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WHERE CAN YOU AFFORD TO RETIRE TAX FREE?           WHY ARE SO MANY OF THE MIDDLE CLASS LEAVING THE US & EUROPE?

Our April 2003 Newsletter:
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In the News: Panama, Switzerland and other nations coming under OECD pressure.  Money Magazine - Most Dangerous US Cities.
John Schroder - Author of The Ascot Advisory News Letter Bulletin and Numerous Expatriate  Articles
IN THE NEWS:
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US FEELS TUG OF WAR EFFECT – National Post, April 1, 2003 By Peter Morton
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WASHINGTON - There is little doubt the U.S. economy is in tough shape.  Yet what is troubling economists, the most is trying to judge to what extent the world's largest economy is struggling and how much is being caused by the so-called war effect.  The Federal Reserve admits it is in a bit of a loss to explain how the economy is behaving.
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http://www.nationalpost.com/financialpost/story.html?id=
{9F52047B-7CE6-4393-A0B3-5F793869CE27}
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On the subject of US Taxes, The Following Sent in By a Reader:  
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http://www.financialsense.com/fsu/editorials/2003/0317.htm
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INDIA: THE NEW ECONOMIC POWERHOUSE?
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Technology, competition, and an increasingly rational tariff regime have dealt Indian consumers a winning hand over the past few years.  Sample this: the price of color televisions has gone down 40 per cent; air-conditioners, 38 per cent; and PCs, a whopping 60 per cent. Last month, Prithipal Singh, the Chairman and Managing Director of Bharat Sanchar Nigam Limited (bsnl) announced the mother of all price-cuts when he slashed long distance telephone call rates for the second time in three years. Today, a Delhi-Mumbai call costs a mere Rs 4.80 a minute, down almost 85 per cent from the peak-rate of Rs 30 a minute prevalent till 1999.
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http://huknews.hoovers.com/fp.asp?layout=displaynews&doc
_id=NR20030401670.2_a4b804076b1624c1
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THE VIEW FROM SOUTH AFRICA: If Bush intends to be headman of global village, villagers need a say – Business Day, March 26, 2003
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The US, under Bush, has become a law unto itself. Bush has declared himself the global village headman, with his fellow British descendents, Tony Blair and John Howard of Britain and Australia, his sub-headmen. Having illegally usurped the power of the United Nations (UN), the three men believe they bear the responsibility to relieve Iraqis of their president by invading their land, destroying property, driving them from their homes and killing a number of them.  Blair and Howard were elected to rule the people of Britain and Australia. When the US voters could not decide between Al Gore and George Bush the judges of the State of Florida appointed Bush. None of them was elected to rule Iraq or other states.
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http://www.bday.co.za/bday/content/direct/1,3523,1312888-6096-0,00.html
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In a follow up to our reporting some time ago about US soldiers selling blood (literally) to make ends meet financially, the following highlights what US military personal earn on a monthly basis.  In other words, you may think you are underpaid, but US enlisted men have it worse (and that is not even counting what is left after taxes) - How about getting shot at and gassed for US$1,200 per month?  
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http://channels.netscape.com/ns/careers/package.jsp?name=careers/pm/officer_comp
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The Mission: Waging War and Keeping Peace with America's Military
By Dana Priest.   FROM the ECONOMIST Business Magazine Book Review – March 20, 2003 - America’s military forces around the world are run by five men. A new book looks at their power and influence—and claims it is excessive.  From the on-line book review:  
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Ms Priest worries about the long-term effects of allowing foreign policy to be so dominated by military interests. “At a minimum, Americans should understand the consequences of substituting generals and Green Berets for diplomats, and 19-year-old paratroopers for police and aid workers on nation-building missions,” she says.  Something to think about later
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http://www.economist.com/books/displayStory.cfm?story_id=1648476
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IS YOUR CITY ON THE LIST OF THE MOST DANGEROUS, CRIME RIDDEN CITIES IN AMERICA?  Money Magazine – CNN, 2003
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The worst according to the list is St. Louis, Missouri followed closely behind by Atlanta, Georgia.  Both Texas and Florida win honorable mention as having more than just one city in those states on the high crime list:  In Texas tourists would be advised to stay out of Dallas, San Antonio and Fort Worth.  In the land of Mickey Mouse, stay clear of Tampa and Miami, so says Money Magazine with its findings.
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http://money.cnn.com/pf/features/lists/unsafest_cities/
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READERS WRITE IN:
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Hi John, looking forward to your next weekly update.  Can I assume the below info is a bunch of bull, or are there other safe high interest banks, countries.
