Portugal is an interesting microcosm of the general economic problems in EU vs US.
I don't think tinkering with income tax brackets/credits is going to fix the actual problem - robust and steady job creation of good paying jobs.
There are ~11M people in Portugal, 3M of which are in Lisbon metro and 2M are in Porto metro areas. This leads them to having the same problem as Japan - the population is decreasing, BUT the countryside and 2nd/3rd tier cities are emptying out.
So housing affordability in the major cities remains poor. The youth therefore get squeezed out and emigrate, leaving an increasing tax burden problem paying for all the benefits given to the increasingly aging population.
My father visited his home town in the countryside in the last decade and found much of the town essentially abandoned. No one lived in the home he grew up in. His uncle owned an inn that had no guests, etc.
Meanwhile, Portugal remains a beautiful place and I will visit more in the future, and could even see wanting to retire there.
The EU and USA both have free movement between states.
But the USA has massive federal tax revenue and spending which redistributes wealth from rich states to poor states. Federal taxes are much higher than state taxes.
By comparison the EU has high state taxes, but very tiny "confederal" EU level revenue. So much less ability to balance things between rich and poor member states.
This puts poor states like Portugal into a bad position where they suffer from brain drain due to the free movement, but don't get enough monetary benefits from the EU to counteract that.
This turns Portugal into a gateway country for the EU: they have loose immigration rules because they want to attract young workers. But as soon as those workers live in Portugal long enough to get an EU passport, many brain drain away to other (better paying) EU countries, and need to be replaced with even more immigrants.
Yes, EU is hurt a lot by being a currency union with freedom of movement without being a true federal state.
It is helpful to the core rich countries and to elite/upwards mobile across countries. But it hollows out the periphery.
A lot of the GFC era EU debt crisis was German banks lending to southern European states to then buy goods/services from.. German industry. So I was not as understanding of the northern countries looking down at the "lazy south". It was far more complicated than this and they were happy to look the other way while it worked for the first decade.
I'm honestly not sure where EU goes from here as the GFC & the response dampers any enthusiasm for a true federal government, unified military, etc. Not that there was much appetite to hand over that much sovereignty to start with. Nor does it help that post-GFC, even the rich parts of EU have further diverged in terms of wealth/income from the US, so they are probably feeling even less "generous".
Draghi wrote a whole report on EU competitiveness recently and in standard Eurocrat form its like a 500 page paper no one will read, let alone action.
I was always supportive of the spirit of the European Union and its ultimate objectives, but in its current state, it's a brutalized self-sabotaging entity that has disillusioned the general public to veer rightwards. And with furthermore technological lagging vis-a-vis China and the US, and the immigration crisis, not to mention the Russian Axis round the corner and the collective inaction of a number of EU states around that, and it's no wonder the EU is falling back into 3rd place.
And for some reason, the EU still thinks net uncontrolled refugee migration is good for their economics,their population and their electability, as is letting American private equity buy up large swathes of residential properties. Guess that's what you get when you let freeloaders who haven't worked a real job in their lives hold unelected positions of power.
> it's a brutalized self-sabotaging entity that has disillusioned the general public to veer rightwards
It hasn’t, it only disillusioned those people (like the brits) who didn’t understand the purpose of the EU to begin with. The economic benefits were always considered secondary objectives, subordinated to the main principle of cooperation. This is public knowledge, it was made very clear in the foundational documents of the EU. And therefore the EU has indeed been very successful and its effect is unprecedented: historically, we are seeing the longest period ever recorded without a war between European countries.
This misses the component of interstate distribution. Depending on how much federal taxes Tennessee paid, that 113 B could become positive or negative.
It looks like in 2023, the IRS collected ~96 billion from TN
Loans and Bonds are not serviced in purchasing power - they are serviced in exchange rate $s and €s.
Portugal (and a significant portion of EU members) had an economic meltdown during the Eurozone crisis from 2008-14, and are still trying to service those loans and bonds to this day.
Also, Portugal's GDP is half that of Tennessee's.
In fact, Portugal has the same population size as Michigan and North Carolina, yet a GDP that is ~50% and ~33% in size respectively.
