The United States population is about 311 million people which represents about 4.5 percent of the worlds’ 7 billion viable consumers. For the United States to remain a world leader in business, it must remain competitive on a global level with regard to government effectiveness, economic development for entrepreneurial growth, and the costs of doing business.

Because of globalization, people and business no longer need to be based in the USA for success or even rely on the US for survival. Businesses and people in the USA can move out of the country and become successful in many regions of the world including: Latin America, Russia, Arabia, India, Asia, Africa, the West Indies, and specifically city states such as Dubai or Singapore. Many of the reasons people go offshore are for logistics, to sell to the global customer, and to take advantage of favorable business environments. Some countries even offer the ability for retained earnings enabling tax-deferred reinvestment and capital growth offshore. Allowing retained earnings lets companies to grow and reinvest rapidly and locally without ongoing tax regulation and filings, and seems to keep more money flowing in local regions. In countries like the USA, you must pay taxes and fees as you go either quarterly or at the end of each year, but there is no way to retain the revenues past fiscal year-end and invest it without involving complex tax regulations, filings, disclosures, or penalties.

Within the jurisdictions of the USA, the same holds true, people and business go to where there is the least friction and lower: red tape, regulation, litigation, fees, waste, corruption, and other economic costs. And guess what, if a business is relocating in one of the 50 US states or territories, there is competition between the jurisdictions. Any relocating company can freely ask the state officials the question, “what can you do for us”, and the state economic development folks will begin dancing, singing, and offering tax and other incentives for the company and its’ employees to move into their jurisdiction.

The point is that the United States will need to engage the same economic development both internally and externally to make our federal environment more fair and friendly to insiders and outsiders who want to invest in America. The dirty secret is that people from inside the USA and outside in developed countries want a token of good faith, a fair system, investor protection, and a good legal system. Moreover, they want to have confidence in America, it’s leaders and the system of business law. However, if the structure smells like a costly bureaucratic shakedown, then international investors will not invest in the USA.

To compare tax rates, in the USA, you pay federal income tax, state income tax, sales taxes, and also corporate taxes. Keep in mind, these taxes are paid before the individual can invest the money in their local or regional community where it would also be taxed.

The federal tax rate in the United States for corporations is 35% plus potential state taxes which is higher than most countries around the world. Higher than Indian’s 33% base rate, and China and Brazil’s initial corporate income tax of 25% and higher than Russian corporate tax which is 20%. See KPMG Tax Table. Whereas, there are countries with extremely competitive rates, safe jurisdictions, and available talent in the region. Various examples would be: Singapore, Czech Republic, Lithuania, Bermuda, Bahrain, Montenegro, Macau, Qatar, Paraguay and others.

In contrast, Dubai which is a major city state government and emirate within the United Arab Emirates allows for a corporate styled LLC Limited Liability Company which has no corporate taxes, no income tax and no retained earnings taxes. Much of Dubai’s government revenues come from annual fees for services and the expatriates & foreign companies that locate there.

The focus of this analysis is not just corporate tax rates, but the TBDB Total Burden of Doing Business versus total benefits for member loyalty. As with any credit card , if you do not like their fees and rewards, you can dump them for a better card with better rewards such as Visa, MasterCard American Express and Discover. VISA (NYSE: V[FREE Stock Trend Analysis]) MasterCard (NYSE: MA) American Express (NYSE: AXP) and Discover (NYSE: DFS). The same value proposition will draw the creators, producers, and contributors to the best service provider.

Going forward, it is my view that the most successful economies in the world will have strategies to provide benefits to those who locate in their country to do business. In the end, the citizens of these forward-thinking countries or jurisdictions will reap the benefits of such international respect and good will. During this political season, we hear reporters asking generic tax reform questions such as “Show Me the Math; yet, there is an incredibly simple answer that was provided to me by a old farmer with a 4th grade education. The answer is that, “50% of nothing is still nothing”, and the countries that promote good will and economic incentives will be rewarded with 10 or even up to 20 percent of the revenues from top companies including much of world investment and trade.

With all of this being said, volume businesses such as WalMart (NYSE: WMT) or Amazon (NASDAQ: AMZN) create vast revenues based in incentives, pricing, customer satisfaction and value. As such, the centers which promote economic fairness, freedom and security will become super-hubs of free markets, prosperity, and success for the long-term. This is just one more reason why management consulting firms such as Booz Allen Hamilton (NYSE: BAH) and international law and accounting firms such as Accenture (NYSE: ACN) will continue to flourish while international online education such as law schools for tax and finance such will also expand enrollment. See TJSL Online Graduate Tax Program

In the end, strategic government policy is the key to developing GCA or “Global Competitive Advantage” and also the secret to bringing new business into your country where relocated or new companies hire more local people, create local and national economic activity, and ultimately the key to revenue generation.

