Elizabeth Warren’s Financial Berlin Wall
Italy calls it la dolce visa.
If you are interested in moving to Italy and you would be bringing a ton of money with you, then the Italian government has an offer that might be appealing to some very high-income expatriates: a maximum flat tax of 100,000 euros per year, irrespective of income, so long as that income is not earned by working a job in Italy. Earn 1 million euros? Pay 100,000. Earn 100 million euros? Pay 100,000. Italy here is making a bid for the sort of affluent taxpayer who might be interested in Switzerland’s “forfait” system, in which noncitizens residing in Switzerland have the option of using their annual housing expenditures rather than their income as their basis of taxation — an attractive option for thrifty billionaires.
So, depending on your taste, either Lake Como or Lake Lugano is calling. Be sure to try the lobster salad at Principe Leopoldo.
Other European countries have enacted similar policies or are considering them, and the reason for this development has a name: Jeremy Corbyn, the Jew-hating Leninist autocrat who is, incredibly enough, positioned to become the next prime minister of the United Kingdom should a Labour government come to power. Simon Clark tells the story in the Wall Street Journal under the headline “Give Us Your Rich, Europe Tells the U.K.” Italy intelligently has chosen to make the same offer to Italian expatriates who might be looking to return home from the United Kingdom or from other jurisdictions in which the leaders have not yet internalized the lesson of the golden goose. WSJ: ‘“I don’t think anyone will stay one week if Corbyn wins,’ an Italian finance executive who lives and works in London said in an interview. He declined to be identified.” He is right to be afraid — these are vindictive times.
Jeremy Corbyn has a kindred spirit in the United States currently running for the Democratic presidential nomination — two of them, in fact: Senator Bernie Sanders, an antediluvian Brooklyn red who literally honeymooned in the old Soviet Union as dissidents were being shipped off to the gulags, and Senator Elizabeth Warren, the counterfeit Cherokee princess who holds forth on “accountability” from her comfortable sinecure at Harvard Law, which once put her forward as the first “woman of color” on its faculty. The wretched old socialist from Vermont is making a good scrappy show of it — and I sincerely wish Senator Sanders the very best of health after his recent cardiac episodes — and, the times being what they are, apparently anybody can be elected president of these wobbly United States. But Warren — in spite of being a plastic banana of titanic phoniness, an ass of exceptional asininity, an intellectual mediocrity, and a terrible campaigner on top of it all — seems the more likely threat. Sanders, who cannot resist that old Soviet liquidate-the-kulaks-as-a-class rhetoric, insists that “billionaires should not exist.” Warren has a ghastly imbecilic plan for that.
The class-warfare dreams of the American Left do not have a great deal to do with its professed desire to build a Scandinavian-style welfare state here. The U.S. tax system already is much more progressive than is typical of Europe, including the Scandinavian countries, and by some measures is the most progressive in the developed world. The northern-European welfare states do not differ markedly from the United States in how they tax the wealthy; they differ in that they also tax the middle classes heavily, which the United States does not. There is in fact much about the Swedish tax regime that a billionaire might prefer: There is no inheritance tax, no gift tax, very little property tax (it is capped at about $800 a year), relatively low and straightforwardly administered business taxes, etc. Because Sweden is well-governed, it treats its tax regime as a question of revenue rather than a question of so-called social justice, which is why the inheritance and gift taxes so beloved among American class warriors were scrapped: They generated practically no revenue (about 0.2 percent of total tax income), they were difficult to administer, and they created all sorts of perverse incentives that were not in Sweden’s long-term social interest. And so it is no more: That is how intelligently administered countries do things.
But not the United States.
The basic tax situation is similar in the United States, with inheritance taxes producing barely measurable federal revenue, about one-half of 1 percent of the total. They are of very little concern to most families, but they are of intense concern to a few families with lots of property, often in the form of a business. These families will sometimes take extraordinary steps to avoid paying the tax, though many of those near the threshold for paying the estate tax stay under by relying on the simpler alternative of maxing out their allowance of tax-free gifts to children, children’s spouses, grandchildren, etc., every year for the last several decades of their lives. That won’t do much for the hectomillionaire and billionaire set, but they have options, too.
The most extreme of those is renouncing U.S. citizenship in favor of securing legal domicile in some more wealth-friendly jurisdiction. There was a boomlet of that during the Obama years, reaching a record in 2016. But it is a very small number: 5,411 in 2016, down to the numerically ironic 1,099 in 2018. Some of those former U.S. citizens renounce for reasons that have at least something to do with tax, but these decisions usually are complex and involve many factors. Tina Turner, who has been a resident of Switzerland for decades, “relinquished” her U.S. citizenship (which under U.S. law is slightly different from “renouncing” it) a few years after becoming a Swiss national. Facebook cofounder Eduardo Saverin renounced his U.S. citizenship in favor of Singapore just before the firm went public. Filmmaker John Huston died an Irishman. A common pattern is that of actor Jet Li and businessman Ted Arison, each having been born abroad (China and Israel, respectively), become a naturalized U.S. citizen, and then renounced that citizenship later in life (Li is a citizen of Singapore, while Arison returned to Israel). Uncle Stupid imposes an “exit tax” on those who are leaving, in essence collecting whatever capital-gains tax would be due on the renouncer’s assets if they had been sold the day before renouncing. There is also a fee of $2,350, because somebody has to pay the parasites to audit your portfolio, and it’s going to be you.
