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

Our June 30, 2005 Newsletter:
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Trouble for Americans Banking in the Bahamas??  New Tax Issues for US Permanent Residents.   Personal Data - Social Security Numbers, etc.  Exposed
John Schroder - Author of The Ascot Advisory News Letter Bulletin and Numerous Expatriate  Articles
HEARD ON THE STREET:
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A number of clients have recently reported that US citizens who had or have an account with a well-known Private Bank & Trust in the Bahamas have recently received some very nasty letters from the US Internal Revenue Service (IRS).  How did they know?  Well, these persons had accounts at the institution, and were recipients of such notices personally.  Speculation is that the bank must have either voluntarily turned over their entire client list to US authorities, or perhaps were forced to do so by the Bahamian courts.  Either way, this certainly is not a positive comment about banking confidentiality in the Bahamas with regards to US citizens doing business there.
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In the past, we had reported that former Bahamas Prime Minister Ingram was the politician that started this change in government policy by pushing through legislation effecting confidentiality of foreigners utilizing Bahamas IBC (International Business Company) structures, Trusts, and banking relationships as well.  Very shortly after this occurred, it was reported that the Bahamian Banks lost 40 percent of account deposits, and that the real estate market in the Bahamas took a tailspin.  The political party that took power after Mr. Ingrams party lost the following election did promise a reversal of these policies as a major campaign platform.  However, it would appear that this was nothing more than lip service.  The question remains:  Is this situation unique to Leadenhall or does it apply to the entire banking sector in the Bahamas?  They say it is better in the Bahamas - Perhaps not anymore.
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However, in addition to this, we have also heard similar comments from US citizens that have established bank accounts with US banks operating in countries outside of the US as well.  This issue seems to be the case involving only US banking institutions abroad (and not local banks in many cases) that are apparently now volunteering such information to US authorities even though they may not even be required to do with the local government in the country where the bank is operating (or in some cases may be prohibited from doing so by law).  See the news article below regarding US companies that are now in effect spying on their customers for the US government (apparently with the premise they are being good corporate citizens, helping the government fight the war on - fill in the blank, as it keeps changing, first drugs, now terrorism).
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What is the point?  First and foremost, we have suggested to clients that they avoid such banking institutions in the past specifically for such privacy reasons - as this would seem to be the case with US affiliated institutions mainly.  Many people may hold the opinion that banking with a foreign owned institution abroad is safer (meaning a US bank with operations in another country), but this has failed to be the case in Argentina, whereby foreign banks operating inside the country had basically violated the local banking regulations (by not keeping adequate reserves inside of Argentina as required by law) and in some cases, walking away from depositor obligations.  So, going back to Argentina as one case study to consider, the local banks stayed open and stayed the course, perhaps because they had no choice (and are still open today).  Some Foreign banks, on the other hand, walked away.  So much for the safety and ethical responsibility of large foreign banks with affiliate branches elsewhere.  However, this is not the only problem (as we alluded to above).
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IN THE NEWS:
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IN TERRORISM FIGHT, GOVERNMENT FINDS A SURPRISING ALLY - FEDEX
Thursday, May 26, 2005 - By Robert Block, The Wall Street Journal
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MEMPHIS, Tenn. -- Before Sept. 11, 2001, when federal law-enforcement officials asked FedEx Corp. for help, the company had its limits. It wouldn't provide access to its databases. It often refused to lend uniforms or delivery trucks to agents for undercover operations, citing fears of retribution against employees as well as concerns about customer privacy.  Then came the attacks on New York and Washington and pleas from the government for private-sector help in fighting terrorism. Suddenly, the king of overnight delivery became one of homeland security's best friends.
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FedEx has opened the international portion of its databases, including credit-card details, to government officials. It has created a police force recognized by the state of Tennessee that works alongside the Federal Bureau of Investigation.  Moreover, the company is encouraging its 250,000 employees to be spotters of would-be terrorists. It is setting up a system designed to send reports of suspicious activities directly to the Department of Homeland Security via a special computer link.
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After Sept. 11, the U.S. government altered the definition of a good corporate citizen to include help running down al Qaeda operatives, often asking companies to act as the eyes and ears of federal law enforcement. The Bush administration and Senate Republican leaders are currently pushing an updated version of the Patriot Act that would expand the ability of law-enforcement agencies to demand business records without a warrant. Already, some companies are voluntarily increasing their level of cooperation with the government, say law-enforcement officials.  Cooperation between businesses and federal law-enforcement agencies generally isn't advertised and customers are seldom aware of it. In some cases, people waive their right to privacy when they use a particular company's service. With FedEx, customers consent to having shipments inspected as soon as they hand over their packages and sign the shipping forms.
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Lee Strickland, a retired Central Intelligence Agency analyst and a specialist in privacy issues, says the new cooperation between business and the government takes place in a legal "gray zone" that has never been tested in court.
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http://www.post-gazette.com/pg/05146/510879.stm
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EDITORS NOTES:  Very interesting.  What we have here is a case of private companies voluntarily waiving privacy of its customers and acting as junior G-Men, without the customer even being informed. Even more intriguing, your local driver or counter clerk doubling as covert spy, reporting anything THEY think is suspicious (in effect spying on the companies own customers).  Hmmm, where have we seen this kind of thing happen before in history, or mentioned in some famous literature by George Orwell?  It was bad enough that the US Treasury Department put these similar kinds of pressures on banks in the past (first it was said to get the drug traffickers, now the terrorists - where did all the drug traffickers go by the way, we do not hear any more about them lately) but now courier services?  What is next, spies at Home Depot?  Your name on a government watch list database because you bought pipes to do some home repairs (must be another one of those radical lunatics - better report him or her to home security).
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Maybe it is just my own paranoia, but alarms go off in my head when I read or see something like this.  Citizens spying on citizens, companies spying on customers and voluntarily turning over private information - no court order, no privilege of privacy, no civil liberties.  Your name on a watch list because Fred, the counter clerk, thought you looked a bit shady?  What kind of free society is this?  Of course, all done is the name of national security or public safety - but security or safety from whom exactly?  One may hold the view, such a sentiment is nothing more than an over reaction and is in turn unwarranted.  Someone might also argue:  Why be concerned if you are not one of the bad guys?