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The following sent in by the above reader which seems to be a Re-Print from a Bulletin Board Posting or Newsletter, (as reference to his questions):
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WHERE "off shore"?  All the off shore banks are complying with the IRS.  Panama is trying to hold out.  Bermuda is, too.  Bahamas are gone as a "safe haven".  Switzerland is safe if you can pay big dollars and prove you have obtained the money legitimately; if not, Switzerland informs "suspicious" money from the USA to the IRS to investigate.  Too, there is no FDIC on foreign-banked money.  In searching, I have not found a place where you would not have your money stolen or reported.  But I would like to learn.  Usually, all those selling "safe", want a fee, few thousand, to set up a trust or a private Corp, then they have control with you as they are the "go-between"; they can either steal your funds or charge you each year to "administer".  It is NOT safe.
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Tally Eddings must not have a computer to search for a bank off shore that has been in business for years, is an old trusted bank. No one needs to go through anyone else.  You need a Big Bank (not a recent one) that has been in business longer than the United States has been around.  Do you really think such a bank will cheat you?  Some people are too lazy to search this out.  Find one paying 18 to 28 percent interest and be sure they use the US Dollar since Pesos, Marks, Franks, etc. devalue very badly.  Nuff Said.  Do Not listen to the "Doom Sayers" Everything that comes out of their mouths is negative.  Where do you think the Big Rich Corporations put their money?  Do you think they go through some shyster?  Get Real.  Think, Search, and Learn
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This type of thinking is why the mafia is so entrenched. The federal government is in the PROJECTION racket. You want safety? Use their banks, currency, etc. Oh and do what you are told and shut up. On the other hand, if you want freedom - it comes with risks.
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EDITORS REPLY:  Thank you for sending this in.  There are some interesting comments or points of view to be sure, and I will attempt to pass comment or address them as best I can.
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In terms of looking for a bank that has been in business longer than the United States, I would say that doing so, would leave you with a very short list (if there in fact are any such financial institutions to even place on the list).  There are of course some very well run banking and other financial institutions in the world today, and of course there are some to perhaps think twice about.  This idea of longevity as being a guarantee your funds will not be mismanaged or lost, or that the bank will not go bankrupt is a bit naïve.  In regards to this, I offer you Bankers Trust (huge derivative trading losses), J P Morgan (same thing, and also interesting to note that this used to be basically the bank of the US Government prior to the idea of a Federal Reserve Bank), Chase Manhattan (the name lives, but the old management does not due to recent mergers), CitiBank (basically taken over by a company previously known as American Can), and the list goes on.  In short, many a company older than the hills has gone to the wayside due to poor management, providing proof that being old does not mean there is sensible management at the helm today.
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Most of the problems in regards to offshore banking have come from English speaking jurisdictions, most notably smaller countries in the Caribbean that have very lax government oversight (and that have given out banking licenses in the past as if they were candy).  However, one cannot paint the entire world with the same broad brush and there are exceptions to the above comment as well.
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In regards to the FDIC bank insurance program in the US, you need look no further than the public information FDIC has posted on-line and in hard copy information as well.  All of course very blatantly letting you know they were very recently broke, and while not so much so today, still can only cover a very small percentage of the entire US banking deposits.  If not for the US Treasury borrowing money from the taxpayers to bail the whole system out, again, to be sure as a so-called self-sufficient solvent insurance company, FDIC is most certainly not.  With respect to the US Treasury selling zero coupon bonds to prop up the whole thing, well – it is the case of taxpayers getting their current bank deposit money back by in reality paying taxes in the future.  In simpler terms, this is known as a Ponzi scheme.  The final point is, FDIC is a good idea, not a bad one, but it certainly should NOT be the standard for which all other programs or other banking systems should be judged or compared.  For example, many other countries do have a Central Bank and a government banking deposit insurance fund system in place.  It is not called FDIC and it may be a little differently administered than FDIC, but it is a practical measure to guarantee the local banking system in it’s own respective country just the same.  In fact, some of the programs are MORE solvent and have higher reserves, relatively speaking, then does FDIC in terms of US banking deposits.  So, FDIC is very nice, but I would hope no other government looks to copy it, and in fact would hope they would consider something better (some in fact have).
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In terms of the comment about setting up an incorporated company, trust, foundation or whatever – I would agree that clients should be careful about the mechanics of doing so.  Having nominees control financial or banking assets is always suspect, and rife with potential for problems (see our comments about use of nominee directors in conjunction with powers of attorney, etc.).  However, part of the problem today is that most non-US banks do not want US clients, at least not directly as account owners.  What is the problem exactly?  Well, consider many well run and responsible banks in Europe or other jurisdictions that realize perhaps less than 10% of their clients could be American, yet those very same clients offer 90% of headaches and problems in terms of pressures and tactics from the US tax authorities for reporting and so on.  In this regard, some banks and financial institutions have said NO to US citizens as account owners, but this does not always mean NO in terms of a non-US incorporated company or other kind of entity.  Read between the lines.
