March 1, 2008
Non-doms: move to New York City and pay more
A quick reality check for those who argue that as a result of the non-dom legislation, London is about to lose its competitive edge as the location of choice for the exceedingly well-heeled to New York.
The top marginal income tax rate in the UK is 40%
The top marginal rate of Federal income tax in the US is 35%
The top marginal state income tax rate in New York State is 7.7%
The top marginal rate of New York City’s income tax is 3.64%
So, if a seriously well-paid person were to move from the UK to New York City, his/her marginal income tax rate would go up from 40% to 46.34%.
You could chose to live in some leafy Connecticut suburb instead. The highest marginal tax rate of the Connecticut state income tax is 5%.There is no local income tax. You move from London to Greenwich, CT, and you just break even on income taxes.
Or you could move to salubrious New Jersey. The highest marginal tax rate of the state income tax is 8.97 percent. There is no local income tax. You move from London to Newark, your marginal income tax goes up from 40% to 43.97%.
In addition, the US does not have anything resembling non-dom status. The US taxes residents on their world-wide income, regardless of whether they bring the money into the country or not. In addition, the US Federal authorities impose quite intrusive reporting obligations as regards beneficial interests in accounts held abroad.
It may be that other dimensions of life in and around New York City would more than compensate for what would be a continuing income tax advantage of the UK over the US, even after the full implementation of the Chancellor’s original proposals. If so, can someone tell me what they are?
Housing costs. Tax on petrol. Cost of food. Access if your kids are reasonably intelligent (not necessarily bright enough to get into Oxbridge, but at least reasonably bright) to Ivy League universities that are not required by government fiat to discriminate against children with well-off parents or attending good schools.
Posted by: John | March 1st, 2008 at 9:03 pm | Report this commentLots of space - New York State has 19 million people packed into 98% of the area of England (so outside NYC/London it has five times as much space per person). Inheritance tax.
Also since the USA taxes its non-resident citizens as well as residents, your comparison may not be wholly appropriate.
Once suitable double-taxation treaties are in place, the non-dom concession becomes an anomaly. So once these are achieved it should be abolished. But you’ve got to do that first. Also sort out dual-residence criteria.
You have omitted the benefits of the NHS, the advantages of UK state education compared to that in the USA, etc but you may assume that your seriously well-paid individual is not interested.
There’s a lot more to comparing US and UK taxes than reading the top marginal rates off the interweb, and I would be pretty surprised if top US earners don’t pay much less actual tax as % of income than top UK earners.
Posted by: otto | March 2nd, 2008 at 9:22 pm | Report this commentResidents of the UK can also send their children to Ivy League universities. They can, in addition, send children to far cheaper universities in the UK whose undergraduate education, at least, is quite as good as in the Ivy League.
Posted by: Martin Wolf | March 2nd, 2008 at 10:48 pm | Report this commentYou can move to Bermuda, practically a NY suburb, formally a UK overseas territory with ZERO income tax and easy and quick to commute to NYC with a short flight any day you need to be in Manhattan for meetings or modern art auctions or opera instead of playing golf or sailing in Bermuda…You will be a neighbour of NY Mayor Bloomberg and can drive on the left, what more can you ask ?
Posted by: Cato the Younger | March 3rd, 2008 at 5:24 am | Report this commentUS state and city taxes are mostly deductible against federal taxes, hence the US income tax rates are lower than Willem’s statement. Furthermore, the Sales Taxes imposed by most states is lower than the UK VAT rates.
Posted by: Jay | March 3rd, 2008 at 8:29 am | Report this commentI agree with John. An extra few percentage points of taxes are worth it if it brings the benefits of an American lifestyle (although I agree with Jay that Willem is probably overstating the case). In any event, it’s a marginal difference.
If you are a wealthy, American, non-dom, I would add less anti-Americanism, a much bigger house (with estate + yacht for the same price as an extra 800 sq ft in Chelsea), less stuffy neighbours, (dare I say it?) better food, and a local business newspaper who’s editorial page doesn’t routinely flirt with socialism
By the way, on this comment page, the Ivy League seems to have been somehow relegated to a tier below Oxbridge. Sorry friends, I think anyone who’s worked in finance knows it’s the other way round.
Posted by: Dave the American | March 3rd, 2008 at 9:50 am | Report this commentDave - I was referring to the ability of the applicants not the amount of money they have. Certainly the Ivy League is a tier above Oxbridge, or almost anyone else, in terms of wealth.
Posted by: John | March 3rd, 2008 at 10:15 am | Report this commentHowever the academic ability required to gain entrance (apart from a handful of Rhodes scholars who are selected as the best on other criteria) to Oxford or Cambridge has a higher cut-off point than for the Ivy League. Just compare the numbers.
