Latinos eliminate taxes — in Puerto Rico

March 13, 2013

By John Seiler

The impression seems to be that Latinos want more government, and in particular more taxes. Not the case.

According to the 2013 Index of Economic Freedom, Chile actually has more economic freedom than the United States. Chile also is moving toward more freedom, as the United States slides into socialism.

And Mexico has been advancing economic freedom, including lower taxes, for almost 20 years. New President Enrique Peña Nieto is pushing the opening of Pemex, the gigantic and inefficient national oil company, to foreign investment. Doing so could produce a massive oil boom to create immense wealth for Mexicans.

Now Puerto Rico is cutting taxes. The Commonwealth of Puerto Rico, of course, is not a state. But that means they have brokered a special relationship with the U.S. government in which the island’s residents don’t pay the massive U.S. federal income and capital gains taxes.

Puerto Rico just eliminated all commonwealth capital gains taxes. So the rate is:

U.S. capital gain tax: 0 percent

Puerto Rico capital gains tax: 0 percent

Total capital gains tax: 0 percent.

Not surprisingly, PR is attracting rich people, and other people, eager to enjoy economic freedom. By coming there, they will pay other taxes — such as commonwealth income, sales and property taxes. Bloomberg reported:

“John Paulson, a lifelong New Yorker, is exploring a move to Puerto Rico, where a new law would eliminate taxes on gains from the $9.5 billion he has invested in his own hedge funds, according to four people who have spoken to him about a possible relocation.

“Ten wealthy Americans have already taken advantage of the year-old Puerto Rican law that lets new residents pay no local or U.S. federal taxes on capital gains, according to Alberto Baco Bague, Secretary of Economic Development and Commerce of Puerto Rico. The marginal tax rate for affluent New Yorkers can exceed 50 percent on ordinary income.”

California tax gouging

Let’s compare that tax to the top capital gains tax rate in California:

U.S. capital gains tax: 20 percent

California capital gains tax: 13.3 percent

Total: 33.3 percent.

And remember, the capital gains tax is a double or triple tax. To get money to invest and earn capital gains, you first have to earn the money and pay income taxes on it; and if the money was inherited, then inheritance taxes also have to be paid.

So let’s see how the government could rob you.

You earn $1 million. Let’s first assume there are no taxes on income, estates or capital gains taxes. You invest the $1 million and it goes up 10 percent. So you have $100,000 more which you can re-invest to create more businesses and jobs. The people you hire pay taxes. Alternatively, you might spend the capital gains on a car or house, creating jobs in those industries; those people pay taxes. You’re also now worth $1.1 million.

Next, let’s consider that $1 million taxed at current top marginal tax rates:

Federal top income tax rate: 39.8 percent. California top income tax rate: 13.3 percent. Total income tax rate: 53.1 percent. Amount left after both income taxes: $469,000.

Federal inheritance tax (the death tax): 55 percent (no inheritance tax in California). That 55 percent cut from $469,000 leaves: $211,000.

You invest the $211,000 and it goes up 10 percent. So you made $21,000. The top marginal tax rate is 55 percent, so that leaves $9,450 in capital gains. Add $211,000 and $9,450 and you end up with $220,450.

The comparison: Without taxes, you have $1.1 million. With the massive, current taxes, you’re left with just $220,450. That’s a tax rate of 80 percent.

The 80 percent stolen by government is wasted pork and sky-high pay, perks and pensions for bureaucrats. Whereas if the money had remained in private hands, it would have been productive, creating businesses and jobs.

This massive taxation is what President Obama and Gov. Jerry Brown — themselves both multi-millionaires even though they’ve only held government-sector jobs — call “paying your fair share.”

I hope California’s Latinos look for inspiration not to the state’s high-tax Anglo leadership, especially Brown, but instead to the wise Latinos running Puerto Rico.

Meanwhile, I’m looking into moving there. The rum is perfect and soon Cuba will be rid of Castro and the cigars will begin flowing again.

Rum. Cigars. No taxes. Warm weather. Paradise.