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Getting back to banking, I have said before think of the entire world as a tax haven, and I still believe that to be true.  There are many countries with good banking regulations in place that do not tax (and therefore do not report) bank accounts.  Even more interesting, such countries are not even mentioned or thought of as tax havens.  In other words, from the standpoint of making good economic sense, if you motivate private citizens to save money in banks by not taxing them on interest, there is an economic benefit in doing so.  Japan did this right after WWII with postal savings accounts (and despite recent problems, they rebuilt their economy very quickly after the war).  Likewise, if you motivate foreigners to invest in local banks or invest otherwise inside your country by not taxing them - you have an attractive way to entice such investors as well.  This is known as common sense, good economic policy, free trade, and being competitive for investment capital all rolled into one.
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Is it worth paying for Mafia protection as the above writer makes the comparison in terms of the US Government?  I do not know – you decide.  However, the thing that strikes me about the Mafia is that they usually ask that you pay for protection FROM the very same people you make the payments to.  Interesting reference.
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Another Reader Asks:
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Dear John, I am 60 and will collect Social Security at 62 and Medicare at 65.  I have enough assets to relocate now.  The key questions are:
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How are medical services?  Compared to the USA?  Are the same medicines available?  Does Medicare from the US pay medical expenses in the DR?  What kind of internet-service is available and in which parts of the island?  I have been there before and people get around on motor scooter.  Does that still make sense?
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EDITORS REPLY:  In terms of the Dominican Republic, private medical care is quite good and quite affordable.  Public health-care, just as in the United States, spotty at best.  I could not say what Medicare would cover or would not, but I can say that private health insurance is quite affordable at about US$50 per person per month (for private clinics, private doctors and so on).  Most medicines are available and may be obtained without prescription, although keep in mind that some medicines may be known by other brand names outside of the US (most larger pharmacies have a reference directory so you can check).  Many pharmacies in the larger cities are open 24 hours.
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In terms of Internet, dial-up service is available in the entire country, although some places may only offer 28K, while others 56K.  High speed DSL lines and cable modems are available in the more populated areas, such as in the capital of Santo Domingo and in Santiago.
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On the topic of transportation, it certainly is true that many people do run around with motorcycles or motor scooters.  Then again, many people drive like maniacs as well.  My advice is to buy a reliable Honda Accord, or something along those lines.  Easy Rider was a great film, but arriving home with dust and grit on your clothes and in your hair is not my bag, but to each his own (not to mention the safety factor).
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Another Reader Writes:
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BAHAMAS Travel warning: Why did the US State Department publish a travel warning to Spring Breakers only? Theft, armed robbery, physical attacks, kidnapping, murder of foreigners and drug trafficking are high risks all the year round.
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EDITORS REPLY:  Well, I honestly have not seen this travel warning, so it is new to me.  However, if it is true, I guess the economy in the Bahamas is much worse than I thought.
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Another Reader Writes:
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Hi John - If we can for a moment, let's assume that the US dollar continues it's decline, deflation sets in, and the United States moves beyond recession into full-fledged depression within the next few years. While this would have worldwide implications, in your opinion, being that Panama uses the US dollar as its currency, what would be the economic impact on this nation? Furthermore, which country do you think would weather such a storm better, Panama or the Dominican republic and why?
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EDITORS REPLY:  Obviously every country that uses the US Dollar as its official currency, such as Panama and Ecuador, or pegs its own currency to the US Dollar some other way will be affected in terms of consumer purchasing power elsewhere.  Despite all the rhetoric, this is why in my opinion, the US Government would love to see more smaller countries tie their own currency to the Dollar if not switch over to the US Dollar all together.  Why?  Very simply it forces a tie in with regards to trade with the US.  Using your example, goods from Europe (having to pay in Euros that already have steadily gained in value against the US Dollar) would become very expensive and such countries would be obligated, economically speaking, to purchase more from the US.  Using another nations currency can be a blessing, but it can also be a trap.
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For example, there was talk on the table by the previous governmental administration in the DR to peg the Dominican Peso to the Euro.  They did not do it, but imagine if they did?  The value of foreign currency reserves would have increased against the US Dollar and US goods would have become cheaper for Dominican consumers.  Interestingly enough, while the US is still the largest (and closest) trading partner (Dominican bought US$4 Billion Dollars from the US last year), there is still far more European investment in the Dominican Republic.  In fact, while US companies are slashing employees and investment, European companies such as France Telecom (Orange) recently announced new investment initiatives in the Dominican Republic.    
