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Steve's note: We're doing something a little different in today's DailyWealth... We're featuring an interesting piece from our friend Doug Casey. Doug is a master speculator and, we believe, a national treasure... But there's no doubt he's one of the most controversial figures in the industry. That's why we always enjoy sharing his thoughts with our readers.
Today's piece was published around tax time last year. It's longer than most. But if you've ever stopped to wonder what a tax-free world would look like, it's well worth the time...
Wednesday, April 10, 2013
Louis James: Doug, the Taxman cometh, at least for most U.S. citizens who file their annual tax papers on April 15. We get a lot of letters from readers who know about your international lifestyle and wonder about the tax advantages they assume it confers. Is this something you care to talk about?
Doug Casey: Yes; something wicked this way comes, indeed. But first, I have to say that as much as I can understand the guy who flew his airplane into an IRS building, as we once discussed, I do not encourage anyone to break the law. That's not for ethical reasons – far from it – but strictly on practical grounds. The Taxman can and will come for you, no matter how great or small the amount of tax he expects to extract from you.
The IRS can impound your assets, take your computers, freeze your accounts, and make life just about impossible for you, while you struggle to defend yourself against their claims and keep the rest of your life going. The number of IRS horror stories is beyond counting. As the state goes deeper into insolvency, its enforcement of tax laws will necessarily become more draconian. So you absolutely don't want to become a target.
L: So... just bow down and lick the boots of our masters?
Doug: Of course not. People can and should do everything they can to pay as little in taxes as possible. This is an ethical imperative; we must starve the beast. It could even be seen as a patriotic duty – if one believes in such things – to deny revenue to the state any way possible, short of endangering yourself.
Starving the beast may be the only way to force it back into its cage – we certainly can't count on politicians to make the right choices – they're minions of the state. They inevitably act to make it bigger and more powerful. It's sad to see well-intentioned people supporting someone like Mitt Romney because they naïvely think he'll reduce the size of the state and its taxes. The man has absolutely no ethical center; he'll just try to change the government to suit his whims.
L: Can you expand on the ethical imperative aspect?
Doug: Yes. The first thing is to get a grip on who owns the moral high ground. The state, the media, teachers, pundits, corporations – the entire establishment, really – all emphasize the moral correctness of paying taxes. They call someone who doesn't do so a "tax cheat." As usual, they have things upside down.
Let's start with a definition of "theft," something I hold is immoral and destructive. Theft is to take someone's property against his will, i.e., by force or fraud. There isn't a clause in the definition that says, "unless the king or the state takes the property; then it's no longer theft." You have a right to defend yourself from theft, regardless of who the thief is or why he is stealing.
It's much as if a mugger grabs you on the street. You have no moral obligation to give him your money. On the contrary, you have a moral obligation to deny him that money.
Does it matter if the thief says he's going to use it to feed himself? No. Does it matter if he says he's going to feed a starving person he knows? No. Does it matter if he's talked to other people in the neighborhood, and 51% of them think he should rob you to feed the starving guy? No. Does it matter if the thief sets himself up as the government? No. Now of course, this gets us into a discussion of the nature of government as an institution, which we've talked about before.
But my point here is that you can't give the tax authorities the moral high ground. That's important because decent people want to do the morally right thing. This is why sociopaths try to convince people that the wrong thing is the right thing.
If an armed mugger or a gang of muggers wanted my wallet on the street, would I give it to them? Yes, most likely, because I can't stop them from taking it and I don't want them to kill me. But do they have a right to it? No. And every taxpayer should keep that analogy at the top of his mind.
L: I also believe that the initiation of the use of force (or fraud, which is a sort of indirect, disguised form of force) is unethical. It doesn't matter what the reason for it might be nor how many people might approve of the action. But some people claim that taxation is really voluntary – the price one pays for living in society... and if I'm not mistaken, the U.S. government says the federal income tax is voluntary.
Doug: [Snorts] That is a widely promoted lie. It's propaganda to help statists claim the moral high ground, confuse the argument, and intimidate people who aren't critical thinkers. Just try not volunteering to pay it and see what happens. Taxation is force alloyed with fraud – a nasty combination. It's theft, pure and simple.
Most people basically admit this when they call taxation a "necessary evil," somehow mentally evading confrontation with the fact that they are giving sanction to evil. But I question whether there can be such a thing as a "necessary evil." Can anything evil really be necessary? Can anything necessary really be evil?
Entirely apart from that, if people really wanted anything the state uses its taxes for, they would, should, and could pay for it in the marketplace. Services the state now provides would be offered by entrepreneurs making a profit.
I understand, and am somewhat sympathetic to, the argument that a "night-watchman" state is acceptable; but since the state always has a monopoly of force, it inevitably grows like a cancer, to the extent that the parasite overwhelms and kills the host. That's where we are today.
I think a spade should be called a spade, theft should be recognized for what it is, and evil should be opposed, regardless of the excuses and justifications given for it. Ends do not justify means – and evil means lead to evil ends, as we see in the bloated, corrupt, dangerous governments we have all over the world.