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History has proven time and time again, complacence on the part of the general population only emboldens those that want to go even further (those that might want to take even more privacy, liberties and rights away in the name of the public good).  Security and security measures are one thing, abuse (and the potential for abuse) quite another.  If the argument is to protect domestic citizens from foreigners that might wish to do harm, then why not screen the foreign visitors better, or do something about the porous borders?  It already has been well documented that illegal aliens are now crossing the US - Mexican border at a rate of almost One Million per Year.  The country with the supposedly best-trained and most sophisticated equipment and personnel in the world cannot secure its own border?  Maybe they really do not want to.  Maybe the farming and agricultural lobbies have put such pressures on the politicians to leave well enough alone (so cheap undocumented labor for agriculture continues to flow in).
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In any event, taking away civil liberties, invading the privacy of, and placing more control (real ID act) over the domestic population is not the answer to combat a foreign threat - or is it?  Foreigners inside any country legally, as visiting tourists, should have a current and valid passport stamped by immigration - should they not?  Why accept any OTHER ID?  Why is it necessary to create a new form of ID?  Is there another agenda?  Is the terrorism threat just a smoke screen in order to SELL the loss of privacy, freedom and civil liberties as an acceptable idea to the general domestic public?  You decide - but it would seem the answer is to work on stopping the threat from getting past the border in the first place and NOT restrict liberties of citizens inside. 
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The final point of course is, if you do not care about your own liberty, personal freedom and checks on governmental abuse of authority - then be assured that no one else will either.  A man by the name of Benjamin Franklin once said the following:  Any society that would give up a little liberty to gain a little security will deserve neither and lose both.  He also said: A great empire, like a great cake, is most easily diminished at the edges.  Last but not least, Mr. Franklin also said:  All mankind is divided into three classes: those that are immovable, those that are movable, and those that move. 
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CHOICEPOINT GETS 5-YEAR IRS CONTRACT, June 27, 2005 - Business week and Associated Press
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Choice Point Inc., a provider of risk management and fraud protection information, said Monday that it received a five-year contract, valued at up to $20 million, to provide public record services for the Internal Revenue Service's batch processing projects.  Under the contract, the IRS will use Choice Point's public records data capabilities to support customized data retrieval requirements.  Batch processing involves the automated delivery and processing of data files, which reduces the amount of employee time spent and allows customers to quickly generate relevant information on large subject populations. More than 25 federal agencies use Choice Point batch services to support their daily activities.
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http://www.businessweek.com/ap/financialnews/D8B01FO80.htm
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EDITORS NOTES: So what is the big deal?  See below for some clues.
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DATABASE GIANT GIVES ACCESS TO FAKE FIRMS - Choice Point warns more than 30,000 they may be at risk.  By Bob Sullivan, Technology correspondent
MSNBC, Feb. 14, 2005
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Criminals posing as legitimate businesses have accessed critical personal data stored by Choice Point Inc., a firm that maintains databases of background information on virtually every U.S. citizen, MSNBC.com has learned.  The incident involves a wide swath of consumer data, including names, addresses, Social Security numbers, credit reports and other information. Choice Point aggregates and sells such personal information to government agencies and private companies.
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http://www.msnbc.msn.com/id/6969799/
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SCHNEIER ON SECURITY - A web-log covering security and security technology.
February 23, 2005
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The Choice Point fiasco has been news for over a week now, and there are only a few things I can add. For those who haven't been following along, Choice Point mistakenly sold personal credit reports for about 145,000 Americans to criminals.  This story would have never been made public if it were not for SB 1386, a California law requiring companies to notify California residents if any of a specific set of personal information is leaked.  Choice Point's behavior is a textbook example of how to be a bad corporate citizen. The information leakage occurred in October, and it didn't tell any victims until February. First, Choice Point notified 30,000 Californians and said that it would not notify anyone who lived outside California (since the law didn't require it). Finally, after public outcry, it announced that it would notify everyone affected.
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http://www.schneier.com/blog/archives/2005/02/choicepoint.html
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EDITORS NOTES:  Identity theft is becoming a major problem in the United States, and I suspect other industrialized countries to some extent as well (although it clearly would appear to be much more of a problem in the US).  However, aside from that, there is more and more of a push for detailed databases regarding citizens, high tech identification cards and other documents, etc.  In fact, there already are such databases, and I wonder how much information is actually out there (about you and me that we do not know about).  In addition, I wonder how much of it is both accurate and how it is being utilized.  We have all heard stories about someone that stopped getting Social Security checks, because the computer system said they were deceased.  We have also heard stories about the credit reporting bureaus that had incorrect credit details on file about someone as just another example.  How can we, as citizens, be sure the system will serve the publicized intended purpose AND safeguard our privacy plus our liberty at the same time?  How difficult will it be going forward, for some bureaucrat to wreak havoc with our lives, when one card with a computer chip is intertwined with a database linking all our financial, health and other kinds of records?  In other words, one push of a button, and you cannot access healthcare, withdraw funds from an account; get a job (because you are blacklisted), etc.  Sounds like some wild eyed futuristic fantasy - does it not?  Consider the following fairly recent case below.
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FROM BASELINE MAGAZINE:
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Steven Calderon was into his second week working as a security guard for Fry's Electronics when Anaheim, Calif., police walked in and arrested him. Fry's had requested a background check on Calderon, which was done by The Screening Network, a service of Choice Point. Calderon spent the next week in jail. No one stopped to question--or verify--whether the background check was accurate in the first place. It wasn't.   Among his alleged crimes: child molestation and rape.  Calderon tried to protest his innocence.  But no one--not Fizel, not Fry's, not the police--stopped to ask if the data Choice Point supplied was accurate. If they had, they might have found out that he was, indeed, an innocent man.