About the Author: Dr. George Mentz JD, MBA, CWM – Mentz is a world recognized Certified Chartered Wealth Manager and award winning professor who has authored several revolutionary books. Prof. Mentz, an international attorney, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted for speaking engagements at www.gmentz.com or www.managementconsultant.us or www.selfhelpbook.org  Mentz is a licensed attorney and CWM Chartered Wealth Manager

Mentz is part of the National Underwriter Panel of Experts for Advisor FX and FYI http://www.advisorfyi.com/expert/

*No tax investment or legal advice provided herein. Please consult with a licensed professional in your jurisdiction before making any important financial or legal decision.
References:
TJSL Thomas Jefferson School of Law Graduate Tax and Finance http://llmprogram.tjsl.edu
Global Tax Table from KPMG http://www.kpmg.com/global/en/whatwedo/tax/tax-tools-and-resources/pages…
IRS http://www.irs.gov/Businesses/Corporations
AAFM American Academy of Financial Management

The other day, a reporter asked a politician how to collect more money with lower taxes. Of course, there is a very simple answer to this childish riddle. With 95% of the worlds population outside of the United States, there must be economic development in the USA to bring companies, jobs, and capital into your jurisdiction. Whether you are President Obama, Paul Ryan, Joe Biden, or Mitt Romney, there are eternal truths about tax policy that can make or break a government budget, businesses, and families. Just like states compete for new business, so should the United States. With the USA corporate tax rates being the highest in the world, this reduces the number of businesses and people doing business within the US jurisdiction.

As the old sage says, “60% of nothing is still nothing”. So, if you raise taxes, less people participate. Even with higher rates, you get less. But with competitive rates, you always get more. Examples are Walmart, Target, Amazon or other. Water always flows to where there is the least friction, and the same holds true for businesses.

In todays global marketplace, there are businesses from around the world running to special jurisdictions to establish headquarters or offices within these economic hubs of freedom. Thus, money and tax dollars flow freely where the fees are fair, reasonable and are for mutual benefit of the business and society.

Presidential Politics and Income Tax Theory – The Super Rich & Tax Havens in the USA ? – By G. Mentz, JD, MBA

No matter how you slice and dice it, it is difficult to swallow when you see Warren Buffet’s taxes or Mitt Romney’s taxes. You may think, how did they get their income tax rates down to 15%? The challenge for many of us is not the tax rates, but the totality of taxes we pay or the type of income we receive or earn. As I have taught on the subject of tax and wealth management and also been a Wall Street Firm Wealth Management Advisor, the analysis of progressive tax rates can be deceiving and tricky.

If you buy and sell something for a long term capital gain, you can receive a low rate of 15%. If you receive dividends, you may be able to capture a low rate of 15%. If you can find bonds that pay tax free, you may also receive a low rates on passive income. If you use a tax deferred vehicle, you can also defer taxes till withdrawal, Examples are 401K, IRA, annuities and such.

Don’t forget that you can avoid state income tax if you reside in one of the 7 wonderful states such as: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. 41 states impose income taxes. New Hampshire and Tennessee apply it only to income from interest and dividends.

Some states actually limit the taxes on certain types of retirement income. Various states exclude Social Security benefits from state income taxes. 27 states & The District of Columbia who have income taxes provide a full exclusion for Social Security benefits — Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia and Wisconsin.

States are also prohibited from taxing benefits of U.S. military retirees if they exempt the pensions of state and local government retirees. Various other retirement exemptions apply to the value of property or the type of income. For example, all citizens of some states may have a exemption of the first 50 thousand dollars of property value.

Numerous states allow special tax benefits to military retirees. Some states, with conditions, which do not tax retired military pay are: Alabama, Alaska, Florida, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New York, , Ohio, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming. Mississippi, Missouri, Kentucky, Oregon, and North Carolina have conditions that apply.
Many states still have an estate tax on top of the federal estate tax: States that impose an estate tax are: Connecticut, Delaware, District of Columbia, Hawaii, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Ohio, Oregon, Rhode Island, Vermont, and Washington.

The question of the day is how do the super-rich avoid the taxes that most of us pay? While the super wealthy may pay some of the “working class” W-2 style taxes, they avoid it on most of their income.

An example would be, how can Warren Buffet or Mitt Romney avoid self employment taxes? Well, the law allows business owners to pay self employment taxes on income, but most of the other income may be treated as pass-through, long term gains or non considered self-employment taxable such as interest, dividends, or sale of assets.

