The Weight of Europe’s Sovereign Debt Crises forces Rich People to flee with their Wealth to Escape ever Higher Taxes

Posted by PITHOCRATES - April 21st, 2012

Week in Review

The problem with the European sovereign debt crisis is the population growth rate.  These nanny states set up their social democracies when people were having babies.  And based their calculations on a continuing rising birthrate.  Which would have paid for their social democracies until the cows came home.  But then something happened.  They stopped having babies.  And now have a declining birthrate.  Which means they have an aging population.  There are more people becoming seniors than there are being born.  There are more people leaving the workforce than there are entering the workforce.  And worse of all is that they have better health care.  And are living longer.  Put it all together and you have a real big problem (see Europe’s old wealth seeks new home in Asia by John O’Callaghan and Charmian Kok posted 4/17/2012 on Reuters).

Wealthy people from Europe and the Americas have long looked to the East for ways to build and preserve their fortunes. But only recently have they started opening family offices – private companies that manage the trusts and investments of rich households – in the region in earnest…

Campden Wealth, which provides research and data on family offices, says up to 10 European family offices have moved to Singapore since the financial crisis in 2008, bringing $5-$10 billion worth of assets with them.

Singapore, a global banking and investment centre in the heart of Southeast Asia, is an attractive base for its efficient registration process, relatively benign regulations, smooth movement of money, financial infrastructure and low tax rates…

Asia’s prospects are alluring as economies in Europe and the United States look weak. After the crisis, regulatory pressures in the West and a crackdown on offshore centers have hastened the pace of family offices moving to Singapore and Hong Kong…

The Spinolas are clubbing together with two other family offices to cut costs and leverage on efficiencies. Parly officials declined to identify the partners, other than to say they are “household names” in Europe – one is an English entrepreneur who has donated much of his money to charity and the other is a Swiss-based family…

Concerns about the health of big banks and dismay at their hard-sell tactics that pushed products of dubious merit onto high net worth clients – such as mortgage-backed securities that turned toxic – are other factors.

The tax-consumers are growing at a greater rate than the taxpayers.  Which means you have to raise tax rates on taxpayers.  Find other things to tax.  Or cut back on pensions and health care for retirees.  Not a difficult decision for the politicians to make.  They’re going to raise tax rates.  And find other things to tax.  Precisely because the population is aging.  For they’re just not going to cut any benefits from the largest voting block out there.

And, of course, the fallout is that rich people will finally say enough is enough.  They’ll take their wealth and leave.  Because they’re tired of being screwed.  Whether it was the American government passing off toxic subprime mortgage backed securities as safe investments through their GSEs Fannie Mae and Freddie Mac.  Or government taking an ever larger piece of their wealth through ever higher taxes and costly regulations.  They’ve had enough.  So they’re taking their wealth (i.e., much coveted investment capital businesses so desperately need) to greener pastures.  Investing in economies in other nations.  And donating large sums of their wealth to charities in other nations.  Which, of course, will cause ever greater budget hardships.  Because contrary to popular belief rich people pay the lion’s share of a nation’s income tax.  So when a big chunk of their wealth leaves the country it will explode budget deficits.

The sad truth is this.  There isn’t enough wealth to confiscate to pay for rising pensions and health care benefits with a declining birthrate.  There just aren’t enough rich people.  No matter how you crunch the numbers.  You just can’t have a declining number of taxpayers pay for a growing number of tax consumers.  It will only lead to deficits.  And sovereign debt crises.  Kind of like what they’re having in Europe right now.  Because of their unsustainable social democracies.  And unless they start having babies like they once did there is no way to sustain the unsustainable.

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