2021-04-14_How_Should_You_Prioritize_Tax_Costs_in_Your_Decisions
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00:00:30.620 | Welcome to Radical Personal Finance,
00:00:32.120 | a show dedicated to providing you with the knowledge,
00:00:34.000 | skills, insights, and encouragement you need
00:00:35.960 | to live a rich and meaningful life now,
00:00:38.100 | while building a plan for financial freedom
00:00:39.660 | in 10 years or less.
00:00:41.040 | My name is Josh Rasheeds, I am your host.
00:00:43.140 | Today we're gonna talk about taxes
00:00:45.000 | as we continue our tax series
00:00:46.400 | here at Radical Personal Finance
00:00:48.040 | by specifically focusing on this question.
00:00:50.740 | How should you prioritize taxes,
00:00:54.240 | the cost of taxes, your tax savings,
00:00:57.380 | in your personal decisions?
00:00:59.580 | Should it be your number one factor?
00:01:01.580 | This is the thing, I'm gonna move to Florida
00:01:03.260 | because I don't have to pay any state income taxes,
00:01:05.720 | or I'm gonna move to the Bahamas
00:01:07.000 | so I don't have to pay any income taxes.
00:01:09.620 | Should it be in the middle?
00:01:10.960 | Okay, this is nice to have.
00:01:12.200 | Or should it be at the bottom?
00:01:13.640 | This is just something that doesn't matter whatsoever.
00:01:16.440 | I'm gonna talk about that.
00:01:17.800 | And I'm gonna tell you not the answer,
00:01:19.740 | because of course I can't deliver on the actual answer.
00:01:23.500 | What I'm gonna give is I'm gonna give you a model
00:01:26.040 | that you can use to think about your own situation.
00:01:29.380 | Because here's my answer.
00:01:31.240 | How should you prioritize taxes?
00:01:33.380 | Well, you should simply make an examined decision.
00:01:36.980 | This is one of those things where you and I
00:01:38.780 | could come to the same set of decisions
00:01:42.860 | and walk away making completely different choices
00:01:47.300 | because of our personal factors,
00:01:50.200 | things that you look at, that I look at,
00:01:52.260 | that we think matter to each of us.
00:01:54.740 | And so they'll be different for you than for me.
00:01:57.040 | The only wrong decision in my opinion
00:01:59.200 | is an unexamined decision.
00:02:02.280 | And all examined decisions are right decisions.
00:02:07.280 | So let me give you a simple model.
00:02:09.520 | It's got five steps, very, very simple.
00:02:11.440 | Number one, calculate the actual tax liability
00:02:14.900 | of a certain decision so you actually know the numbers.
00:02:17.400 | Number two, calculate other costs
00:02:20.040 | and benefits of your decision,
00:02:21.400 | both financial and non-financial.
00:02:24.120 | Consider and calculate the opportunity costs
00:02:27.120 | of your decision.
00:02:28.860 | And then next, most importantly,
00:02:31.220 | think creatively about your options
00:02:33.560 | and look for a third path if one exists.
00:02:36.800 | Look for the win-win.
00:02:38.440 | And number five, make the decision that seems best to you
00:02:40.920 | based upon the personal factors,
00:02:42.800 | not just the tax factors.
00:02:46.240 | I'm gonna give you a number of examples here
00:02:48.160 | as we walk through these steps in detail.
00:02:50.260 | But I genuinely believe that you can use this
00:02:53.120 | as a decision-making model
00:02:54.760 | and make a smart decision for you and your family
00:02:57.920 | if you'll simply walk through these questions.
00:03:00.320 | Let's begin with this.
00:03:01.980 | Let's pretend that you can live totally tax-free.
00:03:04.760 | By the way, I'm gonna actually give you a model
00:03:06.880 | to live totally tax-free
00:03:08.880 | or as close to totally tax-free as is possible
00:03:11.320 | on this globe we call Earth, okay?
00:03:15.880 | There is a place in the world,
00:03:17.200 | at least one, probably more,
00:03:18.680 | but there is at least one place in the world
00:03:20.600 | that you can live where there are no income taxes.
00:03:25.600 | There's no tax on your income.
00:03:28.560 | There's no employment tax system.
00:03:30.800 | There is no capital gains tax system.
00:03:33.060 | There are no income tax systems.
00:03:36.000 | And what's more important and more impressive,
00:03:38.760 | not only are there no income taxes,
00:03:40.320 | but there are none of the other tax systems either.
00:03:42.400 | There's no property taxes.
00:03:45.280 | There are no sales taxes.
00:03:47.960 | There are no sin taxes on this place.
00:03:51.560 | And here's what's even more amazing.
00:03:53.580 | Not only are there no taxes,
00:03:56.560 | but you can actually genuinely
00:03:59.520 | be given land to live in this place.
00:04:05.260 | You don't even have to buy land.
00:04:07.700 | You might have to buy materials to build your house,
00:04:10.520 | but you don't have to buy land to live in this place.
00:04:14.420 | It's a sovereign place, a sovereign country,
00:04:17.480 | and it has all of these factors.
00:04:19.380 | Now, the name of this place is Pitcairn Island.
00:04:24.000 | Pitcairn Island.
00:04:26.360 | Perhaps you've heard of it.
00:04:27.600 | It's a group of four small volcanic islands
00:04:30.040 | in the Southern Pacific Ocean.
00:04:31.940 | They form the sole British overseas territory
00:04:34.820 | in the Pacific Ocean.
00:04:36.360 | These four islands, Pitcairn Proper, Henderson,
00:04:39.560 | Ducey, and Ono, are scattered
00:04:41.760 | across several hundred kilometers of ocean.
00:04:44.000 | They have a combined land area of about 18 square miles,
00:04:47.360 | very important.
00:04:48.840 | The largest country, the nearest country
00:04:51.760 | to the Pitcairn Islands would be French Polynesia,
00:04:54.640 | found at a distance of 1500 miles,
00:04:57.240 | followed by the Cook Islands, 2000 miles away.
00:05:00.540 | New Samoa, Tonga, let's see, Chile,
00:05:04.480 | would be the next closest big country
00:05:06.660 | that you might be familiar with, 3375 miles away.
00:05:10.280 | And going down the list, it continues.
00:05:12.480 | The point is that Pitcairn Island
00:05:14.120 | is in the middle of nowhere.
00:05:16.120 | So while you have all of these benefits,
00:05:19.160 | no taxes, they'll give you land if you come be there.
00:05:21.360 | Oh, and by the way, the population is something
00:05:24.000 | like 40 to 50 people who live there, total.
00:05:27.480 | So you genuinely do have all these options.
00:05:31.760 | And you could live there.
00:05:32.700 | Maybe you're an internet billionaire, right?
00:05:34.200 | A Bitcoin billionaire.
00:05:35.720 | And you can move there.
00:05:37.080 | You can set up a nice satellite dish
00:05:38.620 | to get your satellite communications.
00:05:40.540 | Maybe you can get your email over HF radio.
00:05:44.960 | And so you can genuinely move to Pitcairn Island.
00:05:47.420 | Would you do it to have no tax liability?
00:05:52.580 | Would you make taxes your number one thing
00:05:56.640 | and move to Pitcairn Island?
00:05:58.260 | I would say with almost total certainty,
00:06:03.520 | of course you wouldn't, right?
00:06:05.640 | I'm not going to do that.
00:06:06.880 | I have zero interest in moving to Pitcairn Island.
00:06:09.080 | Visiting, yes.
00:06:10.920 | Moving there, zero interest whatsoever.
00:06:14.000 | I'm not going to move to Pitcairn Island
00:06:16.320 | to get free land and no tax.
00:06:20.200 | It's just not worth it.
00:06:21.960 | So I think we can start by saying we would all agree
00:06:25.840 | that taxes are not our sole decision-making criteria.
00:06:30.840 | But how important are they genuinely?
00:06:36.420 | Well, you don't know until you do step one,
00:06:39.360 | which is start by actually calculating the numbers.
00:06:42.880 | The numbers here matter.
00:06:45.120 | And if you're going to make a good decision about this,
00:06:47.080 | you need to actually calculate the cost of a tax liability.
00:06:51.840 | And this is something that almost none of us
00:06:53.840 | are even capable of doing.
00:06:55.000 | It's hard for me.
00:06:56.640 | I am a certified financial planner.
00:06:59.160 | I have a master's degree in financial planning.
00:07:01.200 | I'm a chartered financial consultant.
00:07:03.640 | I have all these other degrees and designations
00:07:06.200 | that say that I should know how to do this.
00:07:07.960 | And I still have a very difficult time sitting down
00:07:11.200 | and actually tracking the total taxes that I pay
00:07:14.640 | and actually knowing the cost of any particular move.
