Brazil Is the New America: How Brazil Offers Upward Mobility in a Collapsing World (27 page)

In conclusion, the fall of Rome was fundamentally due to economic deterioration resulting from excessive taxation, inflation, and over-regulation. Higher and higher taxes failed to raise additional revenues because wealthier taxpayers could evade such taxes while the middle class—and its taxpaying capacity—were exterminated. Although the final demise of the Roman Empire in the West (its Eastern half continued on as the Byzantine Empire) was an event of great historical importance, for most Romans it was a relief.
10

Of course, the United States is not going to be pillaged by Germanic tribes. But what you can expect, as suggested in the passage quoted from the
Cambridge Ancient History
, volume 11, is a Roman-style response as “the menace of state bankruptcy” draws nearer.
11

You will see a replay of “the fierce endeavor of the State to squeeze the population to the last drop.” The amount of squeezing will be prodigious as the United States is well and truly insolvent. The first danger is that taxes will be raised to confiscatory levels—on the wealthy.

Like the original Alternative Minimum Tax, the new, higher rates will apply at first only to a small segment of the population. But as the continued emissions of new dollars conjured out of thin air inevitably devalue the currency, the price level will skyrocket, and you will end up earning, millions or even hundreds of millions of dollars, making you one of the “wealthy” to whom the new “taxes on the rich” will apply.

The greatest danger to your living standard therefore is the looming menace of hyperinflation and the death of the dollar. We are approaching what I previously mentioned Ludwig von Mises describing as “the crack-up boom” and I expect “a final and total catastrophe of the currency involved” . . . namely the dollar.

Standard & Poor's “downgrade” on U.S. credit during August 2011 merely underscored the underlying weakness that has been evident for years now. Many more people than you may have already begun to believe in the coming bankruptcy of the United States. This is reflected in something I heard from an American living in Geneva. He had just been visiting with some consular official who works in the American Embassy in Bern. The woman from the embassy told him something astonishing—that the wait for the exit interviews required to renounce U.S. citizenship now exceeds three years. This statistic reflects a swelling recognition by successful Americans that U.S. citizenship is a major liability.

The fact that it requires a formal exit interview at the embassy to escape from U.S. tax liabilities reflects the enactment of increasingly draconian restrictions on emigration from the United States. U.S. citizenship carries more fiscal burdens than that of any other country. U.S. citizens alone, among leading economies, must pay U.S. taxes whether they reside in the United States or not. An April 5, 2010, article by the Dow Jones News Service explains,

Unlike most jurisdictions, the U.S. taxes the income of citizens and green-card holders no matter where in the world it is earned.

In order to give up U.S. citizenship, a person must obtain or have citizenship in another country. The person surrenders their passport or green card during an interview with a consular officer in their new home country. He or she must also submit a form, including a list of assets, to the IRS to complete the process.

Chris Kavanagh of the American Institute in Taiwan, which represents U.S. interests in Taiwan, said 43 people gave up their U.S. citizenship in Taiwan in 2009, the highest that figure has been since 2003. He cautioned against drawing conclusions from that data, however.

The IRS says some of the swelling of numbers of expatriations towards the end of 2009 occurred because the agency made a push to notify people that had already surrendered their passport, but had not completed the process by submitting the IRS form. Until that form is received by the IRS, these people are still subject to U.S. tax. “There is some catch-up going on,” said IRS spokesman Bruce Friedland.

The stock market plunge of late 2008 and early 2009 may also have played a role in the spike in expatriations. Since 2008, Americans with net worth greater than $2 million have had to pay an exit tax assessed on their assets. With gains reduced or wiped out by the market collapse, those seeking to give up their U.S. citizenship had an opportunity to do so with less exit tax required.
12

So-called exit taxes, the fiscal equivalent of the Berlin Wall, have been imposed to prevent successful Americans from escaping a lopsided tax burden in which 73 percent of income taxes are paid by the top 10 percent of earners, while the bottom 40 percent actually receive “refunds” having paid nothing.
13

Recall the attitude of the Roman Empire as it faced bankruptcy, succinctly summarized in the quote from
Cambridge Ancient History
at the beginning of this chapter: “Thus began the fierce endeavor of the State to squeeze the population to the last drop.”

A little-appreciated provision of President Barack Obama's “highway legislation,” Senate Bill 1813, Section 40304, says that “Revocation or denial of passport in case of certain unpaid taxes . . . ” grants the IRS the power to prevent any American citizen merely alleged to owe taxes from leaving the United States. Under this agenda of financial repression, what was once “the land of the free,” figures to be the world's largest debtor's prison.

While it may seem obvious to you that the U.S. government is hopelessly insolvent, it is my opinion that the United States will become a full-fledged police state before it collapses, destined to be the Argentina of the twenty-first century. It won't be pretty.

With a system so heavily tilted toward income redistribution, the pressures to close off emigration came naturally. The growth of predatory taxation and the multiplication of legal restrictions on emigration make it costly and complicated for a successful person to leave the United States. They require anyone attempting to resign U.S. citizenship to pay capital gains on appreciation of his worldwide wealth. But it gets worse. The United States could possibly continue to demand tax payments for up to a decade after you leave. And of course, if you are prohibited from leaving the U.S., you are effectively doomed to be a debt slave. Alternatively, if you try to flee, it could make it difficult for you to establish residence in a new country and qualify for citizenship there.

The growth of predatory taxation and the multiplication of legal restrictions on emigration have made it costly and complicated to join the 742 Americans leaving the United States each hour.
14

The Roman Empire tried to keep taxpayers from fleeing, too. “Exit taxes” and restrictions on expatriation are modern-day analogs to the “tax reforms” of Diocletian, the Roman emperor (284–305) who wiped out what remained of the urban middle class (
curiales
). By the time Diocletian undertook his “reforms,” in 297, Rome was on the verge of collapse under the weight of ceaseless wars and the largest, most bureaucratic government the world had ever seen.

