U.S. I think this is because he is think only of other western countries (Canada, Australia) or places that are Western derived cultures (e.g. Latin America). John is correct. All of the place Kane mentions in his post suck as alternatives to the U.S.

    Kane completely fails to consider any part of Asia. All Asian countries, except for Japan, have significantly lower individual and corporate tax rates than the U.S. They are also aging as well (even faster than the U.S.). Some of them, such as Singapore, make it attractive for professional types to become permanent residents or citizens. If I left the U.S. permanently, I would go to Singapore. I doubt I would consider anywhere else.

    I lived in Asia for 10 years, and liked it. I would definitely go back given the right opportunity. I would never consider going to any other “western” country and doubt that I would go anywhere in Latin America either (Latin America has a very socialistic mentality). The growth region of the world will be Asia (East and South) for the next 40 years. Any ocean city-states or seasteads that get built will, no doubt, have some kind of economic connection or integration to Asia, since this is the growth region. It is reasonable to assume that these would be built in some proximity to Asia (e.g. Western Pacific or Eastern Indian ocean).

  3. March 11, 2010 12:30 am

    John, I think you missed the point in your blog.

    I apologize if I was not clear enough when stating my objection in regards to Kane’s piece.

    Though the tax rates I referenced are current tax rates in those countries, I do not see any of the particular countries mentioned in my post, nor any unmentioned, which may in the near future reduce their tax rates, or even distant future, to attract immigrants, and so I think my point stands.

    Though I would relish sitting down to a meal of my words in regards to my thinking on this, based on how current established States function, and their need for the approbation of the masses to continue to function, I do not foresee any now in existence States putting such a policy of tax reduction into effect to increase their populations.

    I do not think I expressed anywhere within my post that any particular now existing State had attempted, or had, put into effect a tax policy to attract new bodies.

    Running away was a great solution for those who left Europe and came to the new world, and it still is a great solution–That is, it is if there is anywhere left to run to.

    Granted, running away was a great solution for many individuals in the past, and the U.S., even with its considerable failings and current track to The Endarkenment, still is the place to run today for the majority of individuals desiring to run away and start anew. Other countries, not so much.

    As for Seasteading, the idea has merit, but I do not yet see subscriptions being sold by Seastead developers, or clamored for by individuals who truly wish to create a “new” societal structure, so I consider the Seastead idea, at this current time, more of a Heinlein type fiction.

    Running away is no solution. It will only provide a temporary reprieve.

  4. March 22, 2010 2:38 am

    Except that US citizens are required to pay taxes on their income regardless of where in the world they live or where in the world they earn their income. You get an income tax exemption on something like the first ~$85k of *earned* (employment or self-employment) income, but you still have to pay the full 15.3% for social security and Medicare and you have to pay income tax on any non-employment related income. Plus whatever taxes in your new home country and in the country(ies) where you earn your income.

    If you renounce your US citizenship you still have to pay US taxes for 10 years.

    If you’re thinking that you could just not file/pay, well, then I hope you don’t live anywhere that has an extradition treaty with the US, or want to change planes in the US or anywhere with an extradition treaty with the US. Because governments’ ability to track where you are is only increasing.

    So our generation is still fucked even if we expatriate.

  5. Mike Gibson permalink*
    March 22, 2010 4:35 am

    @Jacqueline Great points. I tried to cover these in a recent post entitled “Free to Leave?” I didn’t know about the 10 year shadow, but you might also want to read up on the 50 percent tax on all assets, if you have more than $600,000.

    All in all, you’re right: it will not be so easy to leave.

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