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http://www.baselinemag.com/article2/0,1397,1825287,00.asp
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EDITORS NOTES:  We are now at a point we many of us are truly disconnected from government, which is of concern in a democracy.  Meaning, we are only some computer file or some sort of identification number on a list or report.  Some people hold the view that the true agenda is to slowly but surely move the population to a point where total control is in place and dissent not possible.  For example, how difficult will it be in the future to confiscate all private retirement accounts (as an example only) in order to fund public welfare deficits when everything is integrated into one database and each citizen has one plastic card that controls everything you do?  You dissent, and they push a button and take it anyway.  Is this a wild-eyed conspiracy theory?  Perhaps it is, BUT is it or will it be possible?  This is the question.  Along these lines, you need to ask yourself - What are the current problems or issues facing the country today (economically, politically, etc.)?  If it were up to you, what would you do in order to solve them or implement to attempt to solve them?  Now think about what is in fact being done (or not done as the case may be).  Then ask yourself why or why not?  Like religion, many will say - you are either with us or against us.  You either have full and complete faith - or you do not.  Do you?  Do you have faith that the politicians are honest, and are working in your own best interest?  Only you can decide - but at least think about it.  Connect the dots so to speak, and think about what the problems are and how someone might choose to resolve them.  Then of course think about if any of these possible future scenarios are in your best interest - or not.  If indeed the agenda is more control, more restriction on money or asset transfers abroad, more restrictions on your privacy and personal freedoms, then the future is not positive.  If we have learned nothing else as human beings, after having inhabited this planet for thousands of years with a myriad of different forms of government (remember that Rome was a Democratic Republic at one time also, so democracy is not new either) it is this - Power corrupts and absolute power corrupts absolutely.
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AMERICAN JOBS CREATION ACT of 2004:
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Congress passed another sweeping tax bill, the American Jobs Creation Act of 2004, on October 11 (signed into law on October 22). Even though the latest bill was publicized as the Corporate Tax Bill, it contains a number of provisions that directly affect individuals and non-corporate businesses. Furthermore, it is extremely complex and more than 600 pages long as a result of a plethora of amendments added to garner support for the bill.  In fact, there are so many special provisions relating to specific industries or groups that it is known in some circles as the American Pork Act of 2004.
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http://www.howardsoft.com/HR4520.htm
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EDITORS NOTES:  One of the most interesting provisions of this bill (which is now law, taking effect on January 1, 2005) allows US corporations to repatriate funds or profits currently held offshore at a new tax rate (if done in 2005) of 5.25 percent (rather than the old rate of 35 percent).  Yours truly is not extremely left or liberal at all in terms of political philosophy (True Libertarians are in fact the most conservative people you can imagine).  Which is to say, a belief in free enterprise, capitalism, individual sovereignty, private property rights, less government, etc.  However, here is the key point.  Corporate income tax rates and revenues have actually gone down in recent years (no theoretical argument from me, I like lower taxes - for EVERYONE).  BUT, the taxation burden has now shifted on to individual taxpayers and the middle class.  Why?  If there is so much debt already, and additional problems looming on the horizon, why does one class get to enjoy lower tax burdens (corporations) yet individuals not?  Why not extend this benefit to all citizens equally (corporate and private individuals), or none?  Why not put in the same flat tax rate for both?  The debt and government spending has not gone away, in fact, it has increased.  This argument is NOT anti-corporate and not anti-capitalism, but rather an argument for the middle-class to get a fair deal.  In other words, no favoritism when it comes to who gets to pay off the national debt, social security, etc. (and who does not).  So, what has really changed is who now is doing the paying, or who has more of an unfair burden (see article below).  Is it fair that corporations get to repatriate foreign profits at a rate of 5 percent, yet individual citizens that do the same are penalized (with respect to the rate of taxation)?
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THE CORPORATE TAX DODGE, by Cassandra Q. Butts - April 10, 2004
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The news that more than 60 percent of U.S. corporations failed to pay any federal taxes from 1996 through 2000 when corporate profits were soaring and that corporate tax receipts had fallen to just 7.4 percent of overall federal tax revenue in 2003 - the lowest since 1983 and the second-lowest rate since 1934, is an outrage.  Corporate tax receipts dropped from an average of 4.8 percent of GDP during the 1950s to 1.3 percent of GDP in FY2003. Treasury Department figures show that actual corporate income tax revenues fell 36 percent from FY2000 to FY2003. And while the statutory corporate income tax rate is 35 percent, the effective corporate tax rate - the actual share of corporate taxes paid on corporate profits - has averaged just 26 percent since 1993, according to the Congressional Research Service.
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While the more recent corporate tax shortfalls may reflect a weaker economy at the beginning of 21st century, much of it can be attributed to both the Bush administration's corporate tax cuts enacted in 2002 and 2003 and the loopholes in the tax code that have allowed corporations to shelter income offshore. The 2002 and 2003, tax bills cost $177 billion in corporate tax breaks in fiscal years 2002 through 2005, $44 billion in 2002, $53 billion in 2003, $64 billion in 2004 and $16 billion in 2005 (all figures estimated by the Joint Committee on Taxation). Estimates of the cost of corporate tax loopholes have been projected at upwards of $50 billion a year, according to Citizens for Tax Justice.  As corporate tax receipts decreased, payroll taxes, the most regressive of all taxes, increased dramatically. Specifically, payroll taxes increased from 1.6 percent of GDP in FY1950 to 6.8 percent of GDP in FY2002, surpassing both corporate income taxes and excise taxes in their contribution to total federal receipts. This rise in payroll taxes represented a 30 percent increase in the contribution of payroll taxes to overall federal revenues.  At the same time, individual income taxes also increased in the past half century as both a percentage of GDP and in their relative contribution to total federal tax receipts. Individual income taxes rose from 5.8 percent of GDP in FY1950 to 8.3 percent of GDP in FY2002. The Bush tax cuts has made this increase much more of a burden on middle and low-income taxpayers.
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http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=45142
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SOME IMPORTANT CHANGES FOR EXPATRIATES:
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U.S. citizens and certain green card holders who expatriate from the United States may be subject to alternative income, estate and gift tax regimes for ten years following their expatriation. In October 2004, the American Jobs Creation Act ("AJCA") revised the U.S. expatriation provisions applicable to persons expatriating after June 3, 2004.  When an individual expatriates after June 3, 2004, he or she may become subject to the U.S. expatriation rules under the AJCA instead of the general rules as described above.
Q: Who is subject to the U.S. expatriation rules?  A: All U.S. citizens who relinquish or give up their citizenship status after June 3, 2004, and "former long-term residents" who give up their green cards after June 3, 2004 are subject to the new expatriation rules under the AJCA if they meet any of the following three tests:
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Net Income Tax Test - For the five-year period before expatriation, the individual had an average annual U.S. income tax liability of at least $127,000 in 2005 (this number will be adjusted annually); or Net Worth Test - The individuals net worth is at least $2,000,000; or Certification Test - The individual fails to certify that he or she satisfied all applicable U.S. tax obligations for the five years before expatriation.
