Thursday, August 14, 2014

Can Workers Be Illegal?

How the State have us all fooled on illegal work

What do legal and illegal workers have in common? They both create valuable goods and services helping grow the overall economic pie. If a poor Burmese man named Sai makes his way to Bangkok, sew together a shirt and trades it for a sack of rice, he has created value.

Does the usefulness of his product depend on his immigration status? The answer should be obvious.

The economy is larger than if he hadn't been in Thailand. No Thai is poorer off because Sai has left Yangoon for Bangkok. Nor can he be a drain on resources or living standards in his new city as he can only consume commensurate to what he produces. 

The more value he produces, the more he can trade and consume. The more he can grow his living standards the more value available in the economy as a whole. This puts downward pressure on prices and everyone's purchasing power is raised, i.e. your money stretches further than it once did. Real wages have in effect gone up.

Society not only benefits from the goods he produces but the lower prices his labour brought about. Everyone's happy. 

If Rick leaves Leeds to teach English legally or illegally in Chiang Mai he is also creating value. Since someone is willing to pay him for his teaching services there is a demand in the economy for his skills. He supplies those skills, in effect creating value.

The State's Take On Illegal Work
On the wrong side of an unjust law
So why the distinction between illegal and legal worker? Our feudal overlords known as the State does not get what it considers it's fair share from the former in the shape of taxes.

Never mind that you, I and everyone else benefits. The state wants a cut for doing absolutely nothing or it will outlaw the creation of said value. 

So although the whole idea of illegal labor is an absurdly contradictory term, (as creating value should hardly be against the law!) it's generally the law of the land worldwide that if the State does not permit your work, license it, approve it or whatever, it is thus illegal, should not take place and must be punished.

Similarly illegal migrant workers don't vote, but the legal citizen who wrongly believes that the foreigner is stealing his job do. 

On top of that, and particularly in third world countries, powerful immigration ministries are not able to force-sell (as the buyer obviously isn't acting voluntarily) highly inflated and redundant visas to the illegals as they are, well strictly speaking, either not officially in the country or on a cheaper option.

Powerful pockets are thus not being lined and the non-productive, non-value adding, taxpayer-wasting job of the immigration official (which in essence is to approve or deny value creation!) would not exist. 

So can workers be illegal? Yes, as the State has the ability to outlaw any activity it does not agree with. Now, whether an action is illegal or not shouldn't be our benchmark for it's morality. Outlawing value creation is clearly immoral. So people should, and often rightly do, ignore the state's concerns over 'illegal work'. 

Saturday, September 8, 2012

Where the State Thieves the Least

Why Asia is more Libertarian on taxes than USA, Western Europe, and Australia

For your own good of course
To help explain why, I've compared income tax rates between the regions very generally, as it represents the biggest expense for most people to their government. Second, I also account for total government tax revenues as a percentage of GDP, as it is a great indicator of the overall scope and size of government. 

Income tax rates compared
With progressive income tax rates that quickly race up to the range of 35-50 percent, Europe falls short on this criterion straight off the blocks.

Across the Atlantic pond, American federal and state income taxes combined are rather high to. Yet they don't rise so quickly and you can make a sizable income, relative to the Europeans, without hitting the top marginal rate.

At the same time, 70% of the federal income tax take are paid by the richest 10%. So if you plan on eking out a meager living as an ascetic monk, America may not be so bad after all. However, for goodwill’s sake, I’ll assume you’re a hard working individual who seek a respectable standard of living.

With a marginal federal tax rate for a single working individual of 28% for income up to $178.000 and total tax revenues (Federal + State) of no more than 26% of GDP, America is more libertarian than Europe, yet no haven on this criterion.

Australia to has relatively low income tax rates according to Western standards, albeit a bewildering array of other forms of taxation. Still, Australia’s total tax intake stands at 31% of GDP. With a tax-free personal income allowance of up to AUD $18,000 and a marginal rate of no more than 30% of earned income up to $180 000, Australia, like America, scores relatively well amongst G-20 economies, yet can’t compete with our last contender.

Singapore: Western wages, Asian taxation
Asia's low tax rates prowess
When it comes not just to personal income tax rates, but total tax burdens, many East Asian countries score extremely well. Income taxes are very low, especially at the middle class end of the pay scale.

Total tax revenues to GDP are also shockingly low. Even in rich Singapore with a per capita GDP of USD $59,900 at PPP, the state took in no more than 13,7% of national GDP in tax revenues. That's half the american rate when Federal and State taxes are combined. 

In theory good, in practice great
Yet, even though the official rates look enticing the actual real life experience is even better in many Asian countries. How?  First, the cost of living in East Asia is considerably less than in Western Countries. Second, what the official tax rats are, and what individuals actually pay, are two completely different things.

Take Thailand (or China, Indonesia & Malaysia where circumstances are very similar) where income up to 4 Million Baht (roughly $120 000 USD) is taxed at 30%. That’s $60 000 less than you’re allowed to earn in Australia or USA before you hit a higher tax bracket.