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Getting back to your question about surviving an economic storm, it can be difficult to say because currency values alone do not tell the whole story.  Strength of the local economy, foreign investment, exports, and so on all play a part.  In the Dominican Republic for example, the economy grew at about 4.3% last year and in years prior the Dominican economy was growing at about 9% annually.  The US economy supposedly grew at about 1.8% last hear, but many economists differ.  As they say, if you are the guy that still has a job, you will say the economy is doing fine.  If you happen to be the unlucky United Airlines pilot, aged 55, who had all of his retirement savings in United Airlines stock via his 401K-retirement plan, then you will say differently.  
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In any event, the key point is, one might say how is it possible that one of the largest and best financed economies of the world (United States) is having severe problems, and a small emerging market nation not, or not so much so?  Here in lies the answer to your question really.  The biggest problems with the US economy are: A. It is not growing (after you adjust for inflation and other things), B. Almost all the jobs have gone overseas, C. There is too much debt (both for consumers and for the US government, which is quite literally broke) and D. There is too much continued spending on a social welfare state than cannot support itself.  So, apart from currency valuations, which are really a short-term issue, look at the long-term problems (or at those countries which do not have such problems).
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In terms of Panama, the economy is very much so tied into banking, ship transport, and related services.  The Panamanian Government would like to see a growing tourism industry, but I think it a tough move, although quite a bit of Asian investment has poured into tourist related enterprises recently.  However, a very recent news story here in the Dominican Republic highlighted all the money that the Panama Canal earns and why the Panamanian Government is now looking at that to offset other lost revenues.  I would say though that Panama has a very vested interest still in its banking industry and needs to look at what happened to the Bahamas, as a role model of what not to do.
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If you are not familiar with the Bahamas, here it is in a nutshell:
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White man come with peace pipe.  He say give up tax-free anonymous banking and we be big friends.  White man chief say he encourage all white man people come as tourists so no loss to economy.  All white man people take out all money from banks.  Now we broke.  Now white man people broke too and no come as tourist.  Now big crime problem.  Medicine man now steal wampum from squaw in broad daylight because he no have job.  Now white man go fight with big sand Indian across great sea and forget us - Ugh.      
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Another Reader Writes:
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Howdy:  From the reading I've done, I get the idea that the DR has no real property taxes.  Is that correct?  It appears that interest on bank accounts isn't taxed; is there an income tax at all?  Also, what about corporate franchise taxes?  Any info will be appreciated.
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EDITORS REPLY:  On the first count, this is a great misconception.  Which is to say, there certainly are annual real estate taxes for commercial property, undeveloped property and on private housing valued above a certain amount (the Dominican Government had and still has a program allowing for zero annual property tax if a personal residence and if valued at a certain amount or less).  However, this myth of no property tax at all across the board perpetuates because there is no such thing as a sheriff sale here.  If you do not pay your annual property tax (should you owe any, and as stated there are circumstances when you might not) no notice will be sent, no salesman will call.  Instead, ten years later (or whenever) you attempt to sell the property, that is when the government will get you for all the back taxes plus 50% penalty, refusing to transfer title until it is paid.
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You are correct in that bank account interest is 100% locally tax-free for both residents and foreigners alike.  In addition, interest rates for US Dollar bank deposits remain attractive (about 4% for US Dollar savings accounts and up to 9% or so for larger US Dollar CDs).
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There is an income tax, both for corporations and private citizens, which is done on a graduated scale, up to about 25% at the top tax rate.  However, people that earn RD$10,000 pesos or less monthly (which is the vast majority of the population) do not pay any income tax and do not file (and may not even have a tax id number).  If you earn more than RD$10,000 monthly, then in such a case the income tax applies on a graduated scale depending how much.  However, if you have a business domiciled inside one of the free zones or classified as a free zone business, then you are exempt from income tax on profits or earnings (up to 20 years).
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Another Reader Writes:
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John, I read with much interest about tired frustrated taxpayers leaving the U. S. when they are confronted with hostile IRS CID agents.  Your statements about if you live a low profile, its unlikely that you will be harassed outside the U.S.  First, how do you come about this knowledge and how can I learn more about it, and second, just how low profile should one be?  In other words, do you think it is ok to keep in touch with family and friends while abroad?  The last thing I want to do is leave mother feeling worried about me and have IRS agents peering into her phone records or mail.  I have heard that it is the duty of the U. S. Marshalls Service to chase tax evaders overseas.  Is this true and to what degree to they do that sort of thing?  Finding such information is rather suspect to come by, afterall, its not like I could call up Washington and say, Uhhhh, I am leaving, SHOVE IT!!and expect someone to tell me what the reality of the situation is.  Can you understand my prospective?  Thanks again for your input, its insightful and very entertaining.
