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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 May 2005 Newsletter:
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New Taxation Initiatives for Europeans - Panama Social Security Crisis - Plus as always, our popular Readers Write In section featuring questions and answers.
John Schroder - Author of The Ascot Advisory News Letter Bulletin and Numerous Expatriate  Articles

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TAX ISSUES IN THE NEWS: (Europeans Should Read This)
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The tax authorities of the EU member states are to begin exchanging information with other countries in Europe in order to prevent harmful tax competition and non-payment of tax. The Committee on Taxation approved the Governments proposal on Thursday for new taxation rules, which are to take effect from 1 July 2005.  The automatic exchange of information between national tax authorities will apply to interest payments and will ensure that taxes are paid in the country in which the payee is a tax subject. The EU member states will exchange information with Switzerland, Liechtenstein, Andorra and San Marino and the territories of Anguilla, Aruba, the Cayman Islands, Guernsey, the Isle of Man, Jersey, the Virgin Islands, Montserrat, the Netherlands Antilles and the Turks and Caicos Islands.
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EDITORS NOTE:  It is interesting to note that this applies to European account holders that are still tax resident in a EU country.  Many of our European clients have of course sought out a legal residency (and citizenship is some cases) outside of the EU so they can declare themselves legally non-resident in a EU country for tax purposes.  In other words, where as US citizens are taxed on all passive worldwide income regardless, Europeans in the least have the ability to legally opt out of their local tax system IF they can prove they are resident elsewhere (preferably outside of the EU).  So, depending upon what kinds of ID and status documents you can provide a bank or financial institution - it may mean the difference of being taxed on your bank account interest (or not as the case may be). 
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PANAMA IN THE NEWS:
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STUDENTS FIGHT POLICE IN PANAMA PENSION PROTESTS - Reuters News Wire Service, May 23, 2005
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PANAMA CITY - Hundreds of students fought with police and hurled rocks at Panama's National Assembly Monday as protests against sweeping social security reform plans stepped up a gear.  The National Assembly is debating a proposed rescue package for Panama's ailing pension and health care system.  Torrijos' government last week proposed changes that include gradually raising the retirement age to 62 from 57 for women, and to 65 from 62 for men.  Workers will have to pay social security contributions for 25 years to qualify for the state pension, up from 15 years currently. Monthly contributions will also increase.  Further protests have been called for Wednesday but the reforms are likely to pass into law speedily as the ruling Democratic Revolutionary Party holds 46 of the 78 seats in the National Assembly.  Analysts say the social security system could go bankrupt within a few years if no action is taken, as its coffers have been drained by greater longevity, a decrease in the number of contributors and an increase in beneficiaries.  The system is running a $100 million annual deficit and the $1.68 billion reserve fund earmarked for retirees must cover pension commitments of $6 billion in the future.
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http://english.epochtimes.com/news/5-5-23/28979.html
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EDITORS NOTE:  You may think that I have included this news item to point out civil disobedience in Panama, but this is far from the goal or point.  Panamanians are generally very friendly, peaceful and law abiding.  What is very telling and interesting though about Latin Americans is that they are not afraid to complain.  Stated another way, in many such places the government is often afraid of the people instead of the other way around.  In addition, copying US style social welfare programs may not be the golden goose after all.  Interestingly enough, a brand new social security system was put into place by the previous Dominican Republic government in 2003.  Guess what?  A whole lot of people did not sign up for it.  In addition, the Dominican Republic will not have these kind of problems in the short-term (next 20 years or so) as the population is in balance to fund it (many more people under the age of 35 in relation to people over the age of 55 in the country). 
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Not too long ago in Guatemala, a group of citizens burned down the local Mayors house is protest over the higher sales taxes demanded by the IMF under their so-called helpful economic restructuring plans.  Ironically enough word got around and in the next town, the mayor ran out to crowd shouting - Hey, I am with you guys - let us march together on the capital and get those damn politicians.  Am I advocating civil disobedience and destructive behavior?  NO, but it is a testament to the psychology of the populace or let us say, their attitudes towards unpopular initiatives.  Is it the right thing to do (destructive public protests)? Of course not, but look past the act itself and examine the reasons for it.  Should Americans do the same thing when the US politicians starting proposing the same?  No, and many people are of the opinion that getting on a plane is much easier and much less stressful.