00:07:17.280 | It's very difficult.
00:07:18.800 | But you want to start with as close
00:07:20.420 | to correct numbers as you can.
00:07:22.200 | If you're thinking about buying a house in a certain county,
00:07:26.240 | you need to know what is going to be
00:07:28.440 | the property tax of that house.
00:07:30.560 | Sometimes this makes a big difference.
00:07:33.800 | Where I used to live in South Florida,
00:07:37.080 | I used to live fairly close to the county line
00:07:39.640 | between Martin County and Palm Beach County.
00:07:42.300 | But there's a big difference in property tax assessment
00:07:45.520 | rates between Martin County and Palm Beach County.
00:07:48.080 | And there are all these interesting little communities
00:07:50.420 | that you have no idea whether you're in Palm Beach County
00:07:52.680 | or Martin County, but your tax assessor does.
00:07:55.200 | And if you're just thoughtful about
00:07:56.480 | which particular house you buy,
00:07:58.600 | you can potentially over the course of the decades
00:08:00.580 | you might live in that house,
00:08:01.560 | save thousands and tens of thousands of dollars in taxes
00:08:04.840 | because Martin County has a tax rate,
00:08:07.080 | I think about half of what Palm Beach County taxes
00:08:09.360 | and imposes, right?
00:08:11.920 | There are many places in the world that you can live
00:08:14.460 | in a certain country where you can live
00:08:16.180 | right on a state line.
00:08:18.040 | And on one side of the state line,
00:08:21.100 | you pay no state level income taxes.
00:08:23.200 | On the other side of the state line, you pay a lot.
00:08:25.620 | Classic example here would be, I think,
00:08:27.080 | a place like Lake Tahoe, Nevada, Lake Tahoe, California.
00:08:30.420 | Same town, state line runs right through it.
00:08:32.740 | But if you live on one side of the state line,
00:08:34.640 | you have no state income taxes.
00:08:36.380 | You live on the other side of the state line,
00:08:38.040 | you have high state income taxes.
00:08:39.840 | And the property values and property prices
00:08:42.400 | often reflect this.
00:08:43.640 | But you wanna actually know the cost.
00:08:47.200 | Many years ago, when I was working
00:08:48.640 | as a professional financial advisor,
00:08:49.880 | I had a client of mine who was offered a job
00:08:52.360 | in North Carolina.
00:08:53.440 | She was a pharmacist living and working in Florida.
00:08:57.440 | Her husband was a physical therapist
00:08:59.000 | and she had been offered a job in North Carolina.
00:09:02.240 | So we were talking about whether she should take the job.
00:09:04.360 | And of course we had the salary figures for both jobs.
00:09:07.000 | We had the job offer.
00:09:08.360 | First thing that I did though,
00:09:09.520 | was do a quick assessment of what her cost
00:09:12.200 | of state level income taxes would be in California.
00:09:14.440 | Of course, her federal income taxes would be the same
00:09:16.880 | in both places, but her state level income taxes
00:09:19.360 | were about a 5% rate.
00:09:20.800 | North Carolina poses about a 5% little over,
00:09:24.320 | mostly flat tax system on their income.
00:09:27.560 | And so I calculated, all right, if you move from Florida
00:09:30.240 | and you have your combined household income
00:09:31.800 | of X number of dollars, now we take X times 5%.
00:09:35.080 | This is gonna be a cost of your moving to North Carolina.
00:09:38.720 | So you need to know that.
00:09:40.280 | Now, knowing it doesn't mean
00:09:41.520 | that you make a different decision.
00:09:42.600 | Knowing it may just mean, all right,
00:09:44.720 | well, I use it for negotiations.
00:09:46.560 | Hey, I'd like to take this job offer in North Carolina,
00:09:50.540 | but if I move from Florida, North Carolina,
00:09:51.960 | I have to start paying state level income tax,
00:09:53.440 | I need a higher job offer.
00:09:55.320 | Or maybe another thing that you're doing,
00:09:56.600 | you're currently working as a contractor
00:09:59.680 | and you're trying to consider whether you should go
00:10:01.920 | and take a job as an employee for the same company
00:10:04.120 | that you contract for.
00:10:05.480 | And they're making you a job offer.
00:10:06.960 | Well, you need to calculate.
00:10:08.440 | What are gonna be the tax consequences of that decision?
00:10:12.000 | So you sit down, you calculate it as much as possible.
00:10:14.160 | And at the very least,
00:10:15.000 | you use it as a negotiating bargaining chip.
00:10:18.080 | Might go the other way.
00:10:18.920 | You're an employee and you're trying to think
00:10:20.380 | about becoming a contractor.
00:10:21.840 | Well, sit down and calculate the actual numbers.
00:10:24.040 | Because until you have some actual number to go by,
00:10:28.560 | you don't really have any starting point
00:10:30.440 | other than just an emotional guess.
00:10:32.560 | And you may be surprised at the number.
00:10:34.720 | I would bet you very well were probably surprised
00:10:37.840 | at some of the numbers that I shared
00:10:39.480 | in the most recent episode of Radical Personal Finance.
00:10:42.360 | When I shared how I, as a father of four children,
00:10:45.160 | I could live in the United States
00:10:46.440 | and basically earn $100,000 per year
00:10:49.280 | and pay $0 of federal income taxes
00:10:52.000 | living in the United States.
00:10:53.400 | Pretty cool.
00:10:56.600 | Right, I was a little surprised when I sat down
00:10:58.080 | and calculated the numbers again.
00:10:59.040 | And by the way, I didn't include,
00:11:00.200 | all I included was the child tax credit.
00:11:01.680 | That was basically it, right?
00:11:02.920 | The tax liability on $100,000 of income
00:11:05.760 | was like $8,243, something like that.
00:11:08.040 | And the child tax credits with four children,
00:11:09.680 | $8,000 child tax credit, boom,
00:11:11.760 | wiped out my tax, the federal income tax liability.
00:11:14.600 | So you wanna calculate the estimated tax liability
00:11:17.680 | of a certain decision.
00:11:19.300 | Number two, you need to calculate other costs
00:11:22.920 | and benefits of your decision.
00:11:25.880 | Let's start with some financial examples.
00:11:29.040 | When you're looking at tax savings,
00:11:30.960 | there's all kinds of interesting ideas.
00:11:32.160 | I have a friend of mine who refuses to have a new boat.
00:11:37.160 | In the state of Florida,
00:11:38.960 | if you have a boat that is 30 years old or older,
00:11:43.520 | and if that boat is used for recreational uses,
00:11:46.800 | and if the whole boat matches,
00:11:48.960 | meaning the powertrain of the original boat
00:11:50.920 | is basically the same type of powertrain
00:11:53.000 | that the current boat has,
00:11:54.960 | then you can actually be exempt
00:11:58.520 | from the annual state registration fees
00:12:01.120 | in the state of Florida.
00:12:02.200 | So you don't have to pay the annual tax
00:12:03.900 | for your boat ownership.
00:12:05.100 | So my friend likes saving money on taxes,
00:12:07.720 | and so he buys antique boats, has antique boats,
00:12:09.880 | and pays no tax on his annual registration fees,
00:12:12.320 | which is cool, cool for him, right?
00:12:15.320 | But what's the problem from my perspective?
00:12:18.000 | Well, you need to calculate the other associated costs.
00:12:21.840 | So for me, when I think about owning a 30-plus-year-old boat
00:12:25.880 | I get really concerned about the costs of maintenance.
00:12:28.880 | I get really concerned about the ability
00:12:31.040 | to find spare parts as easily
00:12:32.620 | if I had a boat that's five years old.
00:12:34.520 | And to me, if there is a substantial difference there,
00:12:39.440 | I'd just as soon go ahead and pay the tax,
00:12:42.680 | which is a relatively simple, knowable number
00:12:45.840 | that all things considered is fairly low.
00:12:48.160 | I'd just as soon pay that annual registration tax
00:12:50.920 | and not have to pay higher maintenance costs
00:12:53.040 | on the older boat.
00:12:55.040 | But that's me.
00:12:55.960 | My friend, on the other hand,
00:12:56.940 | does all of his own boat maintenance,
00:12:58.220 | doesn't have any problem finding parts,
00:13:00.000 | likes working on it, so he likes saving the money.
00:13:02.720 | Buys the old boat, saves his tax money,
00:13:05.040 | works on it himself, all good for him.
00:13:07.360 | But you wanna calculate what are the other costs
00:13:10.520 | and benefits of your decision.
00:13:12.820 | I think here, though, some of the most important ones
00:13:15.960 | need to be played to things like career potential.
00:13:22.080 | Let's say that you're living in a place
00:13:25.040 | that's relatively unknown, Bahamas, okay?