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http://www.mondaq.com/i_article.asp_Q_articleid_E_33141
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EDITORS NOTES:  Many green card holders (non US citizens that have legal residency status in the US) are often not aware that they have some of the very same tax treatment and issues as do citizens.  In the past, we have had a number of clients that were green card holders (US residency status, but citizens of another country), who decided to relinquish US residency status in the past (and live somewhere other than the US).  Now, it would seem the IRS is going after this group also, should they decide to give up US residency.  They (US Government) must really be in deep financial trouble to start harassing people that are not even citizens - those that simply maintain residency status.  In other words, claiming someone with residency status (that decides not to renew it or renounce it) might be liable to pay taxes to the US government ten years afterwards also.  To the best of my knowledge, the US is the only nation on the planet with this kind of, shall we call it, policy.  And you wonder why high-net worth and or very well educated people DO NOT want to immigrate to the US today?
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READERS WRITE IN:
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John - I just had a couple of comments on some topics in the June bulletin:
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1.  Regarding social security:  the program amounts to nothing more than an intergenerational wealth transfer program where the current generation is having its pockets emptied.  The current generation has no hope of seeing the same benefits as the previous one, yet is paying more for it as a proportion of their income.  Ponzi scheme is an appropriate description.
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2.  Regarding the changes to the loss of nationality and taxation provisions:  more interesting than the retroactive nature of the change is the inflation adjustment provisions of the test.  It seems that the AMT issue could, by and large, be resolved simply be retroactively changing the AMT income test to be inflation adjusted.  Of course this doesn't work to the government's advantage so don't expect it to enter into the discussion.  Keep up the good work.  There is always something interesting in your writings.  Cheers.
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EDITORS REPLY:  Thank you for your letter and your comments.  Good point about the AMT or Alternative Minimum Tax, which is due to kick in and be of concern to many, many, many people soon (if not already).  However, here is what Mr. James Horney of the Center on Budget and Policy Priorities says in a recent (June 9, 2005) article (see link below):
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REPEALING THE ALTERNATIVE MINIMUM TAX WITHOUT OFFSETTING THE COST WOULD ADD $1.2 TRILLION TO THE FEDERAL DEBT OVER THE NEXT DECADE:
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Some Members of Congress including the Chairman and ranking minority member of the Senate Finance Committee, the Senate Majority Leader, and four other Finance Committee members introduced legislation in late May (2005) that would repeal the individual Alternative Minimum Tax.  The legislation does not include measures to offset the cost of repeal.  Most tax experts agree that some changes are needed in the AMT.  Repealing it without offsets, however, would add nearly $1.2 trillion to deficits and the federal debt over the next decade, assuming the 2001 and 2003 tax cuts are made permanent.  Federal deficits already are projected to total $3.7 trillion over the next 10 years without any change in the AMT and to grow at an accelerating rate in years after that, as increasing numbers of baby boomers retire.  If the AMT is repealed without the cost being offset, projected deficits will total nearly $5 trillion over the next ten years, and the federal debt, which is expected to be $4.7 trillion at the end of 2005, will swell to a projected $9.6 trillion by the end of 2015.
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Lawmakers cannot legitimately claim that they must deal with the AMT without regard to the cost because of the AMT impending encroachment upon the middle class.  The growing impact of the AMT on middle-income taxpayers was quite well known to lawmakers when they considered the Presidents proposed tax cuts in 2001 and 2003.  Lawmakers also were well aware that enactment of those tax cuts would greatly increase the number of middle-income taxpayers subject to the AMT.
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http://www.cbpp.org/6-9-05tax.htm
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In summary, the Center on Budget and Policy Priorities is a fairly liberal Washington based think tank, so their slant is going to be more taxes, not less and presumably more liberal in tone.  However, this does not mean their figures are totally wrong.  On the other hand, The Heritage Foundation, a conservative think tank argues for elimination of the AMT and says: At a time when average tax rates are falling for many Americans, an increasing number of taxpayers find themselves thrown onto the AMT rolls, where tax burden is rising. The growth in the number of AMT tax payers means that their capital and labor are more heavily taxed, which in turn increases the costs of labor and capital to small businesses.
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http://www.heritage.org/Research/Taxes/tst041405a.cfm
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http://www.heritage.org/Research/Taxes/index.cfmH
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However, regardless of which argument you follow or choose, both do admit that the AMT is going to hit many US middle class taxpayers soon.  The real problem both also seem to agree on is the escalating government debt.  The Heritage Foundation wants the government to cut costs and cut spending (I agree, but it is wishful thinking).  The Center on Budget and Policy Priorities argues that eliminating the AMT, without replacing tax money from someplace else, is not going to make the huge budget deficit go away (I tend to agree with that assessment also). So, it also stands to reason, keep the AMT or get rid of it - you can be sure more taxes somehow from somewhere are on the horizon to pay the growing debt.  However, it would seem that this surely must fall on the shoulders of individual middle class citizens like yourself, if the current trend continues. 
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ANOTHER READER WRITES:
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Regarding our previous newsletter about the new information posted on-line concerning new definitions for a tax motivated renouncement of US citizenship - One Reader Says: The code says "average annual net income tax" greater than $100,000, not "average annual income of $100,000" as mentioned in your editors notes.
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EDITORS REPLY:  As I re-read the information very carefully, I must confess that you are correct.  Which is to say, THEY claim if you have had an average annual (yearly) INCOME TAX liability of US$100,000 then it shall be assumed you are renouncing US citizenship for tax benefit reasons, and etc., etc. BUT, it is also interesting to note the American Jobs Creation Act talks about a tax liability figure of US$127,000 for 2005, which is adjusted annually (presumably for inflation).  So, does this mean the government is indirectly admitting that the TRUE rate of inflation in the US is actually 27 percent?
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Regardless of the figures, this means one would theoretically need to have some form of income substantially above this amount (and perhaps even more if your tax liability was predominantly coming from certain kinds of capital gains, which might be taxed at a lower rate than income).  However, the idea of pegging this to an open ended calculation created by bureaucrats does concern me.  Of course we know that the IRS never, ever makes any mistakes - and that the estimated tax calculations they come up with for taxpayers are always based in reality or true figures.  Just the same, at least with a litmus test that involves assets, it is a hard and fast calculation.  Either you have US$500,000 - or you do not.  Real Estate and similar kinds of assets aside (whereby a value determination needs to be made, assuming the asset was not sold for a fixed price), bank account and investment account balances are black and white.  In any event, the bottom line is a so-called general litmus test to decide if they want to claim the right to tax you (or not) after you might have renounced citizenship (and now even residency as well).  Let us read that again.  They have a test or formula in order to DECIDE if they want to claim the right to collect taxes from you AFTER you have renounced citizenship or residency.
