Hello everyone, I was reading something about Ultra Hight Net Worth Individuals and rich people in general.
I saw that although the US is home to +51% of UHNWIs, is not on the top 5 per capita.
Countries like Canada and Sweden that have really high tax rates are in the top 5 of UHNWIs per million habitants, New Zeland, Denmark and Norway are also on the list. How is that possible if Tax rates are super high? Wouldn’t it make sense to be that way in countries with low tax rate?
You’re oversimplifying. Yes, all else being equal you might assume that the ultra wealthy would simply choose to live in a place that has a lower tax rate. But all else is NOT equal.
People who are that wealthy want to live where other wealthy people are. They want to live in countries that have property rights, so their wealth can’t simply be taken away by the government of the moment. They want to live somewhere where a desperate gang of criminals is not going to kidnap their children while traveling to or from school.
In addition, you are assuming that ultra wealthy people pay the taxes like a normal person, they don’t. They have a lot of choices and options when it comes to how their income is categorized and that allows them to engage in a lot of tax planning and tax avoidance.
Also, the number of UHNWIs per capita is HEAVILY infulinced by how you define UHNWIs. Say you set the cutoff at 30 million in assets. That’s a lot of money, but it’s not so much money so as to be unfathomable to the average Canadian, who’s earning an average salary of $72,000 per year.
After all, that UHNWI only has 428x the average Canadian’s salary. Seems like a lot, but lets look at the average salary in Bangladesh (around $4,000 CAD per year). It would take 7,500 years for them to earn that same 30 million Canadian.
But the real reason is the state supporting that kind of wealth generation. Take the example of Bao Fan, very recently one of the wealthiest people in China. Suddenly he disappears for a few months, and when he comes back his company is in ruins. He’s under investigation (and eventually jailed) for crimes that are, at best, poorly articulated.
Most people think that the Chinese government took him out because his wealth made him a danger to the power of the CCP. Canada might have problems, but that kind of thing just doesn’t happen here. So many UHNWIs would choose to locate in a country like Canada because of the protections of property rights that we have.
When people reference taxes in the context of Canada, Scandinavia and NZ, they usually are only talking about income taxes. And income taxes generally are only a slice of the overall taxation pie.
In those countries many of these UHNWIs arnt “high net worth” because of their income (though they do have high incomes) but because of the ASSETS and control over other entities that they possess. When they say X person is worth $Ybillion, it’s not cos they EARN that amount of currency or have that amount in their bank accounts, but because that’s the value of everything they have a finger, hand or toe in.
Now understanding this, you can see why a billionaire won’t pay a lot on income tax comparative to the supposed billions in wealth. Another element is that these countries likely have either a lot of tax loopholes allowing wealth to be obfuscated beyond clear taxation collection or they may have relatively low capital-based taxation collection especially on entities that are considered to be high on their own sovereign stock exchange.
Also, these countries may be nice to live in for those in the higher wealth brackets and it might simply be worth the slightly higher associated costs for that standard of living.
Least this is how I’ve come to understand such phenomena, as it applies to my own country as well (Australia). I welcome any critical corrections in this opinion though.