GOP candidate Mitt Romney recently came under fire for having some of his wealth socked away in the Cayman Islands. Assuming he has filed all the right disclosures, doing so is perfectly legal.
What is more interesting is this: Romney isn’t alone.
Brett Arends reports for the Wall St. Journal, Feb. 13, 2012, that a growing number of wealthy Americans are looking into moving some of their money offshore.
That’s what Jim Duggan, a partner at Chicago law firm Duggan Bertsch, says. Duggan is a tax and estate planning attorney who specializes in wealth management issues for the very rich, and he’s been practicing in this area for nearly 20 years.
Duggan told Arends that “The interest in offshore planning has increased basically by a factor of five in the last ten years.” Clients want to talk to him about it all the time.
Contrary to popular opinion, it’s not really to save on taxes because American taxpayers are taxed on their worldwide income. This means interest income from an offshore bank account in the Caymans is taxed by Uncle Sam as if it’s interest from a bank account in the United States. Besides, there are plenty of tax shelters available here in the U.S., such as trusts in low tax states, buying life insurance, and variable annuities.
So what are the real reasons the rich are casing the Caymans with their cash?
There are two, says Duggan: Litigation risk and political risk.
Litigation risk is the risk of being hit by a crazy lawsuit here in the U.S. The wealthy are an easy mark, and anything onshore is vulnerable. But the U.S. courts don’t have jurisdiction overseas, so you have at least some chance of protecting money held offshore.
The new reason is political risk, what Duggan calls “Diversification from our government, policies, and banking systems.”
Duggan explains that the last few years have shaken faith in our system. The wealthy feel under attack and the Obama administration’s rhetoric is making them nervous. Growing numbers of his clients are worried about the financial system and government confiscation of private wealth. “They’re concerned about our government, and where our society is headed. There’s a lot of socialistic tendencies, capital controls, the redistribution of wealth.”
Another way to refer to the rich socking their money in the Caymans is “capital flight.”
Needless to say, every dollar that the very rich sends to some offshore bank in the Cayman Islands or Switzerland is a dollar that isn’t being invested in the U.S. economy.
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