00:13:28.360 | The Bahamas is very close to Florida,
00:13:32.800 | and the Bahamas is a place that does not impose
00:13:35.900 | any kind of state income taxes,
00:13:37.960 | sorry, country income taxes.
00:13:40.620 | There's no, yeah, income taxes.
00:13:43.960 | They don't have any.
00:13:45.340 | Tax-free, tax haven, tax-free country,
00:13:47.880 | living in the Bahamas.
00:13:49.680 | But there are many, many Bahamians
00:13:52.480 | who will move from the Bahamas to Europe.
00:13:55.240 | They'll move to the UK.
00:13:56.400 | They'll move to Florida.
00:13:58.400 | Why?
00:13:59.520 | Well, frequently, it's so that they can gain access
00:14:02.480 | to a much bigger job market,
00:14:04.680 | have a much bigger career potential.
00:14:07.360 | For some people, that's a benefit.
00:14:08.720 | For some people, it's not.
00:14:10.020 | Now, here's where I think you gotta get
00:14:12.920 | into the specifics of your situation.
00:14:15.620 | And you gotta ask yourself,
00:14:16.960 | what am I gaining by going from a place with low tax
00:14:20.160 | to a place of higher tax?
00:14:21.840 | What do I gain from being involved in that?
00:14:25.360 | And there will be a very different scenario.
00:14:27.320 | I like to think of it like this.
00:14:28.300 | I imagine myself, let's pretend that I were Swiss,
00:14:31.320 | or I were a Brit, or I were, I don't know, German, right?
00:14:35.680 | I'm picking some of these Western countries,
00:14:37.720 | these brand names that you and I know,
00:14:39.980 | not necessarily low-tax places,
00:14:42.560 | but just some of these places where we recognize
00:14:45.280 | there is a strong economy in each of these countries.
00:14:48.560 | There are lots of career options, lots of job options.
00:14:51.700 | I imagine myself, would I ever move to the United States?
00:14:55.900 | Unless I really loved the culture,
00:15:00.640 | or I don't know, I fell in love with a US girl
00:15:02.660 | or something like that, and I really wanted to live there,
00:15:05.440 | my answer is generally no.
00:15:07.180 | I wouldn't wanna get involved with the United States.
00:15:10.760 | I'd rather just steer clear.
00:15:12.540 | I don't wanna go.
00:15:15.320 | I'd rather avoid it.
00:15:17.360 | Why?
00:15:19.280 | Well, because if I'm Swiss, or if I'm German,
00:15:22.800 | I can travel the world and I can gain access
00:15:25.260 | to the world's job markets in a far simpler way.
00:15:28.580 | If I'm German, I can move to Hong Kong
00:15:32.520 | and get involved in the import/export business.
00:15:34.960 | I can move to Singapore and get involved in finance.
00:15:39.280 | I can move to Dubai and I can start a business there.
00:15:41.480 | I can move to any job market practically in the world.
00:15:44.720 | If I need a work permit in the United States temporarily,
00:15:46.600 | I'll go get a work permit in the United States.
00:15:48.440 | But I'm not gonna have to deal with the complications
00:15:51.760 | of the United States that's gonna impose
00:15:53.120 | all these issues on me if I become a green card holder
00:15:55.480 | or a citizen of the country.
00:15:57.760 | On the other hand, if I'm living in El Salvador
00:16:01.920 | or Honduras, and I'm just a penniless campesino,
00:16:06.880 | living out in the country, and I notice
00:16:09.480 | that all of the fancy houses in town have a guy,
00:16:13.000 | have a husband or a father that's living
00:16:14.920 | in the United States and sending remittances back,
00:16:17.440 | I'm gonna be sorely tempted to do that.
00:16:19.660 | If I'm a Filipino, I'm gonna be sorely tempted
00:16:23.680 | to go to Dubai and work.
00:16:25.900 | I'm gonna be sorely tempted to go, why?
00:16:27.640 | Because I gain access to a labor market
00:16:29.840 | that gives me more opportunities.
00:16:31.920 | I mean, it's to me very sad.
00:16:34.120 | I hate when fathers leave their families
00:16:36.800 | to go abroad to work for extended period of time
00:16:38.560 | 'cause I think it destroys the social fabric
00:16:40.520 | of the local community.
00:16:41.360 | I think it destroys the families.
00:16:42.640 | I'm very opposed to it.
00:16:44.720 | But I also consider it understandable, right?
00:16:47.120 | You can go into a little town in the countryside
00:16:50.240 | in Guatemala, and I can drive you through the town,
00:16:53.120 | and I can ask you to make a guess
00:16:54.520 | of the 30 different houses, which of them
00:16:56.140 | have someone living in the United States,
00:16:58.000 | and you can point with perfect accuracy
00:17:00.040 | to those houses because the remittance money goes far.
00:17:04.600 | If I'm living in the United States, I might be there.
00:17:06.960 | I might not have any work papers,
00:17:08.960 | no permits to work to be there,
00:17:12.240 | but I can still send 1,500 bucks a month back
00:17:15.120 | to my family in Guatemala, which is gonna help them
00:17:17.760 | to move up in society.
00:17:19.860 | So it's an understandable trade-off.
00:17:22.340 | So the point is, what about the tax system
00:17:24.680 | in the United States?
00:17:25.520 | Well, if I'm already German, I probably don't gain much
00:17:27.960 | by getting involved in the US tax system.
00:17:30.400 | But if I'm from Guatemala or Honduras,
00:17:33.520 | and I don't have a lot of other job prospects,
00:17:35.440 | I probably do.
00:17:37.780 | So you wanna consider things like that.
00:17:39.280 | Those are financial aspects.
00:17:41.840 | But you consider where you're coming from
00:17:43.160 | and the cost of getting involved in a high-tax country
00:17:45.360 | like the United States.
00:17:46.520 | You also consider other financial costs and benefits,
00:17:51.720 | such as government programs, right?
00:17:56.400 | Tax holidays you might get.
00:17:58.560 | So when a company is saying,
00:18:00.240 | "Hey, we wanna move to your state.
00:18:03.080 | "Will you give us a tax break?"
00:18:05.720 | That company now can move to a high-tax state
00:18:08.480 | because the state says, "We wanna attract you,
00:18:10.020 | "so we'll give you a 20-year exemption from taxes."
00:18:12.960 | Well, that's powerful.
00:18:14.360 | There can be other financial benefits, right?
00:18:16.400 | A company like, I don't know,
00:18:18.240 | let's say that I were anointed as the CEO of Lockheed Martin.
00:18:21.560 | Do you think that I would ever open my mouth
00:18:24.720 | and say anything that could in any way
00:18:27.600 | ever be misconstrued by anybody
00:18:30.880 | as the tiniest thing that was anti-US American
00:18:35.840 | in any possible way?
00:18:37.180 | CEO of Lockheed Martin knows where his bread is buttered.
00:18:41.220 | He's not gonna complain about tax.
00:18:44.240 | He's not gonna complain about anything
00:18:45.280 | because he makes billions of dollars
00:18:47.640 | from the government every single year
00:18:49.760 | by selling them war machines.
00:18:51.880 | And so you wanna understand, where is your bread buttered?
00:18:55.600 | So if you're working for the government
00:18:57.080 | or something like that,
00:18:58.040 | then it behooves you very well
00:18:59.520 | to never open your mouth about taxes
00:19:01.120 | and not talk about going abroad,
00:19:02.280 | not set up some kind of foreign subsidiary
00:19:04.880 | to try to lower your global tax liability.
00:19:07.240 | You wanna go ahead and make all the money you can
00:19:10.020 | 'cause you know where your bread is buttered.
00:19:12.080 | So it's totally fine for Starbucks to do it.
00:19:14.080 | Starbucks isn't making much money from the US government.
00:19:16.800 | It's not okay for Lockheed Martin to do that.
00:19:19.040 | So you wanna calculate,
00:19:20.000 | do I make money from this certain thing?
00:19:22.320 | Do I have offsetting costs?
00:19:24.160 | But then think about your career options.
00:19:28.660 | I think this is a little more practical.
00:19:30.600 | If you wanna make money,
00:19:35.280 | you're gonna make money more easily
00:19:37.800 | by going to a big city
00:19:39.240 | and probably by living in a place with a bigger economy.
00:19:42.040 | San Francisco is not hurting.
00:19:45.620 | New York City is not hurting all that much.
00:19:47.880 | They're hurting a little bit right now.
00:19:49.320 | Why?
00:19:50.160 | Well, because they offer so many opportunities to people
00:19:53.320 | that, and all around the world, it's the same trend,
00:19:56.200 | but you understand that it's much easier
00:19:59.180 | for you to build a global network
00:20:01.860 | that can really enhance your career in Manhattan
00:20:05.480 | than it is in St. Augustine, Florida.