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What is the ultimate bottom line?  The Social Security Welfare System is broke, everywhere (especially the US version, which exists in Panama by the way).  I will reprint it again for those who need eyeglasses - SOCIAL SECURITY IS BROKE, BANCKRUPT, KAPUT.  Is this something new?  Did some unforeseen unfortunate event happen last year to make it insolvent this year?  No, not at all, and in fact is has been on its way towards insolvency for many years.  The revered Alan Greenspan even testified to the US Congress over 30 years ago (you read it correct, 30 years ago) that the US Social Security system would start to have problems in the coming years unless something was done.  What did the politicians do? Nothing.  What do they want to do now? Extend the retirement eligibility age, reduce benefits, raise your taxes and increase your social security contributions. Have a nice day.
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READERS WRITE IN:
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I read on the new us citizen web site - Voluntarily Losing Your US Citizenship (Renunciation):
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After becoming a naturalized US citizen, you always have the option of renouncing your US citizenship.   Beware though, if you renounce US citizenship, you will most likely be barred from living in the United States and can never become a US citizen again.  Is the exercise of this option subject to the same penalties as for US born citizen qualified as tax dodgers if they leave with their assets worth more than USD 500 000, and taxed 10 years long on their income and estate?
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EDITORS REPLY:  If you have acquired citizenship by birth or by naturalization, either way you have the option and right to live somewhere else, and possibly renounce previous citizenship if it comes down to it.  You are not the enslaved property of any government, although many would like for it to be so.  Interestingly enough, US citizens will find it very frustrating to renounce citizenship at many consulates abroad, as the process and reception one gets would make it seem they are quite reluctant to let you go (despite all the threats of excommunication and other rhetoric).
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It is very interesting that the US tax authorities can lay claim to your personal earnings, wealth or income AFTER you have legally renounced citizenship, after you have earned such income, and AFTER you have already been taxed on all prior income while you were a citizen before - simply because you have decided to live and become a citizen somewhere else at the present time.  Think about this concept for a moment.  It is like the Mafia - they will never let you go (or we will never let your money go).  It is outrageous.  Imagine if you will, your great grandfather who maybe immigrated to the US from Europe at the turn of the century from Ireland or Italy or Germany or France - and these governments in turn asking the US government to turn over his assets today or a percentage of his current income (after living in the new country) because they claim the right to continue taxing him after he has left.  This is akin to viewing the citizen not as a human being, but rather as a cash cow annuity - to be milked forever.  Is that what we are?  Is this what it means to be an American?  Other governments and other countries do not hold this view.  The buzz term for various tax payments in the past has been - pay as you go.  Where is this new idea of pay after you already went come into play?
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The bottom line is, If you are that concerned that you will be barred from visiting or returning to the previous country you held citizenship from before SIMPLY because you decided to live somewhere else (and become a citizen of your new country while possibly renouncing citizenship in the latter), then I guess the answer for you is - stay put and forget about the idea of expatriating or seeking citizenship elsewhere.  Personally such an attitude or treatment by the previous or existing government would motivate me even more, but I do realize that everyone is different.  
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Much of this however is part and parcel to the psychology at work, or maybe even better stated - a form of brain washing.  Meaning, the FEAR instilled in you that you would be banished or excommunicated - never to return to the Garden of Eden.  Did your great grandfather that may have emigrated to America 100 years ago, ever go back to his native land to visit?  Did he care?  Maybe he missed his native land but did it profoundly affect his new life or cause him not to be successful?  Why is it that the fear of so-called banishment is such a profound concern for some people?  
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In this regard, it is very interesting to note this idea of nationalism or patriotism has been a very useful psychological control tool for many governments.  Prior to the American and French revolutions, people would move about at will - without passports or checks on movement.  In other words, even though someone was born and raised in France, or Italy or where ever - such persons of course identified themselves as coming from a particular place, but they did not have any mental hang-ups about moving and living somewhere else.  And in part, prior to democratic republicanism, rulers were often foreign and changed so much, that people thought of themselves are being part of a more open and fluid polyglot society than they do today.  One major change brought about by democratic republicanism has been nationalistic rhetoric and the idea that you are a member (and confined to the borders) of a particular nation.  With that we now have strict border controls, travel documents and checks on movement of the citizenry in and out.  What is the point of bringing this idea up and what does it have to do with expatriation?