L: That runs counter to the conventional wisdom, Doug. Evil or not, most people think taxation is part of the natural order of things, like rain or day and night. Death and taxes are seen as the two inevitable things in life, and you are a silly idealist – if not a dangerous madman – if you believe otherwise.
Doug: That saying about death and taxes is both evil and stupid; it's a soul-destroying and mind-destroying perversion of reality. It's evil because it makes people reflexively accept the worst things in the world as permanent and inevitable.
As for death, technology is actively advancing to vanquish it. Who knows how far medicine, biotech, and nanotech can delay the onset of death? And taxes are, at best, an artifact of a primitive feudal world; they're actually no longer necessary in an advanced, free-market civilization.
People also once thought the world was flat, that bathing was unhealthy, and that there was such a thing as the divine right of kings. Many things "everyone knows" just aren't so, and this is one of those.
A government – for those "practical" people who think they need one – that stuck to the basic core functions of police and courts to defend people against force and fraud and a military to defend against invasion would cost a tiny, tiny fraction of what today's government costs... And that could be funded in any number of ways that essentially boil down to charging for services.
As it is now, the average U.S. taxpayer probably works half of the year just to pay direct and indirect taxes. That doesn't even count the cost of businesses destroyed by regulation and lives lost to slow approval of new treatments by regulators, or a million other ways governments burden, obstruct, and harass people.
L: I just looked, and Tax Freedom Day this year is April 17. [Editor's note: This year, Tax Freedom Day falls on April 18.]
Doug: That means that all the work the average guy does until April 17 goes to pay for the government that failed to protect him on September 11, 2001, failed to protect him from the crash of 2008, and continues failing him every day. We pay for an organization bent on doing not just the wrong things, but the exact opposite of the right things in economics, foreign policy, and everything else we've talked about in all our conversations.
It's rather perverse that Emancipation Day – the day the first slaves in the U.S. were freed in the District of Columbia in 1862 – is April 16. But what is a slave? He's someone who is deprived by force of the fruits of his labor. Sound familiar? I disapprove of slavery, in any form – including its current form.
However, Tax Freedom Day is an incomplete way of looking at things. What's the cost to business forced to install equipment to meet government regulations? That's not paid as a tax, but it's a serious burden. There's something called Cost of Government Day that's a somewhat more inclusive estimate of the burden the state imposes on the average guy...
L: I just looked for that too and don't see that a date for 2012 has been announced yet; but Cost of Government Day for 2011 was August 12. According to that estimate, the average U.S. taxpayer slaved away for about two-thirds of the year to pay for the state and got to keep only a third of the fruit of his labor for his own benefit and improvement.
Doug: That may be a more accurate way of looking at the burden of government the average guy has to bear, but it still doesn't even begin to address what economists call "opportunity cost."
Basically, I don't just look at what the state we have costs us in cash, but in terms of the innovation and growth we don't have because of government policies, laws, and regulations. This covers everything from new medicines to all sorts of new technologies to different forms of social and business organizations to the cleaner intellectual atmosphere I think we'd have without government propaganda machines cluttering it up.
I don't believe in utopia, but I do believe our world could be far freer, healthier, and happier than it is today – without any divine intervention, magic, or changes in the laws of physics. Just a different path, every bit as possible as the one we've taken to where we are today.
L: As in the alternative reality L. Neil Smith wrote about in his book The Probability Broach?
Doug: At least as far as the humans in that story go, yes, it's a good illustration of how much more advanced the world might be, based on a different turn of events.
Back in this world, I think that without any major differences in technological development and without assuming that people would spontaneously become angels, the average standard of living worldwide would be much higher if... Well, there are lots of turning points, some of which we've discussed. Just in the 20th century, things would be very different if America had stayed out of WWI, or had not ratified the 16th Amendment to the Constitution, or had not elected FDR.
L: OK, but those things did happen, and we live in the world we have today – the one you call a prison planet. How should people try to do what's right in such a world without ending up in jail?
Doug: First, it's important to think about what's actually possible, because people will not even try to reach for what they are sure is impossible. The world needs idealists to challenge us all to aim higher... including idealists willing to go to jail for what they believe in, like Thoreau. But even he said that while he encouraged all people to disobey unjust laws, he wouldn't ask those who support families to get themselves locked up and leave their families destitute.
So my take is as we started out saying: It is both ethically and practically imperative to starve the beast. The less cooperation of any sort we give the state – but especially the less money we give it – the less mischief it can get into. We're unlikely to get politicians to vote for getting the state off our backs, out of our pocketbooks, out of our bedrooms, and out of other people's countries as a matter of principle, but we could see the state get out of places it doesn't belong simply for lack of funds.
And if everybody treated minions of the state with the contempt they deserve, most of them would quit and be forced to find productive work. As Gandhi showed us, civil disobedience can not only be an ethical choice, but a very powerful force for change.
L: Any specific advice?
Doug: Get a good accountant, take every deduction you can, and look for ways to legally reduce your tax burden. For example, our readers should know that charitable contributions in the U.S. get deducted after the alternative minimum tax wipes out your other deductions. That means that a substantial fraction of every dollar you give a registered 501(c)(3) nonprofit does not go to the federal government.
