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Puerto Rico is Becoming the Strange Attractor

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Politicians being mostly lawyers only see their power to change and make laws as absolute. They fail to comprehend that they too must be competitive for their actions alter the behavior of all. They drive capital out and attract capital in by simply being uncompetitive or competitive.

Puerto Rico comes under the US mantle as a territory, but it is not a State. They have a new law that eliminates taxes on investment gains. Puerto Rico has already attracted ten of the wealthy Americans because of this tax advantage that applies to new residents and allows them to pay no local or U.S. federal taxes on capital gains. With the marginal tax rates in most developed states well above the 50% level, the migration patterns within the USA are being changed especially after Obamacare and the hike in payroll taxes. The wealthy individuals in the U.S. and Europe are relocating everywhere as governments raise taxes on top earners to shrink budget deficits that have become unsustainable after the 2007-2009 financial crisis and clearly will only get worse since they refuse to trim their sails. The French actor Gerard Depardieu left France last year after mud-slinging by the President on the country publicly blasting him. The billionaire Bernard Arnault, who runs LVMH Moet Hennessy Louis Vuitton SA, applied for Belgian nationality and the French newspapers in headlines called him effectively an asshole. The French President Francois Hollande sought to introduce a 75% tax on millionaires and has succeeded in gutting the country for as they leave, so do jobs.

In Britain, BlueCrest Capital Management Ltd. and Brevan Howard Asset Management LLP opened or expanded their offices into Switzerland over the past three years after Britain raised taxes on the wealthy. The same trend has been at work within the United States as financial planners warn the middle class they cannot retire in places like New Jersey and California. The mass exodus has led the Draconian measures in New Jersey of imposing a tax to leave. California hunts down prior residents in Florida under the theory pensions were earned in their states and should be taxable there even when they leave.

In New York, they gut the rich who now count for 40% of all tax revenue despite the fact they are only the top 1% of the population. We are in a virtual state of Fascism where the state allows you nominal ownership of your property, but they dictate what is to be done with it. The United States is dead. The freedoms and no taxation without representation are just ancient propaganda. We are living in times where the lawyers know how to write laws, but are totally ignorant of the consequences. They are destroying the productive class just as in Atlas Shrugged and where this leads is not a very pretty place. They have stolen the productive wealth of the people and award themselves unbelievable perks and pensions at the expense of everyone else. There is no reform. Obama cried over losing a single government job and he closed tours of the White House to save $75,000 only so he could use children as a weapon against the Republicans. With no intent on ever reforming government, we remain in a tax war that will only end very badly.
The Puerto Rican tax law provides an immediate example that states had better wise up. The federal rate for top earners in the U.S. is 23.8 percent on long-term capital gains and dividends and 39.6 percent on ordinary income, which includes short-term gains and interest. State and local taxes are pushing those numbers well above 50%. Under the Puerto Rican law, any capital gains accrued after a person moves there would be tax free. Dividend and interest income paid by U.S. companies would still be subject to U.S. federal taxes, though there would be no local taxes. In addition, new residents can benefit from another new law that taxes business income earned in Puerto Rico at only 4%.
Normally, you don’t pay U.S. taxes on income from Puerto Rico, but are taxed on dividends and interest from U.S. companies. They are not subject to capital gains taxes, however, in the U.S. and pay a 10 percent capital gains tax locally, from which new residents are exempt. Of course the government can change all the laws in the blink-of-an-eye. That is the problem with the entire system. There is just no economic stability.