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Well, today we live in a world where the local national flag is used as more than just a symbol to identify a particular country or territory.  In is used as a psychological tool designed to enforce and cement the idea of separation - us versus them.  It also is used as a tool designed to convince citizens that they are part of a greater good that they are responsible to somehow (in terms of the nation state they live in).  Stated another way, an emotional argument is created in that we are all a group of worker bees existing only to toil and benefit the so-called greater society (and government that administrates it).  But are we really?  If you were born in a particular country and the rulers of that country corrupt or abusive in any way, does this mean you are bound to stay there and take it?  The laws of nature and the very ideals of democracy and freedom would tell us that no, we are not.  Yet at the same time, ironically it would seem that the idea applies to everyone and everywhere else, at least in the minds of the leaders of countries that expose such thinking.  Meaning, using the US as an example, it is thought to be natural and logical that citizens of another country would want to immigrate to the United States - but unthinkable that anyone in the United States would want to leave.  How can this be?  Such a person must be anti-social, anti-democratic and just plain insane.  If not this, then they must be radical lunatics that wish to shirk the so-called social responsibility (read this to mean financial welfare payments) that they supposedly have for eternity (till death do us part, and even then there are estate plus inheritance taxes).
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In addition, in the case of Americans especially (who certainly do not travel internationally as much as their European counterparts) - they are taught and lead to believe that the rest of the world is corrupt, evil, impoverished, and without basic services considered standard or expected in a civilized nation.  This of course is not true and could not be farther from the truth, yet many Americans still believe it - because they are taught to believe it.  Think about the kinds of news stories and information you are fed.  Mostly, when it comes to other countries and international topics, in the US particularly, you are lead to believe the rest of the world is suffering economically, socially or otherwise - or that is usually the slant.  The spin machine or propaganda machine is on full blast- and you probably do not even know it.  Maybe you do, and you do not care or maybe you feel helpless to bother with a counter argument.  Regardless, learning as much as you can and especially traveling extensively to other countries may enlighten you in this regard.
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Another Reader Writes:
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John - As always, I enjoy your comments and look forward to the types of questions that come up.  The recent question regarding extradition from the DR got my attention.  I have gone through a few years of trouble with the IRS and along with the monstrous legal bills I have incurred to defend myself from their less than righteous tactics, I have also considered leaving the country as a means of avoiding the legal ramifications.  What I have learned at a very expensive cost is that the time to have left the USA is before IRS special CID agents show up at the door.  I have also learned that if the IRS is investigating one of its citizens, and you are just an average soul without a celebrity status, if you have already removed your assets from the USA, they do a quick assessment of your touchable assets to verify if it's in their best interest to go after you.  Not very righteous stuff if you ask me.  Good, expensive attorneys go a long way toward resolving the issues, but I must say it has left me feeling victimized.  Knowing that I will spend several years in the future getting special scrutiny, I have decided that the best revenge is to, once the legal smoke has cleared, to remove all my assets from the USA.  Therefore, once I have passed on, my estate will go to who I want it to and not the greedy, uncaring government. Another thing that I have learned is that whether there is an extradition treaty in place or not, or whether the authorities in the USA try to get their hands on you for taxes does not stop them.  If the particular country in question does not consider a tax crime reason for extradition, they will call it tax fraud or some sort of fraud, which is a lot more likely to let the local country you have gone to feel as though you are not worth keeping.
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I must however, disagree with your assessment that anyone who is worried about extradition is probably a crook.  I find that there is a thin line between what is righteous and what is legal/illegal and whether big brother will come after you.  The deck is so stacked against us private citizens that leaving the country is getting to be the only way we can have nearly a level playing field.  What do you think of that perspective?  In any case, I appreciate your newsletter and hope you continue the fight.