00:20:08.300 | It's just totally different.
00:20:10.100 | And so for people who are aggressive,
00:20:11.560 | who can take advantage of it,
00:20:12.540 | the taxes are just a cost of doing business.
00:20:14.360 | It's worth paying for.
00:20:15.740 | It's worth getting involved in
00:20:17.020 | because it opens up opportunities for you.
00:20:19.660 | So calculate the long run financial costs
00:20:22.120 | as much as you can.
00:20:23.720 | Then calculate the non-financial benefits
00:20:26.860 | and lifestyle costs.
00:20:29.100 | Right, there are a lot of people
00:20:30.780 | who might move from the Bahamas to Florida
00:20:33.380 | and then realize that, you know,
00:20:34.860 | actually I like the lifestyle in the Bahamas better.
00:20:37.940 | And so the tax savings are just one component of it.
00:20:41.260 | There would be many reasons why you would choose
00:20:44.060 | a non-financial benefit
00:20:46.020 | because it's ways more to you than the finances.
00:20:50.660 | Why am I not gonna move to Pitcairn Island?
00:20:52.840 | Well, I don't see what future my children have
00:20:54.740 | on Pitcairn Island.
00:20:55.800 | All right, do I really think that my children,
00:20:59.080 | if I moved to Pitcairn Island,
00:21:00.300 | do I really think that my children
00:21:01.940 | are gonna be established there
00:21:03.320 | and that we're gonna keep on the island?
00:21:05.700 | Of course not, right?
00:21:07.780 | Who are they gonna marry?
00:21:08.620 | What are they gonna do?
00:21:09.660 | We're not villagers in that sense.
00:21:14.140 | Like we're not subsistence farmers.
00:21:16.700 | And so that's just not where we're gonna go.
00:21:20.460 | And so I'm not gonna go to an island
00:21:22.380 | in the middle of nowhere
00:21:24.200 | because of what it would do for my family
00:21:25.960 | and about their future prospects.
00:21:28.300 | There could be so many other non-financial things
00:21:30.740 | that you need to calculate the costs and benefits.
00:21:33.780 | Let's say that you're affected
00:21:34.820 | by seasonal affective disorder, right?
00:21:37.660 | Sad, you get sad during the winter time.
00:21:39.740 | So you can live in a place that's low tax
00:21:43.380 | and be sad half the year,
00:21:47.140 | or you can move to a place that's high tax
00:21:49.420 | and be happy half the year or happy all the year.
00:21:53.220 | Well, to me, I'd do that.
00:21:55.860 | I'd do that.
00:21:57.180 | There can be lots of other things, right?
00:21:59.380 | Maybe you face some kind of discrimination, right?
00:22:04.380 | In the place that you live.
00:22:06.700 | Well, if I face some kind of discrimination,
00:22:09.380 | I'll leave a place that's low tax
00:22:11.300 | where I can't get ahead
00:22:13.000 | or I'm hated for some innate characteristic.
00:22:16.040 | And I'll go someplace that's higher tax
00:22:18.540 | where I can go ahead 'cause I can build a bigger thing.
00:22:21.940 | And these things really matter.
00:22:23.820 | They affect your lifestyle.
00:22:25.980 | They affect your quality of life.
00:22:28.200 | And what we want is quality of life,
00:22:30.100 | not the lowest possible tax bill.
00:22:32.440 | That's number two.
00:22:35.700 | Number three, you wanna consider and calculate
00:22:38.220 | the opportunity cost of your decision,
00:22:40.780 | especially the long-term opportunity cost.
00:22:48.300 | I like to compare it in this way.
00:22:50.140 | Let's say that you are a 25-year-old man
00:22:55.620 | who's just graduated from,
00:22:57.380 | you know, you've graduated from university,
00:22:58.780 | you're getting a job, okay?
00:23:00.540 | You're not yet totally enveloped
00:23:03.780 | in the network of a local place.
00:23:05.640 | You still have an opportunity.
00:23:07.620 | Wherever you go next, you can settle down
00:23:09.920 | and build good options for yourself.
00:23:12.420 | You can build a good network wherever you go.
00:23:15.160 | Well, you have a choice.
00:23:17.420 | You can pick New York City or you can pick Miami, Florida.
00:23:22.060 | These are not your only two choices,
00:23:23.340 | but they're two choices.
00:23:24.940 | And I think they're good examples.
00:23:26.620 | You have these big cities that offer big city stuff,
00:23:30.060 | big city nightlife, big city environment.
00:23:32.860 | They have their good weather and their bad weather, right?
00:23:35.660 | Miami's hot in the summer and New York's hot in the summer.
00:23:37.900 | Miami's beautiful in the winter.
00:23:39.300 | New York is New York in the winter.
00:23:43.240 | Beautiful in many ways.
00:23:47.180 | I like to go to New York in the winter.
00:23:48.580 | I like to go and do the ice skating thing
00:23:50.420 | and look at the trees.
00:23:51.260 | It's fun for about four days.
00:23:52.700 | But the point is that you have your options, okay?
00:23:55.380 | And so you're weighing these things and you're saying,
00:23:57.760 | well, if I live in Manhattan,
00:24:00.140 | I can generate X amount of dollars of income.
00:24:02.620 | If I live in Miami,
00:24:03.620 | I can generate X amount of dollars of income.
00:24:05.820 | But I've got this pesky state and city level income tax.
00:24:09.580 | And let's assume that you do something
00:24:11.160 | that is equally valuable in both places.
00:24:12.980 | You're gonna make a good career in both places.
00:24:14.740 | This is interesting actually,
00:24:15.580 | is significant portions of the finance business
00:24:18.300 | have moved to Florida.
00:24:19.140 | It's something I never expected years ago.
00:24:21.740 | It's kind of hard, but increasingly, right?
00:24:23.580 | The New York Stock Exchange is thinking,
00:24:25.260 | well, do we move out of New York?
00:24:26.500 | You can't even imagine the New York Stock Exchange,
00:24:28.020 | Wall Street without Wall Street.
00:24:29.540 | It's just so ingrained into us.
00:24:30.980 | But it's really interesting that the kind of the movements
00:24:33.820 | that you see right now.
00:24:36.620 | But let's say that you're gonna pay $5,000 a year,
00:24:40.180 | just modest expectations,
00:24:41.700 | $5,000 a year of income taxes
00:24:44.980 | by living in New York versus $0 a year of living in Florida.
00:24:49.740 | Well, if you calculate the opportunity cost,
00:24:52.160 | what are you giving up with that?
00:24:53.380 | Maybe that $5,000 is just gonna be put into savings.
00:24:56.140 | It's gonna be put into mutual funds or into,
00:24:58.340 | but we'll get to some exciting options.
00:25:00.420 | Let's say you're gonna put it in index funds.
00:25:02.020 | And so you can sit down and calculate and say,
00:25:03.380 | okay, $5,000 per year.
00:25:05.480 | That's gonna be my annual savings.
00:25:08.260 | And I'm gonna set up an annual Roth IRA contribution
00:25:11.700 | starting at 25 years old.
00:25:13.500 | I'm gonna do this from 25 to 65 for 40 years.
00:25:17.060 | And I'm gonna put it in mutual funds at 7% per year.
00:25:20.980 | And I'm gonna start with nothing.
00:25:22.820 | So at 65, that decision to live in Florida
00:25:26.520 | is worth potentially $1,068,000.
00:25:31.520 | $1,068,000.
00:25:33.620 | So that's a million dollar decision.
00:25:35.560 | And if I get you early enough,
00:25:38.200 | and I say, listen, you can build a network in both places,
00:25:41.520 | then now it makes sense.
00:25:42.880 | And I wouldn't tell the 50 year old guy
00:25:44.520 | who's got this deep business network
00:25:46.360 | and all his contacts in New York,
00:25:47.400 | I wouldn't tell him to move to Miami.
00:25:49.420 | But the 25 year old who hasn't built that network yet,
00:25:52.400 | might as well build it in a place that's efficient
00:25:54.200 | from a state income tax perspective.
00:25:56.280 | Well, now let's say that you're in finance
00:25:57.960 | and let's say that you can invest in your own,
00:25:59.880 | your hedge fund you're working for.
00:26:02.520 | And maybe instead of 7%, maybe you could make 13%.
00:26:07.520 | Okay.
00:26:08.960 | Well, now all of a sudden,
00:26:09.920 | that's potentially a $5.7 million decision.
00:26:13.240 | So the opportunity cost of what you give up
00:26:15.000 | potentially compounds.
00:26:16.960 | So you need a lot of benefits
00:26:18.400 | to choose the higher tax jurisdiction.
00:26:20.600 | What do you need?
00:26:21.420 | Well, you need the much better job prospect in New York
00:26:24.360 | than you can get in Miami.
