On March 24, 2013 it was announced that Cyprus will indeed confiscate deposits in private bank accounts to save Cyprus. In other words, the saves will pay for the sins of the debtors.
Making the virtue of “saving” pay for the sin of “borrowing”
Confiscation of assets is a direct attack on the principle of saving!
If you haven’t heard by now, Cyprus has announced the direct confiscation of money in its citizens bank accounts. The announcement was made on a Saturday when the banks were closed. The banks remain closed for a bank “holiday” and the only issue is how and what percent of people’s “after tax” savings will be confiscated from them. As one commentator has suggested Cyprus appears to employing a (contextually) clever “divide and conquer” technique – turning citizens against each other. Those with fewer savings will have less stolen from them and those with more savings will have more stolen from them. What could be more just than that?
Once the precedent for “direct confiscation” in the EU has been established it will be interesting to see which country will be next. Is the direct confiscation of assets unreasonable? Well, it depends on your point of view. Is Cyprus entitled to a “bail out” from the EU? Is there some reason why the taxpayers of other nations should deliver a “bail out” to Cyprus? Considered from this perspective, it makes sense that the citizens of Cyprus should pay. But, hold on a minute! The citizens that are forced to pay for the mismanagement of the country INCLUDE the very people (leaving aside other kinds of depositors) who prudently saved. Again – it is the “savers” who are being “raked over the coals”. What about the non-savers? They will benefit from the confiscation of the savers savings. Fortunately they didn’t save. As a result, they are getting the last laugh. Does savings, thrift and financial responsibility pay in the new world?
To put it simply:
Direct confiscation of assets works only if people have SAVED assets to confiscate! The word “assets” should be replaced by the word “savings”.
But how do you identify those with assets? How do you locate the “fruits of the saving”?
Answer: If you are the U.S. government you let FBAR and FATCA 8938 do the work for you. If FBAR and FATCA 8938 are not used to identify assets/savings for confiscation then what are they for? There is one answer: fines and penalties which are another way of confiscation of assets/savings.
The assets of U.S. citizens abroad will be the easiest to identify and there is no doubt that the U.S. government will attempt to confiscate them. (After all, U.S. citizens abroad are by definition “tax cheats” – the offshore versions of Timothy Geithner. This was explained by Barack Obama and Timothy Geither as a prelude to FATCA.) These assets will be the hardest to expropriate. They are located in other countries.
This may not be as brazen as what Cyprus has done (note the use of the world “may”). There are other ways to confiscate assets and these methods are already being used. It is important to recognize them.
Estate Taxes: Why should the family business be able to be passed to the next generation?
Wealth Taxes: It’s just not fair that some have more than others.
Exit Taxes: U.S. citizens who wish to buy their freedom must pay the U.S. government in return for letting them go. (Didn’t slavery come to an end at the end of the Civil War? But, then again, the 14th amendment (which was intended to provide equal citizenship to the slaves is now used to create slaves of anybody born in the U.S.)
Fines that are described as taxes but are really fines: Best example are the PFIC rules. If this were really just a way to tax deferral, the owners of mutual funds would not have been subjected to the highest personal income tax rate but would have been subjected to normal capital gains rates.
FBAR/FATCA Fines and Penalties: as described above.
Low interest policies which ensure that one cannot get a return on cash: Pity those conservative investors who saved for retirement. Once again a benefit for debtors at the expense of savers. Interestingly, the Bank of England as recently as March 2013 has contemplated negative interest rates – with the predictable effect on savers.
Inflation: The friend of all fiscally irresponsible governments. Inflation erodes the value of cash. The late Sir John Templeton used to refer to the “folly of holding cash”. Even with a decent interest rate, his point was that government spending caused inflation which eroded capital. He also made the point that sooner or later the spendthrifts would be owned by the thrifty.
The way in which the tax laws are administered: An Alaska enrolled agent recently wrote a post explaining why he believes the IRS is stealing from taxpayers.
Financial terrorism: Seriously what do you think the IRS attack on U.S. citizens abroad is? Pay us 27.5% of your assets and we will let you alone. Actually, as we know the IRS can’t even be trusted to abide by the terms of OVDI.
Note that with the exception of “wealth taxes”, the United States is a “world leader in confiscation”.
Notice that each and every one of the things described in this list is an attack on the principle of saving! Not income but saving! In other words, as usual, governments are doing the exact opposite of what they should do.
Moral of the story: Stop saving. We are in a new world. Those who will do the best will be the ones who recognize that we are heading toward a new definition of wealth.
My suggested definition of wealth:
The ability to enjoy life without fear of government and to be mentally and physically fit. For U.S. citizens abroad who want to enjoy life, consider renouncing U.S. citizenship. It’s a Brave New World! Get used to it. Invest in your ability to learn, appreciate and enjoy life. Take steps to minimize the ability of the government to confiscate those precious things. Those who learn to live comfortably on the smallest amounts of money will be wealthiest.
In a world where “all roads lead to confiscation”:
“Your education is the only thing somebody can’t take away from you.”
– the words of a wise Eastern European immigrant
I agree that education is something you should invest in.
Some further thoughts on things that governments can’t take from you:
Here is a nice list which includes some intangibles – the things that make or break our daily lives.
Cabbage soup is not only economical but is very healthy!
A closing request
Please leave comments that include either “cabbage soup recipes” or more thoughts on things that governments cannot take away from you. Thanks in advance.