But this is not good enough for Elizabeth Warren, who proposes to build a financial Berlin Wall to keep the rich guys in. That’s a little bit funny: Billionaires are awful, evil, wicked, and should not exist — but God help them if they try to grant Bernie Sanders his dearest wish and skedaddle. Singapore doesn’t think billionaires should not exist. Neither does Sweden. Neither does Switzerland. Neither does Italy. Why not let those horrible pinstriped social diseases just go where they are wanted?
Because this is not about revenue. This is about revenge.
Warren’s proposal would see the federal government expropriating 40 percent of the wealth of any American who decided to emigrate, provided that American has enough money to make it worth worrying about. And that number is not as high as you might expect: The current law ensnares those whose average income in the five-year period before renunciation was $162,000 or more, meaning that there are a lot of high-school principals who would need Washington’s permission to split.
It is difficult to accept the proposition that in a free society the freedoms enjoyed do not include the freedom to leave. The right of exit is the great discipliner of social, romantic, and business relationships, and it is essential to the relationship between citizen and state, too: Ask all our of new neighbors lately arrived from Venezuela. They did not come to Houston for the weather.
Walls have ideological purposes. The infamous one in Berlin was, officially, the Antifaschistischer Schutzwall, the “anti-fascist protection wall.” Senator Warren’s wall is, in theory, about “inequality.” But that is really hardly plausible as a rationale. “Inequality” simply refers to the financial distance between x and y, and reducing that inequality would be as effectively achieved by improving incomes and savings at the lower end as by reducing incomes and diminishing savings elsewhere. But that’s a rather trickier proposition than sticking a gun in somebody’s face and saying, “Hand it over.” Which is, of course, what Elizabeth Warren proposes to do.
For what? Some trivial sum in federal tax revenue? No — for the joy of it. For the pleasure of exercising power. For vindictiveness. Elizabeth Warren’s Berlin Wall will not make one poor person in the United States any better off. It might make Elizabeth Warren better off, but she’s far from poor.
The cynical among us might also suspect that the proposal, which will produce a great deal of angst and wailing, is intended to produce a great deal of angst and wailing, which will distract from the fact that if there is anything to be learned from the Scandinavian example it is that putting a Scandinavian-style welfare state on stable fiscal footing requires Scandinavian levels of taxation. And that would mean imposing a radical tax increase on the American middle class: Sweden’s top income-tax rate, about 57 percent, kicks in at around $70,000. Its second-highest rate, about 52 percent, kicks in at less than $50,000. A U.S. taxpayer with the equivalent income currently pays a marginal federal income-tax rate of about 13 percent.
Question: Why on Earth would Italy accept a mere 100,000 euros a year from foreign-born and formerly expatriate billionaires? The most obvious reason is that the practical alternative to getting that 100,000 euros a year is getting 0.00 euros a year from high-income people who have many choices about where they live and how their income is realized. But there is another consideration: That 100,000 euros a year is still a lot of money, and it is coming from people who are not especially likely to consume a great deal in welfare expenditures, who will instead create a great deal of economic activity through their personal expenditures. And, contrary to the cartoon, very wealthy people of that kind create demand for more than caviar and yacht maintenance. Though why should we sneeze at the hard-working men and women who build and maintain yachts? You’d think we’d have learned that lesson some time ago when we ruined the American yacht-building industry with vindictive levies that made a tax refugee out of John Kerry’s luxury cruiser, Isabel.
The American people, or at least some of them, are currently in thrall to a vicious, envy-driven ideology that says certain rich people “should not exist.” Italy is inviting them to go right on existing, preferably in Italy, where they’ll be good for 100,000 euros a year in tax. If the United States were not governed by morons, and if our political culture were not effectively suicidal, we might one-up the Europeans’ offerings. Sanremo is lovely, but there are more business opportunities, and more opportunities of other kinds, in the United States. Our Democratic friends are awfully solicitous of low-income illegal immigrants but increasingly hostile to the high-income legal ones. Whatever that’s about, it isn’t about the national balance sheet and making sure that there’s enough revenue to fund needful federal programs.
Elizabeth Warren, like Donald Trump, wants to build a wall. The idea behind Trump’s is keeping certain foreigners out, while the idea behind Warren’s is locking Americans in, penning them in order that they may be shorn and milked as though they were livestock, which is more or less how Warren thinks of them. Neither one of those walls is likely to accomplish its stated purpose, but in neither case is the stated purpose the genuine purpose. Americans should take notice of this development, and expend the mental effort to comprehend what it really means.