00:26:27.720 | You need the industry that really only exists in New York
00:26:30.600 | than you get in the Miami.
00:26:31.920 | Or you need substantial non-financial benefits
00:26:34.800 | like your family is in New York
00:26:36.880 | or your wife's family is in New York
00:26:39.040 | or your college network is in New York.
00:26:41.560 | You need those opportunities.
00:26:42.640 | You wanna consider them for the longterm.
00:26:45.120 | So think about the opportunity cost of your decision.
00:26:48.560 | What are you giving up
00:26:49.840 | if you make one decision versus another?
00:26:52.620 | What would you invest that tax money in
00:26:55.000 | if it weren't into taxes?
00:26:59.800 | I've often made recommendations to people.
00:27:01.480 | Okay, when you're starting your business,
00:27:02.480 | go to the tropical MBA, right?
00:27:04.040 | Go to a low cost living place,
00:27:05.940 | go to Thailand or Vietnam or someplace like that and set up
00:27:10.940 | and then also do it tax efficiently.
00:27:12.880 | Why?
00:27:13.720 | Well, because if you can live cheaply
00:27:16.280 | and whereas maybe your living costs in Chicago
00:27:20.040 | might be $75,000 a year,
00:27:22.160 | you can live an equivalent lifestyle for $30,000 a year.
00:27:25.680 | That frees up $45,000 per year
00:27:29.640 | that you can now invest back into your business.
00:27:32.200 | In addition, maybe you save a bunch of money on tax.
00:27:34.640 | So instead of having $20,000 a year of tax
00:27:37.320 | that you would have in Chicago,
00:27:38.760 | you now have an additional $20,000 tax savings available
00:27:41.720 | to you by living in Thailand.
00:27:43.200 | So now go and build the business there
00:27:45.880 | and then compound the numbers.
00:27:47.080 | See how quickly that extra $65,000
00:27:51.720 | invested in your business can set you free.
00:27:54.600 | You may now be able to become financially independent
00:27:56.720 | in seven years instead of in 27 years
00:27:59.560 | because you went to Thailand.
00:28:02.040 | So calculate the opportunity cost.
00:28:03.600 | What do you give up?
00:28:04.520 | Would you rather be in the high cost,
00:28:06.440 | the high tax, high cost of living place
00:28:08.720 | and go with the 27 year plan
00:28:10.400 | or would you rather go to the low tax, low cost living place
00:28:13.240 | and potentially be on the seven year plan?
00:28:14.920 | Some people would choose either one.
00:28:16.700 | Step four, think creatively about your options
00:28:19.560 | and realize that true win-win options
00:28:22.020 | might be available to you.
00:28:23.700 | In my opinion, this is probably the biggest opportunity
00:28:27.560 | where many people don't think creatively
00:28:29.720 | about their options.
00:28:30.600 | Let me give you an example, okay?
00:28:32.160 | About a month ago, a little under a month ago,
00:28:35.320 | I was watching Ramit Sethi.
00:28:39.680 | Ramit is a personal finance author or a guru.
00:28:43.400 | He wrote a book called "I Will Teach You to Be Rich."
00:28:46.680 | Interesting guy, very smart, very smooth,
00:28:50.360 | very good communicators, built a really good business.
00:28:53.080 | Book is pretty good.
00:28:55.000 | And he thinks a lot about lifestyle.
00:28:58.000 | He's one who advocates for lifestyle maximization as I do.
00:29:01.520 | I don't really disagree with,
00:29:03.400 | I don't disagree with much of anything that Ramit teaches.
00:29:06.560 | I don't know of any point of personal disagreement with him.
00:29:08.640 | I'm sure I could find him, but not an enemy of his.
00:29:11.840 | He's done a great job.
00:29:12.940 | But Ramit is an increasingly outspoken advocate
00:29:19.080 | of higher taxation.
00:29:21.640 | He politically would align with more of a progressive
00:29:26.280 | left-wing political identity.
00:29:28.040 | He believes that taxes should be raised on the rich,
00:29:30.880 | as many people do, and he's quite vocal about it.
00:29:35.880 | He's also vocal about the fact that you should live
00:29:39.840 | the life that you wanna live.
00:29:40.800 | And so here's Ramit's tweet thread.
00:29:42.840 | Guy on Reddit, quote, "I'm 27 male, $14 million net worth,
00:29:46.920 | "looking for a city to live in.
00:29:48.160 | "City must have one, good weather, two, be safe,
00:29:50.860 | "three, low capital gains tax," close quote.
00:29:53.560 | Ramit's comments.
00:29:54.520 | "Imagine being on track for $100 million plus net worth
00:29:58.540 | "by breathing oxygen, and of all your options in life,
00:30:02.340 | "you decide on taxes as a top criteria for where to live.
00:30:06.780 | "There are two groups who make decisions based on taxes
00:30:10.180 | "that I find incomprehensible.
00:30:12.340 | "Number one, low earners.
00:30:14.300 | "I remember a guy making $14 an hour in Texas
00:30:17.020 | "telling me I was dumb for voting Democrat because,
00:30:19.660 | "quote, they'll raise your taxes.
00:30:21.360 | "Buddy, they want my tax money, not yours.
00:30:26.200 | "And they should raise my taxes.
00:30:28.420 | "Two," the second group, "Two, the rich.
00:30:30.900 | "Okay, you're a multimillionaire, you can live anywhere.
00:30:33.540 | "You make 8% returns with capital gains advantages.
00:30:36.320 | "You literally cannot spend it all."
00:30:38.100 | I find that a total crazy statement, but he says,
00:30:41.840 | "You literally cannot spend it all.
00:30:43.600 | "Of all the things you can do in your life,
00:30:45.380 | "what guides you?
00:30:46.700 | "How little you can pay in taxes?"
00:30:48.980 | Censored, get an imagination, okay?
00:30:51.460 | So this is Ramit's basic comment,
00:30:53.500 | is that taxes should not be the criteria.
00:30:57.860 | Oh, it continues, excuse me.
00:30:58.700 | "If Reddit guy wants to live in San Jose or Dallas, great.
00:31:01.960 | "But why would taxes be in your top three,
00:31:05.100 | "five, or 10 criteria?
00:31:08.020 | "This dude will have hundreds of millions of dollars
00:31:10.140 | "in his lifetime.
00:31:11.400 | "This is the predictable endpoint of people
00:31:13.700 | "who have been taught that, quote, taxes are evil."
00:31:17.700 | So this is Ramit's thread.
00:31:19.300 | Now here's what I find interesting.
00:31:20.900 | We don't know if this guy is a US American or not.
00:31:23.960 | Let's start with him not being US American.
00:31:26.660 | Actually, I'm gonna ignore him being US American,
00:31:29.020 | because the US tax rules are so ridiculous,
00:31:31.940 | it is worth thinking about, but I'm just gonna ignore that.
00:31:35.100 | So first of all, let's say this guy's a Canadian, right?
00:31:37.420 | 27-year-old male, living in Toronto, Canada.
00:31:41.420 | $14 million net worth.
00:31:43.780 | He's looking for a city to live in.
00:31:45.140 | That city must have good weather, be safe,
00:31:46.980 | and low capital gains tax.
00:31:48.020 | Here's my question.
00:31:49.320 | If this guy were a Canadian, would you say to him,
00:31:51.660 | "Buddy, you absolutely have to go to San Diego, California,
00:31:56.020 | "because it's got good weather, it's safe,
00:31:58.200 | "and there are low capital gains taxes."
00:32:00.640 | Nonsense.
00:32:02.500 | You might say, "Okay, it's got good weather, right?
00:32:04.320 | "This is what San Diego is known for, generally,
00:32:06.460 | "but there are lots of places in the world
00:32:08.200 | "that have good weather.
00:32:09.500 | "There are lots of places that are much, much safer
00:32:12.120 | "than San Diego, and there are places
00:32:14.060 | "where his capital gains tax could be zero."
00:32:16.960 | Now, we don't know what kind of income he's creating
00:32:18.740 | from a $14 million net worth, but let's just run,
00:32:21.140 | let's do our analysis.
00:32:22.780 | Let's calculate the estimated tax liability
00:32:25.120 | of a certain decision.
00:32:26.700 | So this guy, let's pretend he's living in Canada.
00:32:28.900 | Let's say with, maybe he's got a million dollar a year
00:32:30.820 | income, $14 million net worth,
00:32:32.440 | but a million dollar a year income.
00:32:34.140 | So he's generating a million dollars a year
00:32:35.860 | of taxable income.
00:32:36.700 | Let's say that his taxes are $400,000 per year all in, okay?
00:32:41.140 | Now, he goes out, and he calculates the tax liability.
