John Paulson, a hedge fund manager that you might know from books like The Big Short, has been spending the last couple years promoting Puerto Rico to New York’s financial elite as a way of avoiding Federal taxes without dropping their American citizenship, thanks to a 2012 tax shelter law.
Business Week wrote a long article about it back in June, and various firms are promoting Puerto Rican real estate to entrepreneurs and investors as a way to both reduce their personal and corporate tax burden. The gist is that if you spend half of the year living in Puerto Rico, they don’t have to pay Federal taxes anymore, whereas they would need to if they were living in most other foreign countries while keeping their citizenship. US expats, unlike most other countries, are often double-taxed, although there are some minor loopholes that are more accessible for people earning below a certain amount.
The slogan ‘exit over voice’ is being implemented right now, and being used by some of the biggest names in finance. The funny thing is that it would not take a large number of people listening to Paulson to upset the fiscal boats of both the United States and various extremely left-wing American cities, which are entirely reliant on the very wealthy to handle their budgets. Paulson himself donated $100 million to the upkeep of Central Park — and it’s worth noting that, during the restoration of New York City, the renovations of the parks around the city was handled almost entirely by wealthy donors. For comparison, Central Park’s annual budget is typically half of what Paulson gave to it.
One of the reasons why Paulson is pushing hard on the Puerto Rico point is that he has personally come into conflict with New York City’s Communist mayor, De Blasio. Whatever you think of Paulson, he’s almost certainly in the region of thousands of times more competent and intelligent than the mayor, and certainly more connected.
If there is a problem with the plan, probably the biggest one is simply the presence of Puerto Ricans, and the connection with the US government. On the other hand, from the government’s perspective, this sort of halfway measure can keep a lot of wealthy people who would otherwise expatriate to remain citizens.
This sort of initiative can do more damage to the size of the American government than 10,000 Ronald Reagans winning elections.