Right, Portugal nominal GDP is 300B EUR so that 3B EUR subsidy is 1% of GDP.
Tennessee nominal GDP is $420B and the last figure I found for federal aid to TN was $10B but this was 2014 data, at which point TN GDP was $350B.
So ~2.5-3% of GDP in aid from the feds, quite a lot more than Portugal.
Also this is simply the direct aid in TN budget that comes from Feds.
Often there are other direct payments/transfers from Feds to individuals who file federal taxes while living in TN, which is not captured in that $10B number.
A major issue was the ascension of then poorer CEE states in the 1990s and 2000s.
This meant the bulk of EU Development Funds which used to go to Southern European countries like Portugal and Greece ended up getting diverted to countries like Hungary, Poland, Romania, Bulgaria, Slovakia, etc.
Unlike the CEE countries, Portugal's pre-EU era rulers (eg. Salazar, post-Revolution military junta, trade unions) did not invest in human capital to the same degree that CEE's pre-EU rulers did.
PPP is used solely to compare Portugal to a US federation unit. The economy of Portugal happens in Euro and Tennessee in Dollars, and that is immaterial to this argument.
> Which US state has an economy of a size comparable to that of Portugal
Oklahoma, but Oklahoma also only has 40% of the population of Portugal.
Despite being in the Western half of Europe, Portugal is economically comparable to an Eastern European country like Poland or Slovakia.
The only US territory (not state - even poor Mississippi has a higher median household income and GDP per capita than much of Western Europe excluding Germany and Scandinavia) that is comparable to Portugal is Puerto Rico.
In fact, the problems Puerto Rico faces today in the US mirror those that Portugal faces in the EU.
Developmental indicators, nominal GDP per Capita, and median household income.
Before Spain, Ireland, Greece, and Portugal ascended into the EU in the 1970s-80s, their developmental indicators largely mirrored those of developing countries from that era (Malaysia, Turkey, Argentina, Iran).
It was EU developmental funds that helped these countries not fall into the middle income trap.
The only developing countries that were able to escape the middle income trap without EU Development Funds or oil were South Korea, Taiwan, Singapore, and Israel.
Also, having a large GDP does not mean a country is developed. China and India have the 2nd and 5th largest GDP in the world, yet their median household incomes are less than that of Thailand, Mexico, or Malaysia - let alone countries defined as developed by the IMF.
Portugal, like Spain and Argentina, faced significant historical challenges in the 20th century. Portugal's fascist regime, which lasted until 1974, limited investment in infrastructure and economic development. Spain, under Franco's dictatorship, also faced political and economic constraints. Argentina, too, experienced political instability and economic turmoil, particularly during the 1970s military dictatorship.
Also mentioned Malaysia, Turkey, and Iran, which have their own unique historical contexts that I'm not as familiar with.
If Portugal wants to keep the young people from leaving, why don't they look at where those people are going - and why - and emulate the policies of those destination countries?
If you don't want to adopt the policies that lead to the results that you want, then you don't really want those results.
Maybe most of the voters and politicians in Portugal don't want to change those things that the young people don't like.
Indeed - people cannot live in money. Giving them more money will not help them get a place if there are not more places available to get. It would only drive up the price as the same people compete for the same housing with more money. Or, if they have some form of rent control - simply greater frustration all around.
Another possible consequence is greater inter-generational friction as young people with more money out-compete existing, older tenants/owners for those homes.
According to the local the threshold for share gains is 3 million kr, about 300 thousand USD. You only pay the exit tax on amounts above that.
"Those subject to the tax will have to address their tax obligations related to gains exceeding 3 million kroner on shares acquired during their time in Norway.
They will have several options to fulfil this obligation, including immediate payment, interest-free instalments spread over 12 years, or deferred payment with accrued interest.
The changes are part of the government's efforts to counter the recent outflow of wealth from Norway, with Switzerland being a popular destination for tax exiles."
The Forbes article is from April, while The Local article you're quoting is from October. Back in April, the proposal was different, as The Local explains.
