5 ms·

What does a rich person actually lose (ie. materially how is their life different) when they're taxed at a higher rate?

• sokoloff 8y ago
  I think that Act 22 folks are often the "barely rich" or "incorrectly categorized as rich", where differential tax policy actually has an effect on their lifestyle (and therefore more strongly drives behavior). Take someone with $5MM in investable assets. Using a simplistic 4% rule of thumb, that can generate $200K of income per year. Tax that at 4%, and you have $192K to spend. Tax it at a blended 25% and you have $150K to spend. At that level of income, $3500/month is very much a noticeable difference, IMO. ($16K/mo vs $12.5K/mo spendable.) Now, consider that $150K/yr living in the mainland US goes farther than $150K/yr on Puerto Rico, and someone with $5MM and eligible for Act22 isn't going to move to PR without Act22. Peter Schiff's quote in the article sums it up very well, I think: “Who would come to a bankrupt island to pay high income taxes?”
  • heurist 8y ago
    That's still $150k for doing effectively nothing. That person could choose to supplement their income with a paid job or a business. I'd love to be in that position, as would the vast majority of people in the world.
    • metalliqaz 8y ago
      me too, I'd take it in an instant
    • sokoloff 8y ago
      Of course! No one ever argued that having $5M investable assets was a poor position to be in. That family absolutely has wide variety of choices they can make, all of them pretty damn good. The question is Puerto Rico's motivation/justification/choice to offer Act 22 tax advantages to bring the majority of that $192K of spending onto the island or not.