When Diocletian acted to raise taxes, the urban middle class was already fleeing in large numbers to escape the crushing burden of taxation. To frustrate that ambition, he made the
curiales
responsible for collecting taxes. If their collections fell short of the government assessment, they had to make up the difference from their own pocket, or be forced to sell their property. Many
curiales
tried to flee, but leaving was also against the law. It is not a coincidence that one of the most popular questions asked of soothsayers in the late Roman Empire was “should I flee?” Those who waited too long came to regret it. The middle class was financially ruined.
15

It does not take a soothsayer to see that a similar fate awaits Americans with assets as financial repression escalates. While Roman taxpayers were legally prohibited from leaving, Americans are not yet chained to the fisc, but that is uncomfortably close to becoming a reality. The passage of President Obama's highway bill will give the IRS the power to prevent any American from travelling abroad. It will become even more complicated to escape.

In particular, the requirement to hold another passport before legally quitting the U.S. tax regime makes legal expatriation a process of years rather than simply going to the ticket agent and booking a passage as it was in the late nineteenth century, when passports were not even required for most international travel.

Just as there are illegal immigrants to the United States, so there are also now growing numbers of illegal emigrants from the United States. While statistics are necessarily sketchy, evidence suggests that there has been a dramatic upsurge in the number of U.S. persons living abroad. Although it has been little reported in the media, a growing number of native-born Americans are fleeing financial repression at the hands of the Obama administration. As indicated earlier in this chapter, they have been departing at the rate of 742 per hour. According to the Association of Americans Resident Overseas, (AARO) apart from the military and other U.S. government employees, 5.08 million U.S. citizens reside abroad, about a two-thirds increase since 2008. “Among the benefits the study cites of a life abroad are statistics that show expats earn more, pay less tax, have a better work/life balance, have an improved quality of life, enjoy broader cultural opportunities, and enjoy better job prospects.”
16

In the opinion of the U.S. State Department, the AARO estimate is 25 percent too low. The State Department suggests that about 1.34 million Americans have become “illegal emigrants,” which is to say, they have gone abroad and fallen off the radar.

The Association of Americans Resident Overseas suggests that there was a surge of persons leaving the United States after the onset of the Second Great Contraction in December 2007. If, indeed, it amounted to a two-thirds increase in the number of Americans living outside the United States, it marks a major inflexion point. According to the Center for Immigration Studies, a think tank that agitates for tighter border controls, the number of illegal immigrants living in the United States declined to 11 million in 2008 from 12.5 million in 2007.
17
For the first time since the depths of the Great Depression in the early 1930s, more persons appear to have left the United States than moved in.

Only time will tell how many of the new expatriates fall off the radar. My expectation is that quite a few will. Probably, only a small percentage left with the intention of actually renouncing U.S. citizenship. I suspect that most would prefer to simply disappear. The Obama administration seems to think so, too. That is why they are increasing financial repression, using heavy-handed tactics to make it difficult for Americans to open bank accounts outside the United States, even if they live abroad.

An element of this new repression is a requirement that all Americans file Form 8938 if they have more than $50,000 in foreign financial assets. Note that “financial assets” are defined to include “all rental property.” According to the Federal Register, “The IRS will use the information to determine whether to audit this taxpayer or transaction, including whether to impose penalties.”
18
For those who are not multimillionaires, and therefore unlikely to be pursued by the IRS, the drastic step of renouncing citizenship might seem unwarranted.

Unlike the situation a century ago as British hegemony waned, there is much more visibility about what lies ahead. Today, it is not only young, low-skilled and semiskilled workers who have an incentive to get out while they still can (or not to come in the first place, as even illegal immigration has slowed as economic opportunity in the United States recedes). There is also ample reason for the older, wealthier person to emigrate.

Here the British experience is instructive. Falling relative income is associated with large out-migration. Since 1901, more people have emigrated from the UK than immigrated. By 1997, a net exodus from the UK of 15,600,000 had occurred.
19
A similar exodus is destined to occur in the United States. Indeed, it may already have begun.

One of the more important investment decisions you will face in the coming years is whether you should begin to pack your bags. In my view, the U.S. economy is destined to grow slowly, or not at all, as leverage is subtracted from the system and taxes are increased to draconian levels.

You may not think of yourself this way, but if you are a U.S. citizen you are one of the “assets” of the fisc. You are not yet a complete slave as the Roman urban middle class became, but you face ruin nonetheless, as the dollar collapses and the inevitable bankruptcy of the United States looms.

The dollar will be a much smaller fraction of an ounce of gold. Look out below.

Next up, we discuss Brazil's appeal in a post-dollar world.

1
Quoted by Harold James,
The Roman Predicament: How The Rules of International Order Create the Politics of Empire
(Princeton: Princeton University Press, 2006), 28–29.

2
William R. Easterly, “Growth Implosions and Debt Explosions: Do Growth Slowdowns Cause Public Debt Crises?”
Contributions to Macroeconomics
1, no. 1 (2001): 1.

3
Edward L. Glaeser, “Human Capital Follows the Thermometer
,” New York Times
, April 19, 2011.

4
Mike Shedlock, “Here's Why the ‘Recovery' Feels so Much Like a Depression,” Business Insider, September 29, 2010,
www.businessinsider.com/heres-why-the-recovery-feels-so-much-like-a-depression-2010-9
.

5
Ibid.

6
Gregory Clark, “Markets and Economic Growth: The Grain Market of Medieval England,”
www.econ.ucdavis.edu/faculty/gclark/210a/readings/market99.pdf
.