Fair point. I was talking about the quality of applicants exiting, not entering. Of course, there is a very real possibility here that I am hopelessly biased.
Posted by: Dave the American | March 3rd, 2008 at 11:13 am | Report this commentIf so, can someone tell me what they are?
Uh, cost of living about 50% of what it is in London? I could go on, but I don’t think I need to.
Posted by: Nemo | March 3rd, 2008 at 12:29 pm | Report this commentDave,
Posted by: John | March 3rd, 2008 at 2:38 pm | Report this commentI must have led a very sheltered existence - I have met many graduates from Oxbridge and the Russian Academy of Sciences (and a few from other places, the most memorable one got his PhD from Heidelberg) more able than I but I have yet to meet an American who was better at my job than myself.
If you are looking at the quality of middle-aged MBAs you may get a distorted viewpoint since Oxford didn’t have an MBA programme in my day. Also since 40% of the maths graduates from my college in my year became university professors and only the least bright individual joined a bank, extrapolating from those in finance may not be the soundest way to gauge the overall quality of graduates.
John,
Don’t worry, I’m sure you’re far better at your job than any of us impetuous yanks, but watch out for India and China in the rear view mirror
On the education front, I’m gauging from my personal experience in both systems. I can say that in my case, the academic rigour of a certain technical institution across the river from Boston considerably exceeded that of a lovely gothic university near where I am writing for which I still hold affection. (Seems all we did was have tea and cakes with the tutor on Wednesdays and Fridays.) More importantly, so did the innovativeness of the faculty under whom I studied and who I met outside of class. To be fair, these are just my own, biased and anecdotal views, and I studied different subjects at each (not PhD level). Feel free to take my opinions with a grain of salt–I will certainly do the same with yours.
Of course, as Martin mentions, British students can readily apply to American Ivy league universities. Any of the above-mentioned institutions are powerhouses of research and teaching which most British and American students would feel fortunate to enter.
Perhaps this isn’t the point. More important, I think, is whether someone from outside of Britain wants his child to be educated in the British system. This will be a big issue for me if/when I have children who are approaching school age, and I’m sure it’s a big issue for Greeks, Middle Easterners, and even Continentals. Do I really want my kids to be subjected to all of those horrible exams? Will I pay the significant tuition expenses required for an education outside of the dreaded “state school” system? Most importantly, does one want one’s children to adopt the social mores taught in English schools? Do I want my kid to become a “chav” or a “toff” or some other dreadful caricature/stereotype? The British kids in my neighbourhood, although wealthy, are absolutely repulsive in the worst snobbish kind of way. And if the whole thing culminates in a shot at Oxford or Cambridge, is this as good as it gets? (As a sidenote: It is my experience that most people outside of the UK–not just Americans–cannot name any British universities besides these two + LSE. Even fewer can name *any* European university outside their home country–not even Heidelberg, let alone the Russian Academy of Sciences. Compare that to the international currency of a degree from Harvard, Stanford, Princeton, Yale, MIT, Dartmouth, Columbia, Chicago, Cornell and many others.)
When set next to the sunnier climes of, say, northern California, or even the more wintry East Coast with their very, very good public schools (in the wealthier counties of course–we are talking about the wealthy, after all) and first class higher education, why does a wealthy person stay in this big, dirty city on this stormy little island with its poor quality of life (utter conviction of natives to the contrary notwithstanding)? Ceteris paribus, there really is no contest.
Posted by: Dave the American | March 3rd, 2008 at 6:27 pm | Report this commentIf Dave the American thinks that what appears on the FT’s pages is socialism, then he knows very little about socialism. I presume he means that some of us think that wealthy and well-paid people should also pay taxes. Some of us even think that such people should pay a slightly higher share of their incomes in tax than paupers. Indeed, some of us believe there should also be inheritance taxes. If that is socialism, I am happy to wear the label. But then so must Warren Buffett.
Posted by: Martin Wolf | March 3rd, 2008 at 7:03 pm | Report this commentI must confess Martin, I exaggerate a little for effect. Next time I’ll say “social progressivism” . . . or something like that.
By the way, do you drink champagne?
Posted by: Dave the American | March 3rd, 2008 at 10:27 pm | Report this commentI fear to rush in where angels fear to tread, but one determining factor on where to live must surely be the nature of the society itself. Unless — like many wealthy Americans — one is happy to live a cocooned existence, distancing oneself in blissful oblivion from an increasingly polarised society with a growing underclass.
Posted by: bigbadwolf | March 4th, 2008 at 2:31 pm | Report this comment“You move from London to Newark . . .”
