Monday 2017-11-27

Reading through GranolaShotgun [millionaire heroes] reminded me of some tax ideas from a decade ago when I went on a tax-regime binge, reading through US Code 26 and familiarizing myself with any gotchas that might be on the horizon. Essentially, the Internal Revenue Code heavily incentivizes tax-payers to be involved in real property. Failing that, the next best thing is to have a side-business.

From a regime perspective, this makes a lot of sense: a) there's still lots of land just lying around so go improve it, and b) jobs are not for life so have a side-job as a measure of financial safety.

Unfortunately for the rest of us, the US and EU are sailing into demographic headwinds at the same time other parts of the world are rapidly catching up in terms of amenities. Both the EU and US are leaning on countries to "harmonize" taxation, aiming to remove tax-regime shopping by reducing inter-country differences -- i.e. no matter where you live, you are going to pay 40% income tax.

From a policy perspective, this makes it politically difficult for a country to maintain a different incentive structure. For example, Singapore taxes what it doesn't like: alcohol, tobacco, and cars are all heavily taxed. Since income is good, it was taxed at a maximum of 20%; it is now going up to 22%. Singapore doesn't want to tax income, but is being forced to.

In order to maintain its preferences, Singapore will have to adopt a more convoluted tax system -- with all the dead-weight loss of tax attorneys, tax accountants, and time lost to tax preparation that the US and EU have. Currently in Singapore, the government mails you a bill at the end of the year for income tax due, and you just pay it: no forms, no fuss, no critically important elections buried in thousands of pages of instructions that you are responsible for reading which change every year (c.f. Jahina 2002).

So, it seems likely then that the US will have successfully exported yet another of its favorite pastimes: Tax Zeroing -- where you architect your life so as to reduce taxes (c.f. retire at 33).