And the biggest problem for startup founders remains: you're taxed, on leaving the country, on unrealized gains. Being taxed on 5 millions of profit sounds fair, being taxed on 5 millions (or 30 millions) of valuation used for raising capital, in a startup that then fails and is worth nothing after a few years, maybe not so much. Neighboring countries do not have this kind of taxation.
Yeah, but I think the point is that this applicable on unrealized capital gains too. So if I start a company in Norway, raise a bunch of money and then move to the US because the company wants to have a presence there, I now have to pay the tax on the basis of the money raised; It's quite common for a reasonable successful founder to be worth millions on paper while having no cash.
On the other hand, not taxing unrealized capital gains on exit would effectively create a loophole by which it would be possible to avoid taxation simply by moving to a tax haven for a while and realize the gains there.
It is and the effect is immediate and destructive to any value creation in startups. It basically forces companies to leave before raising any serious money or founders will end up with tax bills that have to be paid out of investment money
Or just staying in the country, thereby bolstering their economy. Which is almost certainly the end goal. I mean, it kind of sucks if these countries provide the tools to create successful businesses and then those businesses just move to cheaper countries. You're kind of getting screwed over.
Countries invest too. In their economy. Providing high quality education at a low price is a huge investment, for example. It's not a good deal if citizens take that and you don't get a return on your investment, i.e. they're not creating innovative companies in your country.
Not at all. As soon as you get VC money, your valuation likely is in the millions, and then you're already way beyond the threshold. Good luck with the exit tax then.
Many sub-aspects of this are debatable, of course: Is VC money good? Are high startup valuations good? Also: Sure, you can defer the payment, you can pay it later with interest, etc., etc. But that's besides the point.
The problem here is: Once your startup reaches a high valuation, exiting the country, for whatever reason, will become difficult. And this might happen for rather innocuous reasons: Temporarily moving to the US to open up a subsidiary, staying there > 180 days / year? --> Exit tax. Etc. The number of second-order consequences is high, and I'd wager most of them are not good if your goal, as a country, is to foster a startup ecosystem.
> When the natural interest for start-ups is to scale up and expand in foreign markets, or to leave the country to seek better deals, the proposed 37.8% exit tax on unrealized assets over $46.5 thousand that have been accumulated in Norway, seems to be the last drop for any foreigner or Norwegian with big dreams to set a business in the Nordic country.
As prior art, doesn't the US have something similar where if you want to leave your residency/citizenship, you have to pay up, even for unrealized gains and such? Seems like Norway is modelling something similar to what the US already has, and the US seems to still have tech startups coming out of it.
The US exit tax isn't a fixed penalty for leaving, but rather a way to wring "pending taxes" out of citizens renouncing their citizenship. Per the exit tax you pay taxes as if all your assets had been sold, thereby forcing security gains to be "recognized" at that point.
How is that different from the thing Norway might implement? Besides the obvious difference of the US exit tax seems to be about citizenship while the Norwegian one seems to be about residency of the company itself.
If the obvious difference explains the gap, this is unnecessary. Switch American taxation to a territorial system and you’d see a similar flourishing of start-ups and founders in Canada and Mexico.
The big difference is that the US will sting you for tax wherever you are in the world, whereas most will only tax residents (complexities in terms of tax treaties notwithstanding).
Hence in both cases they are both looking to realise gains at the point where they no longer have control over the taxes being charged. A `penalty` for leaving their tax jurisdiction, notionally for the tax they are 'owed'.
Taxes make a government accountable to citizens. While not paying taxes because of oil wealth might seem enticing in the short term, it'll lead to disaster in the long term if a government becomes accountable mainly to the resource industry and neglects to invest in a diversified, productive economy.
Norway has high tax rates despite having oil wealth-- this ensures citizens remain productive and don't get too complacent by depending on a fluctuating commodity.
This is exactly the reason why we crossed out Austria as destination. Not only they have an exit tax, they want to tax the unrealized gains since the purchase of the asset instead of since entry to Austria. I wish they'd fix that weirdness.
Or just let people move between there and US without forcing asset sales at bad times to cover tax payments on unrealized gains.
Whenever I read about these schemes I wonder ... did it not occur to the people running the governments of these countries that people are not purely economic maximisers, and that they can attract and retain people by having a country that is fun and comfortable and safe to live in? People in Denmark pay a lot in taxes, but I haven't seen many of them rushing to leave.