00:32:46.780 | He also calculates other costs and benefits of his decision.
00:32:49.920 | He looks at the world, and he says,
00:32:51.480 | "I wanna live somewhere where there's good weather.
00:32:53.800 | "I wanna live somewhere where it's safe,
00:32:55.660 | "and where there's a low capital gains tax."
00:32:58.080 | So maybe he thinks about some of the classic winners, right?
00:33:01.520 | Monaco.
00:33:02.460 | Beautiful weather, exceedingly safe,
00:33:07.000 | no capital gains tax, party town, right?
00:33:11.720 | Maybe he looks at some of the current places.
00:33:15.020 | He looks at Dubai, right?
00:33:17.200 | Sparkling city, maybe Doha or some other place
00:33:19.720 | if he wants something that's a little quieter.
00:33:21.520 | But he looks at a place like Dubai.
00:33:23.560 | Far safer than any place in the Americas.
00:33:26.680 | No capital gains tax, good weather.
00:33:30.840 | Maybe he's beyond that.
00:33:33.200 | Maybe he doesn't, maybe he genuinely does
00:33:35.400 | just have capital gains.
00:33:36.520 | And so he looks at, I don't know, New Zealand, right?
00:33:39.160 | And he thinks, "Well, okay, Christchurch, Auckland,
00:33:41.880 | "safe, good weather, depending on what you're looking for.
00:33:45.680 | "No capital gains tax."
00:33:47.480 | And so his cost is $400,000.
00:33:51.520 | You're trying to tell me, Rameen,
00:33:54.200 | that he shouldn't factor that in?
00:33:56.980 | Let's calculate the opportunity cost of that decision.
00:33:59.020 | Let's say that this guy is content spending $600,000 a year,
00:34:04.020 | 50,000 a month, right?
00:34:06.460 | Million dollars a year of income,
00:34:08.060 | $50,000 a month of what he's gonna spend in expenses.
00:34:10.920 | But he just says, "You know what?
00:34:11.880 | "I don't love Toronto.
00:34:13.780 | "I'm gonna move someplace that has good weather
00:34:15.780 | "and I'm just gonna be tax efficient."
00:34:18.060 | And so maybe he's gonna go and set up residence in,
00:34:21.980 | again, set us up residence in Dubai,
00:34:24.300 | lives in Dubai for four or five months a year.
00:34:26.240 | When it gets hot in Dubai, he goes to Europe,
00:34:28.740 | spend some time in Europe.
00:34:30.580 | He can go to France, he can go to Mediterranean,
00:34:33.060 | he can go to Monaco, doesn't matter.
00:34:35.180 | And then he goes to Miami, right?
00:34:36.780 | Or San Diego, and he goes and spends three months
00:34:39.040 | every year during the winter in San Diego, right?
00:34:41.220 | So he's not becoming a US person for tax purposes.
00:34:44.140 | He's not generating income there,
00:34:45.100 | he's just spending three months a year there.
00:34:46.460 | Well, he's got great weather,
00:34:47.640 | but he's saving $400,000 a year.
00:34:49.540 | Well, let's do the math.
00:34:51.340 | 27-year-old saves $400,000 per year.
00:34:55.680 | Does it for 40 years from age 27 to 67,
00:35:01.460 | invests at a boring 8% return,
00:35:05.320 | and starts with nothing, pretentious starts with nothing
00:35:08.220 | 'cause he's spending just income,
00:35:09.620 | and he's just doing the tax savings.
00:35:11.680 | Well, that's $111 million 40 years from now.
00:35:14.540 | Would I give up having $111 million for my children?
00:35:21.740 | Would I give up having $111 million for my church,
00:35:28.140 | for my charity, for my grandma?
00:35:32.440 | Would I give up 100,
00:35:33.700 | she's probably not gonna be alive when I'm 67.
00:35:35.860 | Would I give up $111 million to set up an offshore trust
00:35:40.740 | that's going to endow my children
00:35:42.600 | for potentially 10 generations
00:35:45.280 | in order to feel good about sending that $400,000
00:35:48.280 | to the Canadian or the US American government?
00:35:50.960 | Seems pretty dumb, doesn't it?
00:35:55.460 | And the answer is, in my opinion, it's obvious,
00:36:00.520 | because it's often people not thinking creatively
00:36:02.840 | about their options
00:36:03.780 | and not realizing that you can have win-win decisions.
00:36:07.040 | If you wanna spend time in San Diego, fine,
00:36:10.900 | just make it three months a year.
00:36:12.780 | Don't make it 12 months a year.
00:36:16.660 | If it's hot in Dubai, go to San Diego.
00:36:19.540 | If you don't like Dubai, then pick some other place.
00:36:22.140 | You can set it up as the point in a creative way
00:36:26.220 | that gives you the best of both.
00:36:28.280 | You can have better weather, better safety,
00:36:32.540 | better lifestyle, better culture, and low or no taxes.
00:36:37.540 | So if you're not happy with your options,
00:36:41.380 | go back and try to figure out, is there a better option?
00:36:44.340 | And if you've made the best choice,
00:36:47.100 | that you think this is the best option,
00:36:48.340 | Josh, I don't want, listen, I'm a US citizen.
00:36:51.100 | I don't wanna go anywhere.
00:36:52.580 | I just wanna do there, and so I like San Diego.
00:36:55.100 | Great, go for it.
00:36:56.260 | But consider the cost carefully
00:36:58.900 | and make sure you've actually recognized
00:37:00.660 | what's available to you.
00:37:03.060 | And then finally, make the decision that seems best to you
00:37:05.380 | based upon the personal factors, not just the tax factors.
00:37:10.380 | You may not be me, right?
00:37:12.540 | If I were this guy, 27 years old, $14 million net worth,
00:37:16.180 | I would do what I've described.
00:37:17.580 | I wouldn't live in Canada.
00:37:18.540 | I wouldn't live in the United States.
00:37:19.500 | I'd visit them.
00:37:20.340 | Canada and the United States treats visitors very well.
00:37:25.420 | They treat tax residents very poorly.
00:37:29.660 | So if your business, if your net worth
00:37:31.460 | is something that can be run better
00:37:32.820 | in another jurisdiction, do it.
00:37:34.500 | I would choose that.
00:37:36.860 | If you don't wanna live that lifestyle though,
00:37:38.140 | then you just make the examined choice that's right for you.
00:37:41.140 | So my answer is that taxes should be calculated
00:37:45.220 | and you should make an examined choice,
00:37:48.380 | an examined decision that's right for you.
00:37:50.580 | And there are very, very good and compelling reasons
00:37:55.140 | why many people will consciously choose to live
00:38:00.700 | in a higher tax jurisdiction
00:38:03.060 | because it gives them other benefits,
00:38:08.320 | both financial and non-financial.
00:38:10.700 | I would rather live in New York City
00:38:14.220 | than on Pitcairn Island.
00:38:15.580 | I would rather live in Paris, France, or Toronto, Canada,
00:38:20.300 | than on Pitcairn Island.
00:38:22.100 | I will make far more money net of taxes
00:38:26.240 | by living in any of those three cities
00:38:28.180 | than by living on Pitcairn Island.
00:38:30.660 | So I'm gonna come out ahead
00:38:32.020 | just because of my net wealth is gonna be bigger
00:38:35.180 | and I'm gonna enjoy every day a whole lot more
00:38:37.940 | than living on Pitcairn Island.
00:38:40.780 | But you should look and say,
00:38:46.460 | can I get something and still get it tax efficiently?
00:38:51.460 | Can I get something better
00:38:54.020 | and have the benefits of tax efficiency?
00:38:56.660 | For US Americans, if you will just simply spend
00:39:00.260 | no more than 35 days per year inside the United States,
00:39:04.260 | meaning that you spend 330 days per year or more
00:39:06.940 | outside of the United States,
00:39:09.060 | then you can exempt the first hundred and about $507,000
00:39:13.580 | of your income from federal income taxes.
00:39:15.860 | And so let's say that you're someone like me, right?
00:39:19.700 | You like traveling.
00:39:21.240 | You wanna take your kids and show them the world.
00:39:24.140 | And you would do that
00:39:25.020 | whether you lived in the United States
00:39:26.420 | or you didn't live in the United States.
00:39:28.100 | You just wanna show your kids the world.
00:39:30.100 | That's what we're planning on doing
00:39:32.260 | is doing some traveling this year.
00:39:34.420 | Well, a side benefit of that is some tax savings.
00:39:38.580 | It's not the number one reason.
00:39:41.020 | I wouldn't leave the United States
00:39:42.540 | and move to Pitcairn Island so that I can save on taxes.
