[Editor’s note: Simon is still out in the jungle and should be back on Monday. Meanwhile, we wanted to pass along a note he wrote over a year ago warning that governments would go back in time to pass retroactive tax hikes and regulatory changes. He was right. Since this letter last summer-
* The US government passed a retroactive estate tax hike
* The Spanish government passed a retroactive wealth tax
* The state of Illinois passed a 66% income retroactive tax hike
* The US Financial Crimes Enforcement Network issued offshore reporting guidance retroactive to 2010
The list goes on…]
July 13, 2010
It’s no secret that the government– any government– has nearly unlimited authority to do whatever they want, whenever they want. They can bend the rules, spin reality, and use their national constitutions like a roll of cheap, single-ply toilet paper.
Lately, governments have been unafraid to increase the size and scope of their powers, making drastic changes often with near immediate effect.
For example, UK Chancellor George Osborne shocked British investors several weeks ago when he announced that capital gains tax rates would increase for many Brits effective midnight that same evening.
Not to be outdone by Chancellor Osborne, the United States Congress has actually gone back in time and made retroactive changes to tax and reporting regulations. There are some recent instances of this in 2010’s controversial HIRE Act.
Even better, Canada’s Legislature amended the Retail Sales Tax Act earlier this year to be retroactive effective May 1997. The amendment specifically affected certain companies which had to come out of pocket for 12-years worth of tax that they had previously been exempt from. Ouch.
Today marks another example of the government showing us how quickly it is willing and able to make changes. Effective today, the United States Department of State is increasing fees for consular services across the board– things like visas, passports, and notary services.
The state department made this announcement just two weeks ago; the thing that caught my eye and sparked this letter today is their new $450 fee for renunciation of US citizenship.
This is a brand new fee that has never been imposed before. Apparently the number of Americans queuing up at embassies around the world to renounce their citizenship is exploding so rapidly that the State Department had to formalize the process and tack on a fee… this, of course, on top of the 30% exit tax.
With all of these examples, there’s really one single point that I want to drive home today: you can only kick the can down the road for so long…
By that I mean, these examples show that governments are constantly finding creative new ways to increase their domain and grow their tax revenue. We cannot count on any level of stability– what’s accepted and allowed today can change tomorrow.
The only thing we can really count on is the pace of change– how quickly and how drastically governments will reshape the system to suite their own needs at our expense.
All of these changes have an effect. Some are large (retroactive tax code changes, an overnight revaluation of a currency) and some are small (higher fees for a passport). As we go forward, though, you can expect these changes to be more surprising, more swift, and more painful.
It’s easy to kick the can down the road and say, “well I’ll take action later when things start to get really bad.” This approach might work for a while, but the logic will abruptly run out only once it’s too late.
Protecting yourself and your assets– moving some money to a foreign jurisdiction, scouting out locations for a new home overseas, exploring second citizenship opportunities, etc.– can be accomplished by investing some time and energy right now and making it a priority.
I really want to encourage you to make every effort to start this process as quickly as possible. Put it on the calendar, call it a midsummer resolution… whatever works. I don’t want you to be one of the people who wakes up one day and is completely enslaved by capital controls or a military police state.
Also bear in mind that whenever you step outside of your home country, wherever that may be, there is literally a world of opportunity waiting for you.