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EDITORS REPLY:  On the previous newsletter reply about extradition, let me clarify my comments by saying that in general, I do not disagree with many of your statements.  However, I do not think that anyone that starts off with questions about extradition instead of cost of living, housing costs, climate, local taxation costs, etc., etc. when seeking out a new jurisdiction to call home  - is automatically leading others to think the worse.  In other words, I would not walk into a foreign consulate (to investigate the country) and start off a conversation about extradition.  The first thing that comes to mind is that there must be some kind of serious problem as far as the person on the other end is concerned.  The person asking may be a lawful citizen asking what they think is an innocent question, but it raises eyebrows as to why such a question.  Generally speaking, if you are a law-abiding person, and have no outstanding issues or problems, I think you have nothing to worry about, or in the least should not be overly concerned with this theme (at least in another country where common sense, and another healthier agenda prevails).  In other words, generally speaking, I think it safe to say that most governments would think it preposterous that a previous nation of citizenship wishes to demand future tax payments from a citizen that has obeyed the law the entire time they were a citizen of the previous country and paid all taxes due at that time as well - but is now living and earning an income in another sovereign jurisdiction (in which case the person may possibly be subject to whatever taxes are due in the new country, but that owing future tax payments to the previous country of citizenship - is completely ludicrous).
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I do agree that will live in very interesting times at the moment.  Socialist dictatorships (Russia, China, Vietnam) have failed miserably, and have either gone away altogether (Russia) or have moved so much towards capitalism (China, Vietnam) that the founding revolutionaries would not recognize the place today.  Socialism as a concept or experiment has failed in my opinion, so this is not the question.  The question is how will it fail in the other countries or what will be the repercussions going forward for the so-called democratic, socialistic democracies.  In other words, a blend of capitalism and democratic styled socialism has proven to perhaps have more staying power economically than the dictatorial kind, but there are many cracks appearing there also.  You cannot continue to take away from the productive and give to the unproductive without some sort of negative backlash.  You cannot continue to spend money you do not have.  You cannot continue to borrow money and indebt the future generations without some sort of negative result.  You cannot continue to bleed the population, and then claim you want more because the original amount of blood you took was not enough.  In addition, there are many other social and psychological ramifications to socialism, which is quite clear in the former communist states trying to embrace capitalism at the moment.  Meaning, socialism leads to infantilism and paralysis on the part of the general population.  It leads people to forget that they can think for themselves, can be responsible for themselves and that they have the capacity to function and survive without some functionary or politician telling them what to think or how to live.  If you think about it, this is what has happened to a large extent in much of the so-called democratic free world over time, but the worst case of it probably is the US.  Americans have slowly but surely lost their sense of personal responsibility and self-reliance.  Responsibility then has been socialized as well, or turned over to government.  So much so that even family matters are no longer sacred and private (children in the US can lodge legal complaints against parents for spanking and disciplining them - go figure).  So, all of this then is not just about taxes or economics.  A very interesting read on this topic would be the book - Democracy: The God That Failed by Hans-Hermann Hoppe (2001, Transaction Publishers).  In any event, I have digressed.
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In regards to the solution, I think anarchy or social disobedience is not part of it.  So then I do not think that any sort of direct conflict will have any positive effect either.  Which is to say, I do not encourage anyone to break the law where they are currently living, or where they will be living in the future either.  Even public protest is futile, in my opinion.  In fact, I would say that I would not even waste money on a cheap ballpoint pen to write a letter to any politician.  What for?  I do think the answer is to slowly and legally extricate oneself from such an environment, quietly and without fanfare.  There are two possibilities that result from this, over time and if a large enough segment of the population does this.  One is that someone will wake up and ask - why are we loosing all these productive citizens?  Why are they leaving?  What can we do better to motivate them to stay?  However, I doubt this will be the response.  The more likely reply, which is what you are seeing to some extent today, is ways of stopping these citizens from leaving (and leaving with their money, which is really what is of concern).  Which is to say, government is nothing more than a service provider and its citizens, customers in effect.  Rather than trying to solve the service problems or lower costs of service, the answer has been to hold onto customers by force.  However, as history has proven, this never has been a valid long-term solution albeit one that is often chosen by governments in crisis.  Think about it.  When is force or forced coercion necessary?  Usually when the one party knows they are immoral or unjust, and cannot get cooperation in any other way.  Also, force is usually a tactic of last resort, done out of desperation.
