moneyFYI
Financial Freedom Is Merely Organized Common Sense
We Are Led By Incentives And Disincentives
Incentive – “a thing that motivates or encourages one to do something.”
We love incentives. Everyone uses them, stores have prices like $99.99 instead of $100. Las Vegas will give you a lunch coupon if you play long enough. Bank a big sum and they will give you a suite. 10% off. Summer sale. Cash rebate. Overtime pay. Put your toys away and have a cookie.
Disincentive – “A factor that tends to discourage people from doing something.”
Alligators are a disincentive to looking for golf balls in the rough in Florida. Crowded restaurants are a disincentive to dining there. High taxes are a disincentive to working. Regulation is a disincentive to opening a business. Acne is a disincentive to eating fatty food. Electric fences. Fines. Jail.
Most rules have a disincentive attached.
Perhaps it is the way we are conditioned when young, but not many laws or rules come without a disincentive. Possibly it would make sense to view the sea of disincentives and see what one could do to advance their cause by providing incentives instead. That is what “Tax Havens” are about. Some have found a way to get what they want by giving other people what they want.
Do you think it is an accident that successful companies like Apple incorporate the way they do. Not only is it not accidental it is near mind boggling. Designing a skyscraper would be easier. It is the work of highly skilled professionals, some of whom guide lawmakers in other jurisdictions, and it is hideously expensive. But it works.
Governments don’t like tax havens much
It is not that tax haven countries are evil, it is that they refuse to enforce the tax laws of other countries. They have their own rules and if you play by them, they are content. Presumably capital, jobs, and growth accrue to them instead of someone else. The someone elses take that seriously. How can they extort money from their subjects if someone else offers to extort less? If a country, or a state, or a province, even a city is losing tax revenue that they think is rightfully theirs, it is because they have not examined their tax system with a view to making it transparent, efficient, and as unintrusive as possible given their need for revenue to carry out civic functions.
“Given their need for revenue”
There is the problem. Governments who have revenue problems are misdirecting you. They have spending problems. They do things they don’t need to do and for political gain. Some overspending may have happened years ago, but the debt it created is more durable. It is no different than your household. If you borrow and spend for five years, get everyone used to a certain lifestyle, and then try to cut back to meet the debt obligations and the increasing cost of living, you don’t have an income problem, you don’t have a revenue problem.
Really!. It’s that simple.
Revenue would solve it, but the problem is spending. Worse historic spending.
If you try to solve it as a revenue problem by raising your salary demand or your prices, someone will replace you. Could be a competitor or a contractor.
When governments raise their price beyond what is reasonable, they lose revenue and the more they raise their prices, the more they lose. Study the Laffer Curve. There are not enough “revenue tools” to solve the problem without spending constraint. Worse yet, there is no way you can argue a tax is fair if you intend to waste the proceeds.
Outcome.
Only low tax, high administrative value jurisdictions can survive. That’s just common sense. People complain about the effect Walmart and Costco have on local businesses. It is the same with tax havens. People shop where they can get the best value for their money. To make it work effectively, people must be smart shoppers and the provider must understand the idea of value for money.
You get more of what you reward and less of what you punish.
It’s time for governments to catch on. Right now they are like the 3,000 square foot variety store trying to compete with Walmart. It is like taking a knife to a gunfight. Put governing effectively ahead of political power and it gets easier. Hard decisions are coming. Charisma will not solve them. No pain – no gain, does not apply to tax policy.
I help business owners, professionals, and others understand and manage risk and other financial issues. To help them achieve their goals, I use tax efficiencies and design advantages to acquire more efficient income and larger, more liquid estates.
In previous careers, I have been a partner in a large, international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
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