Why Not Shop Around for the Best Government?

Leonardo da Vinci’s painting and engineering skills were so highly renowned that he was in extremely high demand among European nobility in the early Renaissance.

Leonardo started in the independent city-state of Florence as an apprentice artist, where he worked for the famous Medici family.

Then in the early 1480s, da Vinci went to Milan to work for Duke Ludovico Sforza (the man who commissioned The Last Supper).

At the turn of the century, the Venetian Republic briefly engaged da Vinci’s services as a military adviser. He then relocated to the Papal States to work as a military adviser for Pope Alexander VI’s son, Cesare Borgia.

By 1503, he was back to work in Florence, and in 1515 moved to France, where he lived the remainder of his life working for King Francis I.

But Leonardo da Vinci was far from the only renaissance man who could take advantage of governments competing for talent.

The leaders of Italian city-states wanted to show the world how advanced and cultured they were, and therefore would extend tax breaks, land, and even titles to talented individuals, including artists, inventors, scientists, and engineers.

And this concept still exists today as well.

For example, US cities and states competed a few years ago to attract the new Amazon headquarters to their area.

New York City was initially chosen for Amazon’s ‘HQ2’ site before New York’s crazy politicians led a revolt, and Amazon decided it wasn’t worth the political hassle.

US cities also competed to attract Tesla’s new headquarters when Elon Musk decided to take his company out of California. He chose Texas, even though Tulsa, Oklahoma built a seven story Elon statue in his honor.

Gun manufacturer Smith and Wesson recently announced it would move from anti-gun, high-tax Massachusetts, to pro-gun and business-friendly Tennessee. The company even chose a specific county which marketed itself as a Second Amendment sanctuary.

But these opportunities don’t just exist for big businesses and famous artists. Anyone can shop around for the best government.

You might not feel like you have that much power as a consumer, but market factors prove otherwise.

For example, during the pandemic, several tourism-dependent Caribbean nations began offering special rates for their citizenship-by-investment programs.

And other countries have taken to offering “digital nomad visas” to attract talented solopreneurs and professionals to their shores.

Many governments are starting to see these programs as a no-brainer. When foreigners (who have relatively higher income) spend several months living somewhere, they tend to spend a lot more money on food, rent, etc.

All of that money makes its way into the local economy. Businesses generate higher revenue. More workers are hired. Tax revenue increases.

More importantly, digital workers in particular tend to be young and healthy, so they don’t strain the public healthcare system. They behave themselves, so they don’t create extra work for police.

And because they show up with their own sources of income, they aren’t trying to ‘steal’ anyone’s job.

But the digital workers receive tremendous benefits, too.

For example, you could cut your tax rate considerably, even to zero, by moving abroad.

If you’re not a US citizen, you simply have to establish residency in a country with no income tax, or what’s known as a “territorial” tax system which only taxes you on the money you earn from economic activity in that country.

Panama is a great example of a territorial tax system. So foreigners who generate income online, or trading stocks, futures, and crypto, for example, don’t owe Panamanian tax.

For US citizens, you can move abroad and take advantage of a huge tax break known as the Foreign Earned Income Exclusion (FEIE).

The FEIE allows single taxpayers to earn $108,700 without paying any US federal income tax. And the exclusion amount jumps to $217,400 if you’re married (for the 2021 tax year).

Once you add in the Foreign Housing Exclusion/Deduction, it’s possible for singles to earn about $150,000 per year abroad, completely tax-free. For couples, you could potentially have about $300,000 excluded from US federal taxes if you live abroad.

As you might expect, small countries which depend on tourism are some of the most keen to offer these attractive digital nomad residencies.

Antigua and Barbuda, Barbados, Curaçao, Dominica, and Montserrat are among the Caribbean countries offering a digital nomad visa.

You generally have to show that you have a certain amount of income, and then you may be granted permission to live in the country for between six months and two years.

Croatia, Estonia, and Malta have similar programs in Europe.

If you are looking for something a little more permanent, Portugal and Spain also offer visas to people who work online.

Overall this is a really great. Governments need new sources of tax revenue, and we’re starting to see more of these programs where they roll out the red carpet for foreigners.

There may even come a day when governments are forced to think about all the things they are doing wrong— because people can simply take their lives and their businesses elsewhere.

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