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Another Reader Writes:
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Good Morning:  I have read your newsletter for some time and have enjoyed the information immensely. Thank you.  I trade online for a living. As such, a solid high-speed broadband connection is a must.  Where would you suggest beginning for a search for a low tax, low crime alternative to Canada?
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EDITORS REPLY:  This is a very open ended question simply because the options are endless.  As I have stated before, many people in North America are lead to believe that civilization, as we know it ends at the Mexican Border.  Not true - high speed DSL access, cable modems, and slew of both products and services are available in many, many parts of the world.  Granted, such things are often more available in urban rather than non urban areas, but that aside, there are many modern cities outside of North America as well.  In regards to a low tax, low crime jurisdiction - again, the options are open ended.  Where do you want to live?  Panama, Ecuador, Dominican Republic, Brazil, Thailand, Hungary, etc., etc.?  I realize that this is not the answer you are looking for, but the truth of the matter is, the list is almost endless.
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Another Reader Writes:
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I have just moved to Panama as an expatriate, and I reside in Panama full time.  I am an American citizen.  Does Medicare part B cover me in Panama? What forms do I need when visiting a doctor?  If part B does not cover me here in Panama, please stop charging me for a service that I can't use.
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EDITORS REPLY:  Well, I do not claim to be a Medicare expert and for that reason would refer you to the government agency that administers Medicare.  However, I would wager to guess that they would not cover medical expenses or treatment outside of the US, but again, this is just my own speculation.  If you do find that this is so, my advice would be to look at the many private medical insurance programs that exist in Panama.  They are relatively inexpensive and the private medical care is excellent in Panama.  On the issue of what the government is forcing you to pay for, and what you are receiving in return as a benefit, this is part and parcel of the picture at large in general.  Why indeed are you paying for something that offers little, if any, benefit to you? 
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Another Reader Writes:
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Dear, John - I don't think that Puerto Rico should become state I don't think that it is ready to become one and I wouldn't like it that way anyway and I am half Puerto Rican and if I thought that the time was right I would right yes I do think that Puerto Rico should be a state.   So you should write back and tell me what you think?  Do you know that 6% think that Puerto Rico should become an independent state and 46% think that it should become a state also 48% think that it should stay the same and stay Commonwealth of the U.S.A.  I love Puerto Rico, it is a wonderful island, and I think that it should stay the same a Commonwealth of the U.S.A!
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EDITORS REPLY: Well, there are two sides or point of view.  If you happen to be a taxpayer living in one of the 50 US states, then in such a case you would be quite perturbed and maybe even angry to learn that Puerto Ricans living and working in Puerto Rico pay NO US Federal Government income tax.  In addition, Puerto Rico does receive an enormous amount US Federal Government subsidies, funded by the US tax payers on the mainland.  In addition, the complaint from residents of cities such as New York, Boston, and other large cities has been that many Puerto Ricans have simply relocated to these places because the welfare subsidies are much higher there, then what they are in Puerto Rico (which they can easily do as US citizens).  Granted, there are many hard working and honest Puerto Ricans that are not interested in this and we cannot paint everyone with the same brush.  But, I think if there ever was any sort of shall we say, animosity, it has been because of this issue.  So, again, if you happen to be one of these taxpayers, your answer would probably be that Puerto Rico should become a state or even independent, so at least Puerto Ricans can pay in, instead of taking out on a net aggregate. 
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In you happen to be a Puerto Rican, living and working in Puerto Rico, in such a case then chances are you want to keep commonwealth status permanently.  Who would not?  You pay no US Federal income tax, your jurisdiction gets all sorts of Federal Government funding and subsidies, plus you get the benefit of having a US Passport thrown in for good measure.  So, the answer to this question all depends upon what side of the fence you are standing on.  In the end, it certainly is up to the citizens of Puerto Rico to decide their status going forward, but the benefit for them is certainly to remain as a commonwealth.
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