Can you have most of the benefits and comforts of living in the U.S. and yet not pay federal taxes? After seeing over half of his income go to the government each month, Alex Daley of Casey Research made the big move to beautiful Puerto Rico and tells Financial Sense in a recent interview why he thinks you should too.
Here are a few excerpts from his interview (click here for audio) that recently aired to our subscribers.
FSN: Alex, you recently wrote an article explaining why you moved to Puerto Rico and the reasons for doing so—a large part of which included the savings you’d see each month from taxes. Explain to our listeners some of the details of your decision and why this was such an obvious move from your point-of-view.
Daley: I picked up and moved from the state of Vermont as a high sales-tax state in a place where I was paying full federal taxes of 39.6%—now this year up from 35%, plus the new Obamacare tax, etc. etc. I was paying 55% of my income in taxes before even starting to pay things like property tax. So I started to ask myself the question of was I working for myself or working for the government and what could I do about it. We started investigating all the different options. My wife and I were looking at everything from moving to a lower tax state like Florida to renouncing our citizenship and taking up a residency program in the Caribbean somewhere like St. Kitz where you can buy property in exchange for a passport. The latter was like a big surgical move and cutting off your leg: you can't come back that often, you need to get Visas, it’s a hassle, you have to travel with a passport. And then we found out about some programs that are new in Puerto Rico but built on what's been happening in the US Virgin Islands since the mid-1950s that allow US citizens to move to what is a US territory, travel back and forth, visa free, passport free, but not pay US federal taxes and instead only pay taxes on the island, which are highly incentivized to draw new businesses, draw entrepreneurs and, especially in Puerto Rico, to draw investors down to the islands. So here in Puerto Rico I'm paying 4% income tax on my earned income and dividends. I'm paying 0% on capital gains and dividends from investments. It's really an incredible option and the simplest and biggest move that any American can make to reduce their taxes today. S
FSN: Alex, correct me if I'm wrong, it was either in the ‘60s or ‘70s they created a lot of incentives for drug companies to go down in those regions and then I can remember they were demonized in the ‘90s for the tax benefits they got. What are the chances that Congress picks up on this and says, “Hey we've got to many Alex Daley's down there not paying tax” and they change the law?
Daley: Well, there's two sides to that right? One, is the risk that the US Congress decides that too many people have moved down to Puerto Rico. I don't know how big that risk really is. I can't tell you what news article is going to spark an outrage in politics like it did in the 1990s under the Clinton administration when they tweaked—they didn't get rid of—but they only slightly tweaked the tax incentives for pharmaceuticals and other manufacturers who were down in Puerto Rico. You know, Bard, Pfizer, Bristol Myers, and even Microsoft are still down here with manufacturing centers [as well as] Praxair and a dozen other companies. So, you know, what was outrage became a little tweak to the law and a change that was able to be made to work, but overall this particular tax treatment of US possessions has been in place for over a hundred years now. For Puerto Rico in particular it’s been in place since 1913. So were on a hundred and one years of this particular tax treatment. So I don't see the US jumping to do something like say make Puerto Rico a state. However, if you've moved down here and you've invested here and you've put a home here and Puerto Rico does eventually become a state, there's going to be a lot of benefits to that. It's going to happen slowly and it’s going to take a few years and you could certainly believe there's going to be higher employment, there's going to be more companies moving down here to access this population of 3.7 million people. This is an area about the size of Delaware you have to remember—this is an entire new state of the Union if they bring it in. So there's going to be a lot of economic activity. It's going to help anyone who moves down here. So in my mind, the ultimate solution is if this program is too successful, the way Congress shuts it down is it makes Puerto Rico a state and I still benefit.
FSN: Alex, what about the infrastructure down there: the weather, technology, the things that you had in Vermont? Do you have all that available to you in PR?
Daley: Infrastructure absolutely...you have all that here. And that also means you have the Department of Highway. So you're talking about US four-lane-and-a-shoulder-type highways that stretch across the island. They have great roads here compared to any other destination in the Caribbean. Being in Puerto Rico is not like being in Florida, but it is a heck of a lot closer than being in Panama or being in Belize or being in Argentina.
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