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EDITORS REPLY:  First and foremost please allow me to stress that I do not encourage anyone to do something illegal, or something that will get them-selves into a difficult situation.  In addition, some of the information I offer is editorial or what you might say is opinion (and I attempt to indicate as much).  Other information is experience with respect to what clients tell me about situations and experiences they have encountered. 
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To be quite plain, there is nothing I am aware of that allows you to check out of the great experiment known as socialism – at least not without some discomfort and a fight.  According to US legislation passed in recent years, if you expatriate, you are required to pay a 50% tax on all your assets to the US government (you can thank former senator Patrick Moynahan for that one).  If the IRS thinks, and I stress the word thinks, you might be expatriating for tax benefit reasons, they claim the right to tax you for up to twenty years even though you may no longer be a US citizen.  Very recently, Congressman Charles Rangel from New York expressed his dislike with the idea that middle class taxpayers should have the option of taking children out of the failing public education system, enroll them in private institutions and be able to get a reduction in tax payments specifically for public education in the process.  He posed the question on national television – What if people were permitted to back out of Social Security and other government operated social welfare insurance programs (that are currently broke or grossly mismanaged)?  Yes, why not say I?  What if government was held accountable the same way the private sector was?  What if citizens were given a choice? In other words the choice to pay into the welfare state system and be eligible to participate - or not pay without the right to claim benefits?  What is fair in your own opinion, and what is not?
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The real problem is that middle class citizens living in many developed countries with run away government spending are suffering, or at least feel that way.  Europeans, even though taxed much higher than Americans (up to 70% in many cases) at least get some benefit from the state run social welfare programs they pay for through taxes.  In Sweden, as an example, if you have a baby, the government will send you a monthly check to help out with expenses.  Granted, it is not much, but it is something and at least middle class taxpayers get some sort of attention or participation.  In the US, the issue is that if you are deemed to be a middle class person in terms of income – you get nothing.  Also, in terms of income and taxation, the tax tables are not adjusted for inflation or cost of living, so according the to IRS, if you earn US$30,000 per year, you are somewhat wealthy.  Case in point is the previous information we provided indicating that 50% of Americans will be subject to the higher AMT tax put into effect during the 1960’s to tax higher income tax-payers very soon, all because inflation and cost of living was not factored into the equation.  In 1965, a yearly income of US$30,000 was a comfortable income.  Today is it in reality a means of just getting by, if you are lucky enough to do so and if you do not live in a city such as San Francisco or New York.  In short, you pay into the tax system your entire life, and when you might need to get something back, you are told you had earned too much money before (and have a nice day).
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All of this comes down to a lifestyle and economic survival issue.  Most people would agree that taxes are necessary to support basic government functions and operations, but how much is too much?  Also, what exactly should the government do or not do?  Many people, when asked if they would like free government run health insurance (for example) say yes – sign me up, that sounds wonderful.  But they do not think about whom and how this is to be paid for.  When taxes go up the following year, then at that moment they realize who is paying for all this.
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In any event, there are other countries on this planet of ours that do not have entrenched social welfare programs.  And by the way, this is a very broad term, as it also includes things like government flood insurance for people who buy houses on the beach that cannot get flood insurance from private insurance carriers or who cannot afford the high premiums for same (so who told you to buy a house on the beach?).  This means, there are places to consider living whereby the local government is not forcing you to fork over half or more of what you earn because someone else thinks the role of government is to act as a wealth transfer system or go into the insurance business (also known as playing Robin Hood).  So, it is up to you.  Stay right where you are and pay into the system or consider doing something else.  Either way, understand very clearly that like the Mafia, they do not let you go so easy.  However, unlike the Mafia (which at least lets you go when you die), you are still obligated to maintain your membership and payments, so to speak, via estate taxes and inheritance taxes.   Will they send paratroopers after you because you decided to expatriate?  I do not know, but I have never heard of such a situation.

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This information has been compiled and presented by John Schroder of Ascot Advisory Services, for the benefit of clients and readers. Ascot Advisory Services provides assistance with such matters as offshore company formation, Panama Foundations, offshore banking, and special services in the Dominican Republic regarding residency, free zone applications, etc. For more information:  
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Telephone 809-334-5387 or 809-756-1917 
Email: info@ascotadvisory.com
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