Is there any place in the world that is "fun and comfortable" that isn't an economic maximiser?
Thailand comes to mind, but its only "fun and comfortable" if you're an economic maximiser, bringing western money in. For locals, it is not fun or comfortable.
Denmark pays the highest wages in the EU [0], so you can't consider there.
> a country that is fun and comfortable and safe to live in
I think Portugal is fun, comfortable and safe. It is a fantastic place if you want to visit.
Living there can be an issue. One of the problems, as another comment says, is that salaries are really low. That's probably compounded by the amount of bureaucracy one needs to wade through to do anything, and the overall 'old school' thinking of folks.
Generalizing(perhaps unfairly), the Portuguese seem to look fondly at the rear view mirror, but more progressive ideas are not viewed in the same light.
You would probably see more people staying if they had a space for their ideas, and a living wage.
My friend created a tech company there because salaries are low. He employs a dozen capable smart professionals. He pays them well for the local economy and arbitrage of tech works means he’s able to offer low rates and high quality on the international market.
He’s a rich expat gobbling up a housing unit but also creating jobs. It’s probably a net win for the locals.
A cool policy would be every newcomer has to construct (or cause to be constructed) at least one housing unit.
If that was a condition of the golden visa everyone would do it and the benefits would be in injecting significant additional supply into the local rental and real estate market preventing supply and demand from raising housing costs.
Yeah, apart from the pickpockets in Lisboa. They are really the most brazen I have ever seen anywhere. They don't seem dangerous, but constantly having someone trying to pick a wallet from your bag is pretty annoying.
> People in Denmark pay a lot in taxes, but I haven't seen many of them rushing to leave.
The issue is salaries in Portugal are VERY VERY low - they are comparable to Poland, Romania, and Greece - yet their tax burden and cost of living is comparable to Denmark.
A 25 year old Portuguese college graduate can immigrate visa free to Denmark and double-to-triple their salary almost overnight.
The same can't be said for a Dane unless they immigrate to the US, but they're in the H1B queue like everyone else so it just isn't worth the hassle unless it's a high paying white collar job.
The EEC has a massive disparity in incomes, with average monthly wages ranging from €700 to €5,000 depending on the country, and as EEC members tend to have fairly simplified immigration policies between each other, this causes a brain drain in the countries with lower wages.
Right, but there are two variables in that equation. If the economy were stronger and more productive people could earn higher salaries. Don't get me wrong, I don't like taxes either (I live in Switzerland and pay relatively low rates of income tax) but it just seems like a loser move to decide that the solution is to fiddle with the taxes, rather than figure out how to make it a place people can build a great life in, including salaries, services, fun, comfort, safety ... all the different things that are important to people.
PIGS Countries don't have capital available to invest in salaries / services / fun / comfort in the first place, due to historical reasons, the 2010s debt crisis etc.
So the move of bringing people and capital by available means (tax breaks) and be less hostile to startups & companies (they have been very hostile and bureaucratic historically) is one of the few things they can do, and it works.
> If the economy were stronger and more productive people could earn higher salaries
The issue is Portugal is very business unfriendly and human capital is weak.
It's hard to make the case to invest in Portugal when you can invest a similar amount in neighboring Spain and get a much better return.
Nor do local businesses earn enough to pay comparable to higher income countries in the Single Market - especially because Portugal essentially penalizes large employers
This means the only way to make up the salary differnce that is the cause of the brain drain is to decrease taxes for early career Portuguese.
Denmark and Portugal are nowhere near the same level of development, and what works for Denmark does not work for Portugal.
Exactly. So I would focus on improving that, rather than try a quick and desperate trick of tax cuts. Why not collect the taxes and then invest them wisely in great modernised services, for example?
Becuase such changes are extremely difficult and take a generation.
Easing hiring means pissing off unions, which means you piss off voters and donors.
Simplifying entry of foreign businesses and competitors means pissing off small and medium businesses, which means you piss off voters and donors.
Shrinking Portugal's notorious bloated public sector will save money, but means firing a significant number of Portuguese, which means you piss off voters.
