Monday, April 26, 2010

Expats give up citizenship - a leading indicator, along with immigration issues

The fact that this is increasing so sharply should serve as a leading indicator, as should the well-documented issues surrounding foreigners in American colleges going home in larger and larger numbers. I predict that within the next 5 to 10 years, brain drain will become a substantial concern for the well-being of the US. The question is how we respond - I'm sure we'll create a whole slew of complicated tax breaks and incentives and "opportunity credits" to fund people to do higher education in exchange for agreeing to stay here after graduation.... but these things work less effectively for higher income people than they do for low income people, largely, because these things usually have absolute limits on the dollar value taken and absolute dollar amounts are less impactful for higher income people. Higher income people are much more educated, which means that what ultimately probably has to happen to stop brain drain is a partial regression of the tax code while it's still attractive to remain here (if too many higher income people leave, you'll have to reverse the flow instead of stopping it, which means much, much higher regression).
Note that regression, here, implies the reverse of progressivity - as in, less taxing the rich and giving to the poor.
The problem, of course, is that it's going to be hard cutting ANY taxes if budgets stay so high. Spending will need to come down even more in order to make that regression possible.
The alternative is settling for a Europe style future - no growth, slow decline into fiscal problems. Of course, Europe has benefited substantially from the presence and innovation of America without paying for it. Unless China or somewhere else in the developing world all of a sudden becomes a much more innovative engine than they have been, our "Europe" future is a lot less bright than actual Europe's last 40 years have been.
On a related note, the Arizona bill - functionally allowing law enforcement to demand to see papers whenever they want in order to deter illegal immigration - is a) a disgrace to American values and b) I do not see how this is Constitutional, and I hope the high court takes it up.

1 comment:

  1. One thing that the US could do would be to tax people like the rest of the civilized world does: based on where they are, not who they are. Hopefully if that happens, the financial services sector will follow suit. Trying to open a brokerage account when I was a foreign student at an American university was an unsuccessful exercise in pulling teeth: while they told me that I could, they didn't know what to do with the paperwork they gave me. Meanwhile, my home country's banks had rules based on physical presence. Whoops.

    Also, I think you overestimate the effect that complicated tax incentives will have on even "lower income" smart people. If the US really wants to improve retention of skilled foreigners, they should implement something like "Experience Class" immigration in Canada (, and reduce the various visa, application, and administrative fees in lieu of complicated tax breaks. If you're skilled and US-educated, you should be able to stay with minimal hassles and minimal costs.

    Like that's ever going to happen...