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This general idea, in and of itself, in my opinion is somewhat absurd.  I would be very curious to see the faces of many European Americans (who became US citizens after emigrating to the US) who suddenly received a tax notice today from their former country of citizenship, claiming taxes due AFTER these people became US citizens.  Likewise, what about a Norwegian or a German (or any other foreign national with a US green card) that is currently living and working in Michigan (for example), who of course still maintains citizenship in his or her former European country, and who has NO tax liability there (in the country of citizenship) simply because of the fairer tax regulations accordingly (no tax on income earned elsewhere if resident elsewhere).  Now let us move this idea along, whereby the Norwegian decided to relinquish US residency because he or she is relocating to Thailand.  The US Government wants to continue taxing such a person for ten more years even though they have relinquished US residency, and are no longer living or working in the US, AND are still non-US citizens?
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Let us think about this idea and how it will work, at least in terms of people that have gone the full route of becoming US citizens.  Maybe the Italian Government (just as one example) could hire all those folks over at Fedex to track down all Italian-Americans currently living in the US (with the help and support of the FBI of course), for this purpose.  They could pass a new tax regulation today in Italy, and make it retroactive back to the era of Mussolini.  Then the Fedex drivers could run around (acting as deputized IRS agents, who in turn are acting as collection agents for the Italian Government) dropping off tax bills from the Italian Tax Revenue Department (we could make the people think they just won the Publishers Clearing House give-a-way, but surprise, it's a tax bill and you just signed for it - gotcha).  Might make a good summer blockbuster movie or new reality show.  What shall they call it?  Rome does Washington? The Berlusconi Revenge?  Oh well, the creative guys at MTV will think of something I am sure.  Sounds a bit ridiculous, no?  Now apply this to Americans currently living in (that are citizens of) Norway, or Ecuador, or Thailand, or any other place you can think of.  How excited do you think these foreign governments are going to be, when the US government knocks on the door asking for tax payments from persons that are NOW new citizens in these respective countries?  The issue goes both ways. 
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ANOTHER READER WRITES:
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Hi John - You wrote in your most recent (good as usual) newsletter:
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However, you are certainly correct in that the social welfare state could never go broke in the sense that there are a number of options (none beneficial to the citizenry though).  One is to raise taxes as you suggest (take even more money away from the citizens to solve the problem the citizens themselves did not create).  Another is to cut benefits and extend the retirement age.  Another is to simply run the printing presses like mad and inflate the money supply (paying people with money that is worth less in the future than the value of money the citizens paid in at the time they did so).
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I was just thinking along the same lines writing my column at:  http://goldprice.org/bob/
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"TIC Report - Treasury International Capital - Part II"
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When it gets to the point where the US cannot borrow enough to maintain its current life style, standard of living, the US Treasury is going to start sending IOUs to the Fed, who takes those as an asset and starts creating digital USD with strokes on a key board and sends the digital USD back to the US Treasury. So the Fed at no cost to itself creates digital dollars for the US government and gets paid digital interest year after year for doing it. Such a deal! The US government will then spend those new digital dollars into the economy thus compounding the problem called inflation, which is a tax, or maybe hyperinflation, which is a hyper tax, if history is any guide.
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EDITORS REPLY:  Well, the sad thing is, what might have been considered to be an insane or impossible idea just twenty or thirty years ago, is not so far fetched today.  Speaking of an IOU - how many Americans realize that the so-called Social Security Trust Fund has already been spent by the politicians?  Stated more clearly, all that excess trust fund money was turned over to the US Federal Government (and spent naturally, what else?) - in return for an IOU, albeit one with a slight interest rate of course (Treasury Bills, Notes and Bonds are a form of IOU or loan, if you prefer).  So, one way or another, the taxpayer looses, as he (or she) will have to shoulder the burden of paying off the IOU (US Federal Government Securities) via taxes, etc.  The end result being that he or she, can get a Social Security check later on (assuming you live until 75 years of age, or whatever the new age limit becomes) with pretty much some of the very same tax money he or she is paying to cover the IOU.  Try to wrap your mind around that political accounting version of new age rocket science.  They claim the Social Security Trust Fund will not run out until the year 2025 (or whatever year they claim).  Run out?  It is already gone.  The trust fund is nothing more than book-keeping entry, whereby the US Federal Government owes this money to Social Security, which in turn means the American Tax Payer owes this money to the Federal Government, which in turn means........(you know the rest).
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ANOTHER READER WRITES:
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Hi, John I enjoy reading your Newsletter. What is your opinion about Thales Securities, Panama city, Panama? I was curious if you ever heard anything negative about this company? IBC, Foundations?
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EDITORS REPLY:  Well, on the issue of the firm you mentioned, I have not heard anything either way, other than some clients have passed comments to me that they felt or thought their fees were quite high or unreasonable.  Other than that, I could not offer an endorsement nor offer you anything negative either.  However, we do have a list of other brokers in Panama, plus other jurisdictions as well, that we make available to clients so they can pursue an account.  Some of these firms were in fact, referred to us by clients that have established accounts previously, and had been quite satisfied, so we pass this information along accordingly when working with any new or existing clients.
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With respect to the idea of setting up a Panama Foundation, Company or similar structure, we continue to provide assistance with this service to clients and continue to feel very comfortable with Panama as well in terms of an incorporated company or Panama Foundation.  In regards to Panama versus other jurisdictions (such as the Bahamas), the US did attempt the same baloney there by trying to bribe Panama with tourism promotion (offering to help encourage Americans to visit Panama) if they would eliminate banking privacy, tax benefits and so on.  Panama certainly wants to promote tourism and develop this sector even further, BUT not at the expense of the banking or other sectors.  You can say what you want about the Panamanians, but they are not stupid.  In the Bahamas, on the other hand, the country was sold out in exchange for a tax break (by the US).  Meaning the bribe from the US was, should US corporations decide to hold board meetings in the Bahamas, the IRS will allow a tax deduction for it.  We of course see how well that has gone, with all those hotels in the Bahamas booked solid with US citizens holding board meetings there, which surely must make up for all that lost revenue to the banking industry and legal profession regarding incorporation services (not to mention annual fees due to the public registry for such incorporations).