I am from New Jersey and am quite sure the above phrase, and the hypothetical it contemplates, has never before existed.
Posted by: nnm | March 4th, 2008 at 2:58 pm | Report this commentDave,
Posted by: John | March 4th, 2008 at 11:58 pm | Report this commentWe have wandered a long way from my original comment that access to “Ivy League” Universities was a benefit of living near New York that offset the higher tax rate.
I cannot dispute your experience, but only say that it didn’t correspond to mine. Of course maths has to be academically rigorous but I was given the impression that all my fellow undergraduates were expected to work to a comparable standard (but of course there were always one or two who did not).
As a youngster I was repeatedly told “… but the American second degrees are good”. Some years later I was told that a particular professional qualification was equivalent to a Master’s degree - after taking the exams my reaction was “Huh? is that all there is to a Master’s degree?”
I agree with you about the excess of exams which have the effect of reducing the amount learned - my son complained bitterly that the two textbooks for A/S level and A2 level Chemistry were jointly only two-thirds the size of the old A level book, so the introduction of an extra exam had reduced by one-third the amount of Chemistry that they actually studied in the sixth form.
Fair points, John.
As a sidenote, did you see the recent article i.r.o. the Finnish education system? Finnish kids routinely trounce Brits and Americans in international exams, yet they have very little homework, and far fewer tests than the Brits, anyway.
Posted by: Dave the American | March 5th, 2008 at 11:21 am | Report this commentDear Willem,
I agree with the comment from Otto
In the United States the double taxation of dividends has been abolished and the dividend and capital gains tax rate is 15% so the worldwide taxation of income is less relevant as the bulk of the income of wealthy americans is taxed at 15%, and since its introduction the federal tax revenue has increased more than expected.
If that is how it has worked in the United States, do you not think that if the UK had a single flat tax rate of say 20% then the non-dom status and other exemptions could be abolished and there would be more tax revenue for the exchequer ?
Whereas if you just launch a crusade (for electoral reasons ?) using secret agents to uncover the “evil capitalists” you just end up accelerating the secular shift of assets and power away under way from the stagnating OECD members to the booming non-OECD world, that has accounted for the majority of the world growth this decade (see BRICs study by Goldman Sachs)
Finally do you not agree that your reported calls for an “annexation of Liechenstein” are in violation of international law ? if glorification of terrorism is a crime in the UK, what is incitement to an invasion of a sovereign European country ?
What do you think of the Danish minister of finance comments calling the German secret service purchase of stolen data from a convicted fraudster “immoral” ?
Posted by: Cato the Younger | March 5th, 2008 at 11:26 am | Report this commentOk, why is it that non-Doms leaving the UK have to go to NY. Sorry, we are not talking about American IBankers, but for Russian oligarghs, Arab oilmen, Greek shipowners, etc. Why should any of these move to NY?
Posted by: AA | March 6th, 2008 at 4:23 pm | Report this commentThe actual rate of tax paid in the US is lower than the UK, by some way.
Whilst the headline rates are higher, there are many more grounds for reducing that rate. For example, sheltering income in various vehicles and getting a tax deduction for state taxes and the interest you pay on your home mortgage.
None of these are available in the UK.
Willem clearly has an ignorant socialist dislike for the rich and/or hard working. It’s a shame he can’t better research his ignorant bleetings before they are published.
Posted by: Wiillem is an ignorant socialist | March 7th, 2008 at 11:16 am | Report this commentLets compare to other world financial centers.
- Singapore - On an income of 400,000 SGD (150,000 pounds),an average tax rate of 14.7% is payable.
- Dubai Financial center 0%. No income tax
- Cayman - 0% - no income tax
- Hong kong - 16% flat salaries tax
- Panama - top rate 27% / sliding scale
Now compare that to 40% in London.. Hmm.. No wonder the city is losing business.
The arguement is nolonger London or New york. London, Hong kong, Singapore, Dubai Financial Center, Luxembourg, Grand cayman, bermuda, cyprus, all competing for the same business.
Posted by: MJM | April 7th, 2008 at 9:45 pm | Report this commentJust a point on Oxbridge being inferior to America…… So that is why Oxford and Cambridge are joint 2nd in the world this year, compared to Harvard first? So that leaves MIT, Stanford, Berkely, Columbia, Chicago, Yale, Princeton, where? All behind Oxbridge. Oh and did I mention that Harvard has an endowment bigger than all UK universities put together and astrnomical fees.
Posted by: Jonathan Cassier | June 7th, 2008 at 3:17 pm | Report this commentIts not all about the City….. some actually value intellectual rigour and study, not money.
Oh. Imperial and UCL also in top 15.
Jonathan