00:39:46.820 | But if you're telling me I could leave the United States,
00:39:48.740 | go spend a month in France,
00:39:51.380 | month in Portugal, month in Turkey,
00:39:54.580 | spend a month in Dubai, spend a month in Hong Kong,
00:39:58.780 | spend a month in Thailand, spend a month in Australia.
00:40:03.100 | Well, all of a sudden now,
00:40:04.460 | I've gotten more personal benefits,
00:40:08.020 | this interesting travel lifestyle.
00:40:10.180 | I may have lowered my personal expenses
00:40:12.160 | depending on my style of travel.
00:40:14.900 | I've certainly lived a more interesting life
00:40:16.940 | and I've had the benefits of tax savings.
00:40:20.340 | And so I think in many cases,
00:40:23.020 | there's a way to find the win-win
00:40:24.420 | if you're creative.
00:40:25.840 | If you take the time, do the research,
00:40:27.740 | get to know yourself and work your way through it.
00:40:31.740 | At the end of the day,
00:40:32.840 | I think people are simply unimaginative.
00:40:36.700 | And often you've gotten so used to being abused
00:40:42.000 | by your embezzling business partner who beats you up
00:40:45.460 | if you don't pay him his fair share
00:40:48.380 | that you just don't think there's another choice.
00:40:53.020 | This is what I find incomprehensible.
00:40:54.900 | I don't understand why don't you wake up
00:41:00.060 | and realize, many people,
00:41:01.700 | why don't you wake up and realize
00:41:04.060 | that you're in business with an abusive business partner
00:41:07.180 | who's stealing half your money
00:41:08.920 | and giving you almost nothing back for it?
00:41:11.220 | You say, well, my business partner gives me a $1,300 check.
00:41:15.720 | Yeah, your business partner shut down your business
00:41:18.400 | for six months.
00:41:21.380 | I often imagine, okay, what if I were a New Yorker?
00:41:24.400 | I've paid all this money to live in this place
00:41:30.260 | where they closed my business down
00:41:33.180 | and refused to let me operate for months, six months.
00:41:36.780 | That's insane.
00:41:37.900 | That's insane.
00:41:40.140 | I don't understand why people sit back
00:41:45.540 | and let themselves be abused day after day after day.
00:41:48.180 | I'm trying to carefully avoid making this ranty,
00:41:51.540 | but I guess for 60 seconds of ranting,
00:41:54.640 | unless you're Lockheed Martin,
00:41:57.960 | why do you deal with people who abuse you?
00:42:01.060 | Some point in time, walk away, walk away.
00:42:04.500 | Now, I understand why Ramit advocates for higher taxes.
00:42:09.140 | It's smart, it's smart.
00:42:11.280 | If you're a wealthy person
00:42:13.220 | and you live in a society like the United States
00:42:16.020 | that is built on covetousness,
00:42:18.540 | where it's one of the most important,
00:42:20.860 | I mean, I see it as vice, as sin,
00:42:23.740 | but today it's considered to be a popular thing,
00:42:26.860 | you'd be foolish not to advocate for higher taxes.
00:42:30.300 | I think if you're rich,
00:42:31.580 | one of the smartest things that you can do
00:42:33.260 | is advocate for higher taxes.
00:42:35.180 | I encourage you to do it.
00:42:36.060 | Don't tell anyone to listen to Radical Personal Finance.
00:42:38.180 | You should advocate,
00:42:39.020 | or at least not advocate for lower taxes.
00:42:41.540 | The rich have always had to worry
00:42:43.940 | about people coming in with pitchforks and torches
00:42:47.780 | to take what they have.
00:42:49.220 | Remember that throughout the world,
00:42:51.460 | for basically all of history that we can figure out,
00:42:54.060 | you've always had 20% of the people
00:42:56.540 | have always controlled 80% of the resources.
00:42:58.740 | And then in the modern world where we have better numbers,
00:43:02.700 | we know, of course, that the top 20% of the top 20%
00:43:05.060 | control 80% of the resources,
00:43:06.780 | and then the top 20% of the top 20% control 80% of those,
00:43:10.020 | and it goes on, and that's why you have
00:43:11.540 | 1% of the world's population
00:43:12.980 | that controls 50% of the world's wealth.
00:43:15.420 | Whenever you read a story on,
00:43:17.780 | well, so-and-so, the top .00 whatever 1% owns
00:43:21.060 | X number of billions of dollars or trillions of dollars,
00:43:23.620 | just sit down and do a Pareto principle and ask yourself,
00:43:26.140 | is this a normal distribution?
00:43:27.780 | 'Cause a normal distribution is that 20% of the society
00:43:32.500 | owns 80% of the resources,
00:43:34.940 | which means that 4% of the society
00:43:37.700 | owns 64% of the resources,
00:43:40.020 | which means that 20% of the 4%,
00:43:42.300 | which is like 1% owns,
00:43:44.780 | what would that be, 51% of the resources, et cetera.
00:43:48.860 | And so there's always been a problem.
00:43:51.380 | And so you should intelligently advocate for higher taxes.
00:43:56.180 | Think about a guy like Warren Buffett.
00:43:57.820 | Imagine how hated Warren Buffett would be
00:44:01.780 | if he publicly advocated for lower taxes.
00:44:07.020 | But because he says,
00:44:09.660 | well, we should have the billionaire's pledge
00:44:11.420 | and we should have higher taxes,
00:44:12.740 | and after all, my secretary pays more money in tax than I do,
00:44:16.140 | then that causes him to be the beloved,
00:44:18.740 | elder, wise grandfather that we all love,
00:44:21.780 | rather than the hated, greedy capitalist.
00:44:24.100 | Meanwhile, what's the actual reality?
00:44:25.900 | Well, number one, wealthy people
00:44:28.940 | always have the money to pay for good tax planning.
00:44:35.140 | They can easily afford it
00:44:36.020 | and it's well within their interests,
00:44:37.940 | which is why being a tax planner for the wealthy
00:44:39.700 | is a very good business, that's number one.
00:44:41.900 | Number two, wealthy people always have the choice
00:44:47.140 | to influence government for themselves.
00:44:51.180 | Why does Amazon say, yeah, absolutely,
00:44:52.980 | we support collecting state-level income taxes
00:44:57.980 | on all internet commerce?
00:44:59.500 | Because they're so big now that they don't need that benefit.
00:45:02.580 | They would have died if they had to collect
00:45:05.860 | and calculate sales taxes for every state in the country
00:45:09.380 | when they started, but now they're so big,
00:45:11.180 | they can do that and they can freeze out their competitors.
00:45:13.340 | So as companies grow, they advocate for more intervention,
00:45:16.740 | more regulation, because they have the money
00:45:18.540 | to pay for the regulation,
00:45:19.700 | whereas their upstart competitors don't.
00:45:21.700 | Number three, wealthy people can adjust their operations
00:45:27.740 | so that they don't generally owe tax.
00:45:31.540 | Number four, if the tax regime gets too heavy,
00:45:34.620 | they can leave, rich people can leave.
00:45:37.900 | It's always the case.
00:45:39.140 | You saw New Jersey, whatever it was years ago,
00:45:41.060 | the story, oh, we lost thousands of millionaires
00:45:43.540 | and even the governors of the state.
00:45:46.900 | Listen, we can't do any more of this, guys,
00:45:48.460 | we're losing all our wealthy people.
00:45:50.340 | France years ago, wealth taxes, people left.
00:45:53.140 | The United States doesn't offer a bad proposition.
00:45:56.140 | It's not as tax efficient as most places,
00:45:57.940 | but as long as you're careful,
00:45:59.820 | you got decent capital gains tax rates, et cetera,
00:46:02.580 | you can live pretty well there.
00:46:03.660 | You get some good lifestyle benefits, it's hard to move,
00:46:05.900 | and so you're not gonna see a lot of wealthy people change.
00:46:09.140 | And then finally, you should know,
00:46:11.900 | if you're wealthy, you absolutely know,
00:46:14.140 | you got the Laffer curve in full effect.
00:46:16.580 | The US government has dialed in perfectly
00:46:19.660 | on the optimal level of taxation.
00:46:21.900 | That's why I don't personally expect taxes
00:46:24.620 | to change all that much.
00:46:26.180 | You don't get any changes.
00:46:27.460 | You get a lot of publicized, oh, President Trump,
00:46:29.740 | we're gonna lower your taxes, President Biden,
00:46:32.380 | we're gonna raise your taxes.
00:46:35.580 | I would be, I won't, I should be careful
00:46:38.940 | about putting my money where my mouth is.
00:46:40.100 | I'm happy to do it,
00:46:40.940 | but I just try not to make reckless statements.
00:46:42.940 | I cannot imagine, let's say that you get President Biden
00:46:45.780 | gets through a tax proposal,
00:46:47.420 | top marginal bracket, what, might go to 39, 41, 42%.