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In any event, for more information about establishing a Foundation for investments, inheritance tax issues, etc. and the services we provide accordingly, please feel free to send an email to:  info@ascotadvisory.com (with the term Panama Foundation in the header).
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ANOTHER READER WRITES:
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I read your May, 2005 News Bulletin with great interest. You are right on target with your views that governments should be viewed as service providers, and that one should consider moving to another country when one's government fails to adequately respond to its peoples needs. I also agree that the USA has many, and increasing, shortcomings. I just want to pint out however, that there are many places in the U.S. where a person can still live well on an income of $20,000/year. There are many such places in the Midwest or even Northeast of the U.S. True, it may not be seaside property, but overall when one considers all the factors, it is still better in the U.S.  Keep up the great work
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EDITORS REPLY:  Thank you for your letter, and in all fairness, I would agree that there still are places inside the US which might be reasonable in terms of real estate costs, rents, and perhaps even general cost of living.  Obviously since your rent or housing costs will probably be one of the single largest monthly expenses you have (apart from taxes), the lower these numbers are the more affordable perhaps your total cost of living.  With that said, it is also true that there are many other factors that contribute to your quality of life aside from cost of living or taxes alone.  Ironically, the focus or assumption is that many people are leaving (expatriating) the US solely because of taxes alone, or at least it would seem this is what the US Government would like for you to believe.  The truth is that no country is perfect, and each person must make a calculated decision, choosing a laundry list of issues or things that are important to them personally when making a choice (to either stay or leave).  If you have decided that the US overall is still the best place for you personally, then I applaud you and very much respect your feelings accordingly. 
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However, I tend to think though, when it comes to Americans that DO decide to expatriate, there is some sort of aggressiveness, anger or loathing on the part of those people that have not made this decision.  I do not completely understand it really and it seems to be something almost unique to the US.  You sound like a person that feels, you have decided to live exactly where you want (for whatever reasons) - other people maybe have decided to leave and live elsewhere (for whatever reasons) - good for you, good for them - to each his own, no harm, no foul.  Yet, this is not the mindset of most people in the US, I have found.  So, what is it really?  It is a form of patriotic brainwashing?  Is it arrogance?  Is it lack of knowledge and education?  Where does the US stack up against the rest of the world really?  Here are some interesting statistics from the following website that actually keeps statistics on such things.  Anyone looking to make a decision about where to live may want to pay this site a visit: 
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http://www.nationmaster.com/
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Some interesting statistics:
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The wealthiest citizens in the world are to be found in Luxembourg (The US is number two on the list, Canada is number ten).
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The most taxed nation on earth is Belgium, with Hungary coming in at number two, and Germany at number three.  The United States is actually number twenty-one.
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Columbia wins with the most intentional murders per capita (63 per each 1,000 persons) with South Africa coming in at number two (51 per 1,000 persons).  The United States comes in at number twenty-four, (4 per 1,000).  However, this is double the murder rate in Western Europe (European Union, which is about 2 per thousand).
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The United States does have the most human deaths by illness or disease, coming in at first place with 16 per thousand.  Thailand is number two with 11 per thousand.  This is a very interesting statistic considering most Americans believe that they have the best health care and most modern medicinal treatments in the world.  In this regard, they are statistically right above what many would call a third world nation.  Perhaps there is something concrete regarding all those lawsuits against McDonalds.  Maybe it is not the quality of healthcare, but rather processed foods and chemicals making so many Americans ill (heart disease, high blood pressure, diabetes, etc.)
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The number one country in the world for rape is South Africa, with Australia coming in as a tie for second place.  The United States is number nine with 30 per thousand, yet this is DOUBLE (and more in some cases) the number of per capita rapes in Spain, France, Mexico, Costa Rica, South Korea, Venezuela and Chile.
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Australia also wins with the most burglaries at 22 per thousand.  Dominica (the English speaking island in the Caribbean, and not the Dominican Republic) comes in at the second most burglarized nation with 18 per thousand.  The US is number sixteen with 7 burglaries per each 1,000 persons.  However, there are more burglaries in the US then there are in France, Ireland, Slovakia, Holland and Zimbabwe.
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Of Total Crime (all crimes taken together as an average), the nation with the most criminality seems to be Dominica (the English speaking former British Colony in the Caribbean) with New Zealand and Finland coming in at number two and number three.  The US comes in at number 8.  However, it would seem that the US does have more citizens that commit crimes in comparison to Canada, Germany, Norway, Italy, Portugal, Poland and South Korea.  The US of course does win with the highest percentage of citizens in jail (in comparison to all other modern industrialized nations).
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So there you have it.  The United States is not the worst in many categories, but it is not the best either. Interestingly enough, the Dominican Republic did not make the top 30 list for any of the BEST or WORST categories either, putting it somewhere in the middle.  Meaning it did not have the most crime (not even on the top 30), but it is not without any crime (and no one country could be in truth).  Not the wealthiest, but not the poorest either - and so on.  In addition, I think this applies to many other countries as well (not the best, not the worst).  
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ANOTHER READER WRITES:
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Hi, John - In regard to the recent contretemps with a reader who evidently admires the rampant social welfare of the US and other old industrial countries of the OECD, a short story:  My mother and I were in Panama about a year ago and my mother had a small medical incident on a Sunday evening while we were staying in the mountains of Boquete.  The hotel staff summoned one of the town physicians, who came to the hotel and expeditiously took care of my mother's medical needs. He charged US$35 for this half-hour "house call".  He charges US$20 for a regular office visit.  He has many American, Canadian, and European patients in that town, and comes highly recommended.  There is no medical bubble in Panama.  I later discovered that full private medical coverage, combined with small co-payments, is available for a maximum annual premium of about a thousand dollars (progressively less with declining age).  That is, about the cost of typical Medicare premiums in the US, which handle only a reduced percentage of the cost incurred by both patient and doctor.