Yet this seemingly high rate cloaks one important fact, the difference in the cost of living. 4 Million Baht is a huge sum and you’d live like a king on about 25% of this. For income up to 1 million the highest marginal tax rate is 20%. So on official tax rates Thailand scores rather well when you take into account the low cost of living (measuring at PPP).

Compared with Western Europe, the cost of living can run as low as 1/5th. Compared with America I’ll roughly estimate living expenses run at about 1/3rd.  

In other word’s you don’t need to earn $70 000 per year to have no financial worries. You’d be perfectly well off earning only $20 000, in which case you’d be taxed cumulatively at around 10% of total earnings.

Second, there’s the issue of what you actually pay. If you’re a business owner the scope for cheating on your taxes are enormous (as they may also be in the West). With 65 Million people and a state, which takes in only 17% of GDP in tax revenues (compared to 44% in France), ensuring full compliance with the tax code is beyond the scope of the Thai government bureaucracy.

Reap what you sow
It’s not uncommon to meet business owners running companies with over a dozen employees and revenues in the Millions of Baht per month, who pay no business or income tax what so ever. Their employees, who can make anything from USD 1-3k per month also pay 0% income tax.

On the way to file tax returns, NOT!
The same goes for the hundreds of thousands of people whose occupation is taxi or motorbike driver and the tens of thousands of street vendors or mom and pop storeowners who pay absolutely 0% in income taxes.

Now going under the radar as a foreigner owning a business or working in Asia may prove a bit more cumbersome, yet it’s not impossible.

The conventional way around the authorities in this matter is by running everything in the name of a local, for example a good friend or your spouse. This option is of course fraught with dangers, for one your business isn’t in your name, but no one said paying 0% income tax would be as easy as 1 -2 -3.

All in all, whether you choose to pay the low rates that apply in most East Asian countries, which still gives you plenty to live on, or work around them, you’re going to be left with a higher percentage of your original income once the taxman has had his cut. I therefore rank East Asia as offering a more Libertarian lifestyle than USA, Europe and Australia as far as income taxes are concerned.

Tuesday, September 4, 2012

A History of Big Government in Europe & USA

How the State convinced you to hand over more than half your wealth.

Bismarck: The first domino?
Ever since German Iron Chancellor Otto von Bismarck enacted the first pension laws to placate the socialist threat from within Germany in the 1880s, which set Europe on the destructive path towards an ever-growing welfare state, the American and European systems of government had one distinct disparity.

The hallmark of the former was limited, the latter increasingly large. It was small State versus big. Individualism versus welfarism. Classical Liberalism (Libertarianism) versus Statism.

Today, such differences are more subtle, and swiftly becoming a thing of the past. Governments on both sides of the Atlantic can rightly be described as Big with a capital B, and appears to be growing perpetually.

So how exactly did the citizens of USA and Europe become cajoled into thinking big government is in their best interest?

Wednesday, August 8, 2012

Is Islam compatible with Libertarian ideas?

When all roads lead to Rome
Libertarians are sometimes accused of being heartless social-Darwinists.  From a religious communitarian perspective, there may very well be some truth to that. With their rigid focus on individualism, they appear diametrically opposed, at least ideologically, to some aspects of religious teachings in general, and those of Islam in particular. How so?

The Islamic pecking order
First, Islam as an ideology has much in common with Communism. The community is in focus and the individual comes after religion, family, clan and country. The order may vary, but the individual always comes last.

Monday, August 6, 2012

Democracy: The Tyranny of the Majority Revisited

How Democracies restrict your individual freedom.

The endgame for Democratic decadence?
Western Democracies take great pride in extending universal suffrage to all their citizens. The right to elect one’s leaders is even considered the quintessential hallmark of freedom. Millions of people around the world have throughout history been willing to risk life and limb to fight for this right.

So, why would anyone with his head screwed on straight question this concept of divine virtue? Because, as is argued below, the pillar of Democracy, namely majority decision-making is highly incompatible with individual freedom. The former must essentially come at the expense of the latter.

Friday, August 3, 2012

Government in Europe: the New Opiate of the Masses

How welfare states and Keynesian policies destroyed Europe's economic growth
Keynesian placebo policies 

“The answer is more Europe, not less,” proclaimed German Chancellor Angela Merkel two months ago shortly after committing to yet another stimulus plan with Italy, Spain and France to promote economic growth in Europe.

Europeans have become accustomed to frequent proclamations and promises of this kind since the world’s financial crisis morphed into a sovereign debt crisis exposing the socialist European economies for the houses of cards they always were.

Amidst this sea of promises and empty upbeat political rhetoric, economic growth has yet to appear. Instead, countries all over the continent keep mortgaging their citizen’s futures whilst assiduously extending the freedom restricting tentacles of state control into new realms of economic activity.