00:46:53.980 | It's not gonna be over 45, no chance, right?
00:46:57.500 | Why?
00:46:59.060 | Because while the politicians need to claim a victory,
00:47:03.700 | the realists always know we've dialed it in.
00:47:06.500 | We've got the highest possible level of taxation
00:47:09.420 | that we can get people to pay without charging so much
00:47:14.420 | that they're willing to leave.
00:47:16.300 | We abuse them just enough to get enough money
00:47:19.860 | to support our lifestyle, but not so much
00:47:21.540 | that they actually decide that they gotta leave
00:47:23.140 | and get out of the abusive relationship.
00:47:25.140 | And so meanwhile, it's very good policy
00:47:27.260 | for wealthy people to advocate for higher taxes.
00:47:29.340 | And I'm not being, I'm not accusing anyone
00:47:31.100 | of being insincere.
00:47:32.140 | I think that I'm sure that Ramit's perfectly sincere
00:47:35.020 | about this.
00:47:35.860 | I'm just pointing out for you that it's very good policy
00:47:38.820 | for you to advocate for higher taxes
00:47:41.060 | because if you're wealthy,
00:47:42.500 | there's very little chance of it affecting you.
00:47:44.660 | You can plan around it.
00:47:45.660 | You can afford to pay guys to do it.
00:47:47.020 | You can always leave, but in the meantime,
00:47:49.340 | you'll get the social credibility
00:47:51.220 | and be in a safer position as a wealthy person
00:47:53.780 | by saying, listen, I'm not your enemy, right?
00:47:56.340 | I advocate for higher taxes, right?
00:47:58.660 | I'm not your enemy.
00:48:00.100 | I got a billion dollars.
00:48:01.060 | I could go ahead and, you know,
00:48:02.740 | Warren Buffett could go ahead and stroke a check
00:48:04.780 | and pay off some national debt.
00:48:06.340 | He could do that, but he says, no,
00:48:11.220 | I'm gonna give it away, right?
00:48:12.500 | I'm altruistic.
00:48:13.860 | We're gonna give it away.
00:48:14.700 | We're gonna give it to the Bill and Melinda Gates Foundation,
00:48:16.220 | et cetera, and he gets the social credibility
00:48:18.220 | while he's alive.
00:48:19.180 | So that's kind of a minor tangent,
00:48:21.620 | but you should recognize always
00:48:23.220 | that it's good public policy for wealthy people
00:48:25.500 | to advocate for higher taxation
00:48:27.700 | 'cause you're well-protected
00:48:30.020 | if there actually is higher taxation.
00:48:32.420 | You can always leave, go elsewhere, get out of the tax net,
00:48:36.180 | but in the meantime, you'll get much more social credibility,
00:48:40.180 | much more popularity, which you can enjoy now in this space.
00:48:43.700 | So forgive me for this minor tangent.
00:48:45.420 | I just think it's important that you recognize
00:48:47.340 | how these social dynamics work.
00:48:49.300 | That's it for today's show.
00:48:50.260 | In summary, I would simply say you should consider taxes.
00:48:53.820 | Follow this process that I've outlined for you.
00:48:56.380 | Calculate the actual tax liabilities of a certain decision.
00:48:59.460 | If you're thinking about moving
00:49:00.380 | from Florida to North Carolina
00:49:02.100 | or from the Bahamas to France,
00:49:05.020 | then calculate the actual tax liabilities.
00:49:07.500 | Calculate the other costs and benefits of your decision,
00:49:10.560 | both the financial costs.
00:49:11.700 | You're gonna build a bigger career.
00:49:12.700 | You're gonna make more money net of higher taxes,
00:49:15.460 | and also the non-financial costs.
00:49:17.060 | I'm just gonna live a better lifestyle, right?
00:49:18.740 | I'd rather live in New York than in Pitcairn Island.
00:49:21.580 | Consider and calculate the opportunity costs
00:49:23.620 | of your decision.
00:49:24.460 | What are you giving up, right?
00:49:26.460 | You don't have to live in Pitcairn Island.
00:49:28.180 | You could live in Panama City,
00:49:30.300 | get a tax-efficient lifestyle.
00:49:32.180 | You could live in Uruguay, get a tax-efficient lifestyle.
00:49:35.940 | You could live in Monaco, get a tax-efficient lifestyle.
00:49:39.700 | So you don't have to move to New York City,
00:49:41.620 | and it might be worth it to you to get some of those things.
00:49:45.300 | Think creatively about your options
00:49:47.020 | and look for those win-win situations.
00:49:48.860 | Hey, I wanna travel the world.
00:49:50.500 | I'd like to live on a beach.
00:49:51.980 | I'd like to do that, so why not go ahead
00:49:53.900 | and live in Thailand and save money on tax?
00:49:57.020 | Come and make whatever decision seems best to you
00:49:59.860 | based upon the overall factors
00:50:03.260 | and emphasize those personal factors,
00:50:05.620 | not just the tax factors.
00:50:07.820 | Having been a tax planner for many years,
00:50:10.540 | having spent a lot of money on taxes,
00:50:12.980 | having saved a lot of money on taxes,
00:50:14.620 | I will tell you this.
00:50:15.700 | I am not willing to let the tax tail wag me the dog.
00:50:21.900 | I'm not willing to give up something
00:50:25.140 | that's important to me and say,
00:50:26.660 | oh, look, but we saved money in tax.
00:50:28.820 | I'm not willing to look at my children and say,
00:50:31.620 | yeah, I did something that I didn't think was best for you,
00:50:34.100 | but look, we saved money in tax.
00:50:36.020 | It seems really hollow.
00:50:37.240 | I'm gonna look for the best solutions that I can find.
00:50:41.380 | Tax savings are not the ultimate goal,
00:50:44.020 | but they are a factor.
00:50:47.140 | So this is what I wrestle with personally, me personally.
00:50:52.060 | I think, okay, well, I could move to the United States
00:50:56.580 | and I could pay more tax,
00:50:58.380 | or I could spend the tens of thousands of dollars a year
00:51:03.620 | and take my children around the world.
00:51:06.120 | Which of those is a better investment?
00:51:08.440 | I'm not convinced that it's a better investment
00:51:10.420 | for them to be in the United States
00:51:11.620 | than to spend tens of thousands of dollars a year
00:51:13.340 | taking them around the world.
00:51:14.860 | I just assume, I think,
00:51:16.460 | I just assume use those tax savings and save the money
00:51:20.020 | or use the tax savings and buy airplane tickets.
00:51:26.540 | I think, well, should I go and spend more tax
00:51:31.540 | or should I be able to afford an annual ski vacation
00:51:35.660 | that I would otherwise wouldn't spend the money on?
00:51:38.220 | Or should I go ahead and spend more money
00:51:41.580 | on a private school tuition
00:51:43.340 | that I might not otherwise spend the money on?
00:51:45.980 | Should I hire a private tutor?
00:51:48.540 | Is it better for me to move to Atlanta, Georgia
00:51:51.940 | and live in Atlanta, Georgia,
00:51:53.880 | or should I take the same $50,000 a year of tax
00:51:57.980 | and live in a tax efficient place
00:52:03.380 | and spend that on a private tutor?
00:52:06.260 | Right, these are the trade-offs,
00:52:07.540 | these are the opportunity costs.
00:52:09.280 | So I am not willing to prioritize taxes
00:52:13.380 | at the height of the list.
00:52:15.740 | I'm not willing to move to Pitcairn Island.
00:52:17.940 | But if I can find that win-win,
00:52:21.660 | if I can find that balance,
00:52:24.280 | to me, that's a compelling thing.
00:52:27.320 | That balance might be Miami, Florida.
00:52:29.460 | Right, that balance might be the Bahamas.
00:52:32.660 | But can I find that balance
00:52:37.080 | that puts me in the overall best situation?
00:52:39.880 | I encourage you to think about it and think creatively.
00:52:43.060 | Don't let taxes drive your life,
00:52:45.760 | but don't ignore them either
00:52:47.600 | because they are a real net cost
00:52:50.240 | that takes money out of your pocket
00:52:52.860 | and sends it to someone else.
00:52:54.440 | Thank you so much for listening, I really appreciate it.
00:52:56.960 | Be back with you very soon.
00:52:57.840 | I would just ask today,
00:52:58.960 | if you have not left me a rating and a review,
00:53:01.960 | I would be so grateful if you would do that.
00:53:04.800 | Just take a quick moment right now,
00:53:06.940 | click pause, grab whatever app you're listening to me on,
00:53:10.560 | and just simply leave a quick star rating and a review.
00:53:13.580 | One or two sentences is perfect,
00:53:15.520 | but that would really help my show to grow
00:53:17.280 | and I'd be so grateful.
00:53:18.600 | Thank you so much.