You Get What You Pay For…
As a specialist in international diversification, I’m often asked about the potential for tax savings when moving to another country.
On one end of the spectrum, there are die-hards who believe all forms of income tax are inherently unjust.
For example, I recently came across a quote from a New York hedge fund manager. He said he believed he had a “moral obligation” to try to pay as little tax as possible.
On the other hand, I’ve often received comments from my readers who felt extreme hostility to tax was unreasonable.
It ignores the critical role of government in establishing the conditions for general prosperity. And it almost always fails to recognize the ways in which government-provided services enable individuals to become wealthy enough to adopt an international lifestyle.
Two Types of Taxation
I’ve lived and worked in a lot of countries. Broadly, they fall into two categories.
The first category is countries where government services are scarce and of poor quality. Individuals and communities develop their own coping strategies, and substitute many of the roles performed by government with their own initiative.
For example, I’ve spent time on a couple of Caribbean islands, where government is so inefficient residents of wealthy neighborhoods hire contractors to pave the streets, provide water and sewage and all the other services we’re used to paying for through tax.
Great… Except people who aren’t wealthy enough to live in those neighborhoods look at them in envy, making those societies increasingly unstable overtime. Eventually, they will be ripe for revolution.
The second category is countries that have embraced the role of the state in smoothing out capitalism’s rough edges.
For example, the European Union’s member states treat things like healthcare and education as investments in society, enhancing productivity, making households more secure, and thereby encouraging entrepreneurship and productive activity. They offer generous unemployment benefits, but since these societies tend to be highly productive, unemployment tends to be low anyway.
Which Would You Prefer?
One of the paradoxes of the international diversification field is that many of the same people who abhor government and taxation strongly encourage people to migrate to places like the EU. They often tout many of the benefits paid for precisely by higher income taxes and an interventionist government.
Of course, some of them encourage people to obtain second citizenship in libertarian paradises like Vanuatu, the Cayman Islands, and other extreme low-tax havens with minimal government services.
I’m sure that works well for single individuals with no family attachments. I’m not so sure how well it would work for the average American looking for an improved life abroad.
Like everything else involved in global diversification, it comes down to your motivations and your values. If you have an intense personal hostility to paying income tax, renouncing your US citizenship and moving to an island somewhere may be just the thing for you.
But to be honest, most of the people I’ve met in my travels and in my work just want to have a decent life. They want to be treated respectfully and fairly by whatever government they’re under. They want to get value for whatever taxes they do pay.
Fortunately, that describes most of the countries I and other write about at International Living.
Yes, absolutely, living overseas can save you enormous amounts on taxes—but also on other things that local taxes pay for, like low-cost healthcare and education, easier business regulation, low property taxes, and other benefits that offset tax payments. In the end, these things balance out—and in many cases, you’ll save a lot of money even if you’re paying more in tax.
So, rest assured, whenever I talk about the tax ramifications of an international move, I won’t be one-dimensional. There are many ways to skin a cat, and just as many ways to optimize your life by diversifying outside the US!