Now, as you know, I don't believe in charity, at least not in the institutional sense, but wasting money on charities is far, far better than giving it to the government to use bombing innocents and creating enemies for generations to come.
And if that charity happens to be something like the Institute for Justice, the Fully Informed Jury Association, or any of the other libertarian think tanks dedicated to reducing the size and scope of government, you get to help fight the beast and starve it at the same time.
L: I do my economics and entrepreneurship camps in Eastern Europe under the auspices of the International Society for Individual Liberty – of which I should disclose that I am a director. I have to admit that it pleases me greatly to see funds that would have gone into making bombs to drop on foreigners and hiring more goons in uniform to oppress people at home redirected to something I consider constructive.
But what about the international diversification question: can that help reduce your tax burden back home?
Doug: It's different for different countries, and each individual should consult a tax specialist with the details of his or her own case, or proposed case. However, there is an exclusion for Americans who live abroad for a whole tax year – it was around $100,000 the last I looked. So there are very good tax reasons for Americans to live abroad.
There are even better reasons for Canadians, Europeans, and almost everyone else to leave their native country – many can live 100% tax-free. I guess it's just a sad testimony to the medieval-serf mentality that most people suffer from that few people take advantage of this. They're born someplace, and they stay rooted there, like a plant. Oh well, everybody basically makes his own bed, reaps what he sows, and gets what he deserves...
However, as appealing as the "permanent tourist" idea is, I recommend international living first and foremost as a way to protect your assets. As we've discussed before, real estate in foreign countries cannot be repatriated or confiscated by the government that thinks of you as its milk cow. There is nothing illegal or nefarious about buying real estate abroad, and it could come in very handy if things get really chaotic back home, wherever that happens to be.
L: OK... any investment implications to discuss?
Doug: Sure, but nothing new to our readers. Starving the state-beast is the right thing to do, ethically and practically, but I believe the state's days are numbered anyway. The thing to be aware of is that the beast won't go quietly, and in its death throes it can do a lot of harm. Still, like Nietzsche said, "That which is about to fall deserves to be pushed."
In the meantime, much higher taxes are on the way. More and more currency controls are coming. You may have heard that the U.S. is contemplating a law denying issue or canceling the passport of anyone accused of owing more than $50,000 in taxes. I expect the transformation of what was once America into a police state to continue, and I expect other "developed" nations – especially Europe, Canada, and Australia – to follow suit. And this will happen whether or not the global economy exits the eye of the storm as I expect it to.
So you want to rig for stormy weather and invest for continuing crisis. Own gold for prudence, speculate on related stocks and others that may benefit from government profligacy, and as we've just been saying, diversify your assets and personal living arrangements internationally.
The day is coming when your local government may stop seeing you as a milk cow and start seeing you as a beef cow, and you want to have options before that day.
L: The Casey mantra. Any chance you're wrong?
Doug: Anything's possible. But we just asked ourselves that question in our conversation on the illusion of recovery, and I just don't see a way out for the old economic order.
L: OK, Doug. I hope our readers don't tune us out for sounding like a broken record – I believe it's vital that they do take action, preparing for more volatility in the markets ahead. And hedging one's bets against social chaos may sound a bit extreme, but as an option, it sure is something that can help one sleep better at night.
Doug: I didn't formulate the rules for this crazy game; I'm just trying to play it competently.
Read more of Doug's unusual ideas here...
A Few Radical Ideas About Wealth
"The bottom line is, if you want serious money, you have to get serious about money."
An Inside Look at One of the Biggest Scams in America
"By the time this period of history comes to an end, the whole financial, economic, and political landscape will have changed."
ANOTHER TRIPLE-DIGIT GAIN FROM A TOP "BASICS" IDEA
Our "basics" approach isn't just working for brewing companies... it's working for cigarette companies as well.
As we reminded you yesterday, when it comes to investing in high-growth emerging markets, like Brazil, India, and China, we avoid hot gadgets and Internet stocks. We recommend "the basics" approach of owning dominant global companies that sell things like soda, beer, and cigarettes to these markets. "Boring" products like these enjoy steady demand. After all, there's scant risk that new technology will make having a beer after work obsolete. Plus, well-run companies in these industries generate huge cash flows and dividends.
Yesterday, we pointed to global brewing giant Anheuser-Busch InBev (BUD) as a way to take advantage of this idea. The stock is a favorite of our colleague Dan Ferris, who classifies it as a "World Dominator." Shares are up 100%-plus in three years, confirming our basics thesis.
Today's chart shows the basics approach is also working for another one of Dan's favorite companies... giant cigarette-maker Philip Morris International (NYSE: PM). It's one of the world's largest cigarette vendors... and it has tremendous exposure to the world's growing economies.
As you can see below, Philip Morris is generating huge returns for investors. Including dividends, shareholders have made 96% in just three years. The stock touched a fresh all-time high last week. It's another incredible gain from our "basics" strategy.
In The Daily Crux