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Highly vaunted medical care in the US is, to boot, not highly regarded by the World Health Organization, which (if memory serves me) rates it something like 11th for overall quality of care in the industrialized world.  The outrageous cost exceeds that of all other industrialized countries (including all those providing full medical coverage), with US prices escalating as quality of service actually declines (try to get a house call in the US without having to mortgage the house!).  Welfare states continue to fail, world wide -- financial train wrecks in slow motion.  (The recent French vote on the EU is some evidence of the old Europe vainly defending its rotting welfare against the new Europe of former Soviet vassal states relying on minimum government and low flat taxes.).  Whatever government may subsidize is guaranteed to become both more expensive and less reliable over time -- and in direct proportion to the amount of subsidy.  As you say, every Ponzi scheme comes to a bad end, and its political promoters ALWAYS shield their own personal interests from the inevitable fallout when that bloody end finally comes. Honorable men all.  It's been said that no government survives either of these two kinds of failure:
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1. Failure to defend and preserve its own currency.
2. Failure to defend and preserve its own borders.
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To the extent a government is distracted into other purposes to the failure of these, it lurches forward in mortal danger.  There is no limit to the treachery of a failing government.  No promise is too sacred to be broken, no brazen lie too vile, and no expense too great to foist upon the citizenry in vain pursuit of political careerism.  Elections are, as someone has said, merely advance auctions of property not yet stolen.  When the last teaspoon is hocked to the highest bidder, then what?  The result may not be termed "bankruptcy", but the difference won't be noticed by future generations, impoverished by unwholesome gluttony of their fore-bearers.  The really amazing thing is the number of Americans, in particular, who believe looking the other way and pretending all is well to be a civic virtue -- or even a patriotic duty.  Lord Acton defined liberty as "the assurance that every man shall be protected in doing what he believes his duty, against the influence of authority and majorities, custom and opinion."
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Liberty is therefore the true patriot's first duty.  And who reckons government promises more valuable than liberty casts the bars of his own prison.  Consistent with that view, I believe American ideals of liberty are destined to safely survive, whatever lies ahead.  But like American jobs, unfortunately, these seem far more likely to prosper offshore in low-tax, low-cost countries not yet throttled by the dead hand of an obese and grasping government. 
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EDITORS REPLY:  Thank you for your letter and your comments.  On the latter comments, I would say that many people would agree.  Which is to say, middle class Americans who have decided to find less restrictive government, lower taxes and more freedom elsewhere.  However, I also believe because of this as a growing trend, we are seeing more aggressiveness to stop these people from leaving (or leaving with their money, which is really the main concern).  So, to quote Roger Gallo, who edits the Escape Artist website and newsletter, if you think it is bad now - just wait five more years.  
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One very key point that you have made involves healthcare, or more correctly both the cost and quality of it elsewhere (and your experience is the same as my own).  Since we get many, many letters asking about healthcare, I would like to focus on that.
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Many Americans especially are under the impression that modern healthcare is not available outside of the US, or the costs are same as they are inside the US, in which case both of these thoughts are NOT true.  While I tend to think that public healthcare everywhere (both in and outside of the US) is something less than desirable, private healthcare can be excellent and quite affordable.  The costs that you quoted for a physicians visit are about right, or about the norm both in Panama and the Dominican Republic.  A specialist might charge a bit more, perhaps US$50 for an office visit, but it is not uncommon to see an office charge of about US$20 or so for a general practitioner.  Some clients that went into one of private hospitals in Panama to deliver a baby have told me they had paid about US$1,500 for a 5 day stay (private room) including the physicians fee.  I can attest myself after having surgery in the DR (appendix removal), with a four-day hospital stay in a private room (with A/C, cable TV, guest area with mini-refrigerator and private bath) the entire bill at the time (including hospital, surgeon and anesthesiologist) came out to about US$1,200.  The only down side was the nurses were annoying as heck, coming in every hour on the hour (I am not really complaining as in some hospitals in the US they only come when there is a fire in the room).
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Anyway, for those that are concerned about private health insurance, you can often find very good private health insurance for a family of four in both Panama and the Dominican Republic, for about US$100 per month in premiums (for one of the very best plans).  Obviously this will vary depending upon type of plan and so on, but your comments about private health insurance costing US$1,000 per year is about right or correct in Panama and the DR.  If anyone thinks this is in any way unreasonable, check out private monthly health insurance premiums in the US with Blue Cross or some similar program (make sure you are sitting down when you get the quote).
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The only advice I normally give clients seeking private health insurance in Panama or the Dominican Republic is to FIRST find a doctor and or private hospital that you like, and then inquire as to which private insurance companies they use or work with.  In other words, work your way backwards by finding the doctor or private hospital first and THEN the insurance company.  The reason for this is some physicians or hospitals are only affiliated with certain plans or companies, so this would be the way to go about it.  Other than that, it truly is an outrage in terms of what health care costs in the US.  The argument that health care is below par elsewhere (outside the US) does not hold true either (it is a fairy tale told to patients by both the insurance companies and the American health care industry in general to convince the public they need to pay what they are in fact paying - or more correctly the very high insurance premiums charged).
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ANOTHER READER WRITES:
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Thank you for your, in my opinion, an unbiased opinion of the situation in respect to taxation etc, in the US, and which I might add is similar to that our government in Canada. The longer I live here, the more I wonder why I do. I love the US and Canada and the variety of both climate and terrain, however I object to the taxation system of both countries. As a business man, I object to the fact that when I can't pay my creditors, I would be declared either a banckrupt (I know the spelling) or if you prefer, insolvent, which really pisses me off, since that government can continue to operate simply by raising taxes. WE can't raise our prices or increase our customer base to cover increased costs. We either adjust to the situation or close our doors.
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EDITORS REPLY:  Thank you for your letter.  With regards to your comments, it is very true that when a private company has more liabilities than income, it is declared bankrupt, yet when the same is true for government, more blood is simply taken from the proverbial turnips (tax payers).  The problem is that private companies and individuals are forced to be responsible in their private affairs or private cash management, or face some unpleasant consequences.  Many governments, or politicians more precisely, are of course are not forced to be responsible in how they handle and manage public funds, which is the real issue or problem.  This is not to say all government officials are corrupt, but it is always certainly easier to spend the money of someone else, nameless and faceless public taxpayers in particular (and go back for more when you run out).  Politicians are indeed supposed to be public servants, or stewards of a public trust.  Government then in theory a public service provider, but exactly what they sometimes provide and for whom is often in question.  This is why, just as in private business, competition is important if not vital.  What kind of competition?  Other countries that perhaps are better managed (one way or another), are less expensive to live or do business in, have better managed economies, lower taxes, etc. where citizens can go to when and if they wish.  We can call it switching service providers if you like (switching countries, national affiliations and citizenship).  They (the country you want to leave) certainly would not like this idea, as no monopoly wants to see customers have the capacity to go elsewhere.  So, they push for the elimination of the competition and in fact call is just that.  The OECD calls countries with lower taxes and lower labor costs - nations with unfair competition practices.  But since when, and how, is competition unfair or wrong?  Someone else, another company or even a country that offers a better less expensive product is doing something that is unfair?