In the end, the middle class and upper middle class is getting hit with the bulk of the “nickel and dime” taxes in this country. Think about the taxes on: State income, state automobile taxes, school district taxes, gasoline taxes, utilities, electricity, water, phone, flight and transport fees, cellular, internet cable, luxury, alcohol, tobacco, and a myriad of other taxes and fees. The TOTALITY of these TAXES may put the average middle income taxpaying family in a 50% tax bracket if they earn a combined 60-100 thousand dollar per year.

Remember, the W-2 employee is the least likely to have the ability to deduct business related expenses as per our tax codes. In the end, high paid wage-earners who are employees such as: doctors, lawyers, government employees, pilots, and CPAs probably pay the highest tax rates on earned income.

In contrast, Mr. Buffet who has invested billions for his clients and himself owes no taxes on typical investments until he sells them. Viola, no taxes paid on long term holdings until you capture income from the sale. With that being said, if Buffet owns a company, that company or its employees will pay taxes on all money that comes in and goes out. In theory, corporate welfare is a myth in that even if a company pays -0- taxes at the corporate rate, the 500,000 employees all paid taxes and hopefully kept their jobs.

Tax breaks are for everyone, and I remember reading one of Russell Simmons’ recent success books. He claimed that he felt like he could have paid more taxes after the sale of a company. The capital gains rate allowed him to pay a low rate of 15-20% tax on the sale of the large company. He claims to have had an ah-ha moment and paid all of his employees who helped build the company an extra bonus as a result of the tax relief. In my humble opinion, this is the original intent of the lower tax rates “to begin with” where everybody involved can benefit.

You can theorize that lower long-term rates and lower dividend rates allow communities to benefit from more local income and for retirees to survive on their pensions or investments. Overall, when taxes are too high, investment is reduced because the reward is mitigated. This is probably why people like Buffett were long term holders is that the punishment for a sale was too large.

So, Mitt Romney may just have good quality tax advisors, and there is NO need for any taxpayer to pay more than the law requires as per the US Supreme Court cases. We all remember VP candidate John Edwards. He saved $600,000 in taxes by forming an S corporation. Edwards earned $26.9 million as a lawyer in 1995, and he minimized Medicare taxes by creating his own S corporation. Edwards paid himself a salary of $360,000 each year for four years and then he had the S corporation pay him the rest of the income in dividends. Salary was subject to Medicare taxation at a rate of 2.9%; however, dividends escape Medicare taxation. There is no wage base for Medicare, all wages or salaries are subject to the full tax. Social Security does have a wage base, which means wages above the limit are exempt from the Social Security tax.

In contrast, President Obama may have a different and much higher tax rate. Most of his income comes from his book sales and from his government employment. Book royalties and high government wages are generally taxed at a much higher rate.

If you remember, most NBA and NFL stars will attempt to maintain residence in a low income tax state like Texas or Florida; however, the state income tax authorities may show up to tax any players who visit their “higher tax” state to play a game. You must figure that some players may earn 1 million dollars per game and 8% of that income is nothing to balk at.

Historically, there has been so much wealth created in the last 30 years, it has been amazing. To watch Google and now Facebook go public is truly fantastic. I remember back in the 80s where people would complain that all of the property or wealth was controlled with no more to be had. However, when new property and wealth is created from thin air, it proves that creativity always trumps materialistic scarcity theory. And yes, most of the new wealth from Facebook will take residence in a lower tax jurisdiction before selling their stock. Let’s face it, 6-9 percent state tax on a large sale of stock with a low basis is a lot of money.

In closing, I recall in the late 70s somebody showed me a list the Forbes 400 wealthiest people in the USA. I distinctly recall that the bulk of the list of names inherited the money or started with wealth. In the recent 20 years, we now see that the bulk of the wealthiest are self-made. With that being said, the one thing that changed during this time was the reduction in long-term capital gains rates.

Are taxes good or bad? Everyone knows that those who benefit from society must chip in and everyone must have some skin in the game. However, the other extreme is that “100% taxation is pure economic slavery”. Thus, everyone is against slavery on any level. The major question that looms is : what is fair? And that, I will leave that to the government & politicians who are the servants of the customers, “We The People”.

**Financial, Legal or Tax Advise is not intended to be offered in any way. The Academic Exception is Claimed in this Article. If you need tax advice, legal counsel or financial advice, please see a licensed professional in your jurisdiction.
George Mentz, JD, MBA – All Rights Reserved 2012