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How does this relate to your comments?  Well, as a businessman, if you want to move yourself and your business to a more favorable jurisdiction, the trend by the high tax industrialized nations has been to stop it somehow.  Now, at least in the case of the US, the claim is you still need to pay royalties (for lack of a better term) if you decide to go elsewhere.  All these issues are intertwined.  Politicians screw things up, your taxes go up to pay for problems you did not want nor asked for, you want to leave and go elsewhere and then they say in order to leave you must pay an exit tax or continue to pay taxes for the next ten years.  Canada is not as bad as the US in some of these regards, but they continue to move a bit closer year by year.
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ANOTHER READER WRITES:
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I have much to say but I will keep it short and to the point.  Basically, I'm glad that someone is on a "SOAPBOX" because we (as Americans) tend to get complacent about who/what/how things happen here in the USA.  One thing is for sure - most (90% or more) do not know that US lawmakers have their OWN PENSION SYSTEM!!!!  This is entirely separate from the Social Security System that you, me, and Mr. Joe - Jane Average has.  And NO, they don't talk about it.  YES, if you're a Senator, Congressman or Representative, you are eligible to receive benefits your 1st term!!!!  Imagine, working somewhere from 2-4 years, and then leaving, and still getting FULL BENEFITS for the rest of your life.  HOW I GET THAT GIG.  Anyway, I don't mind your column because it opens my mind/eyes to the rest of the world that I didn't know was out there.  Now being that I'm Mr. George Average, it is very hard for me to save and collect enough money for me to invest into many of the things you guys talk about.  I just can't muster up $1500 or more up at one time to invest and at the same time, be able to feed my family (of 4).  But it does help me understand that I must make some changes so that my KIDS will be able to live with F A R less struggle than I had to live with.  I'm starting by using what little good credit I have to buy a townhouse / row house in Baltimore's inner city.  Most of which can be bought between $20k & $60k and can be renovated and rented out (per HUD/Section 8 program) for $1500 for a 3 bedroom apt. Even a person like myself can afford a $900-$1050 MONTHLY mortgage if I'm bring in $3k off of 2 apt buildings. At this point, a savvy person will be able to save about $900, give or take, per month AFTER paying the government their share (local, state & feds and banks).  I just started doing this because I realized that I will not be able to afford college for my kids, let alone afford to live for myself and wife.  And I'm also saying this because I realized that too many people (especially) African-Americans do not have "LONG-VISION".  It really pisses me off to see "US" dancing around on cable, BLING-BLING - shining, sports playing, when there is a better way of doing things.  These guys just waste that money and then their crying about how the "MAN" did this to them.  HEY, invest your cash.  The best place is REAL ESTATE, then there are other vehicles to invest in - but real estate is the only one I know that will ALWAYS bring in a return on your money.......be it great or small, this is the best way to go.  I will make it my DUTY to teach my 2 kids the value of Real Estate and the benefit of saving cash and being savvy.  Unlike the last guy in your June newsletter that "bad-mouthed" D.R., I will only say this "HEY, shut your mouth and struggle for the rest of your life.  Let everyone else enjoy what is written in this newsletter.  We're following a dream - we don't need YOU messing it up.  IF YOU DON"T HAVE ANYTHING NICE OR POSITIVE TO SAY - SHUT UP.  Basically, I'm saying that if it were not for your column and those like it, I would be the same blind-black man that most black men in America are.  Thanks again and keep the knowledge coming.  Like always, peace to you and yours. Signed, (black man in the struggle).
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EDITORS REPLY:  Thank you for your letter.  I applaud your efforts and your willing ness to try and plan for your future or that of your children.  This is normal.  An abnormality though is a government that might punish you years later down the road because you did work, sweat and save (all honestly and without breaking the law) in the sense that they might look to take away (tax) your gains or savings so it can be given away to someone else that did NOT do what you did.  However, this is what pervasive socialism is all about, taking away from the productive and transferring it to the non-productive. We are told that this is done in the name of or the goal of social justice or social equality.  Baloney, it is a government sanctioned and enforced robbery.  Inflation is yet another form of robbery, albeit a bit more sneaky than a direct pocket picking exercise.  My only fear is that even more government-sanctioned robbery is in the cards going forward to pay for the financial mess now looming.
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In any event, I think part of the solution for most people is to become informed.  Read, research and pay attention.  American society has become very lazy and complacent, both politically and otherwise.  For example, how many Americans knew that a bill was introduced in Congress early this year to REPEAL the amendment to the US Constitution limiting Presidential Terms (how many times one person can be elected and serve as President of the US)??  Even though just a bill, this is important news, yet to the best of knowledge never reported by any domestic news services.  How many other things are going on domestically and abroad - economically, politically, etc. that you are not aware of?  How will these things affect your cost of living, your investments, and much more?  The key is to keep yourself informed and knowledgeable, plus apply such information to possible future events so you can be prepared.  Most governments only tell you what they want you to know.  Most news services only report what they choose to report.  So, it is really up to you.  One of the goals of this newsletter is to put information in front of people that they might not be aware of, or suggest thought and debate on various topics as well.  If we have met this goal, then at least part of the mission has been accomplished.  Politicians love a dumb downed and ignorant population.  This way, they can tell you what ever they want and you are not the wiser.  Remind them they are supposed to work for you, AND you are not an idiot (plus you can do something, such as leave and take your money with you should you choose to do so).  When they tell you something that does not add up or make sense, question it.  The US is starting to put leaders of private corporations in jail for lying to stockholders and fudging the books.  They should start doing the same with politicians as well, as citizens are in effect the stockholders of the country, or at least that is the way it is supposed to be in a democracy.            
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