Shrinking Portugal's notoriously large spending on social programs will save money, but means you piss off voters.
You can't just "modernize services" overnight. It requires a generation, a lot of capital, and strategy to invest in building a High Tech industry.
> Why not collect the taxes and then invest them wisely in great modernised services, for example?
Because Portugal has had an elevated debt-to-GDP ratio for almost 20 years now, which makes it extremely difficult to get the capital to do any of the above, which means a significant amount of Portugal's tax revenue is spent on servicing those debts.
The average Portuguese gets paid too little, the average Portuguese business is too small to generate significant business taxes, and every individual Portuguese person who has hireable skills has no incentive to be paid a fraction of what they would earn in London, Frankfurt, or Madrid.
Lowering taxes for early career Portuguese in order to entice them to stay until they become mid-career is the least bad option of the multiple bad options Portugal has.
Romania total taxes are quite high, because we don't have tax ladders, it's one size fits all solution and it's a lot. It's that cost of living here is smaller and as result it's not that bad
Yep, but realistically, Romania (as well as Poland and the rest of Eastern Europe) will end up in the same kind of middle income trap just like Portugal within the next 10-20 years.
> A worker in Portugal earning the average annual wage of about €20,000 currently pays a top income tax rate of 26 per cent. Anyone earning between roughly €21,000 and €27,000 pays a top rate of 32.75 per cent.
Pretty nominal for Europe to be honest. Most Americans don't realize a) how much money they make and b) how little taxes they pay. Apples and oranges with all the social safety nets and such of course, but still most (healthy) Americans get much more money in their bank accounts after all is said and done than they would in Europe.
Portugal is in a weird situation where it has high taxes and at the same time the median salary is too close to the minimum wage. This is difficult to overcome, and thus salaries are stagnated.
The government has no reason, in the medium to long term, to have such high taxes. Since, by keeping high taxation the state retrieves less money in absolute terms than they would if they let wages increase and steer away from the minimum wage.
I don't think you could say that about most EU countries. Portugal really is in a bad place.
(Edit: just clarifying that the situation is different, yes taxation is high as most others but in the case of Portugal its much worse)
> The government has no reason, in the medium to long term, to have such high taxes
It does - Debt.
Portugal's debt as percent of GDP skyrocketed during the GFC and Eurozone crisis from 75.8% in 2008 to 129% by 2012.
Unlike economies with a similar debt-to-GDP ratio like Italy, Portugal's economy is a relative minnow, and doesn't have a significant domestic capital market which can at least help stem some of the issues, nor can Portugal attract FDI at the same level as much more business friendly Spain, which made income taxes their only lever.
That said, the Portuguese debt-to-GDP ratio has gotten much better (99.10% in 2023), but that was because of how much of the Portuguese budget was spent on servicing debt.
I'm aware, but we have been in that situation for almost a decade now. I'm portuguese.
I just think we would've gotten through this sooner by making use of the invisible hand and lead businesses to be able to prosper more and as a result, higher wages. This would lead to more modest taxes having a higher wield to the state.
As it stands, they are taxing people for a very low absolute amount in the end. Not to mention that taxes go way lower the closer you are to minimum wage (a good thing, but it also shows how little they gain from this strategy). In the meantime they strangle any small to medium sized company, which are the ones driving the wages for most.
It’s presumably very _cheap_ debt, though? Ireland’s in a somewhat similar situation (don’t be fooled by the headline debt to GDP figure; Ireland’s GDP is distorted to the point that the government has had to make up its own adjusted metrics), though it’s currently running big budget surpluses, and from time to time someone will ask “why, instead of lowering taxes and investing in infrastructure, are we not using this surplus to pay down debt?” And the answer is that the average cost of the debt is 1.5% (the expensive stuff from the financial crisis has largely refinanced). It makes little sense to aggressively pay down debt at those sorts of rates.
A quick google search indicated debt interest is about 5% of the national budget.
This does seem low in comparison to the US, where ~17% of the national budget is spent servicing debt interest. For context, this is approximate 1.5X what we spend on national defense. [1]
Huh. Ireland’s is about 2.5% (3.1bn on 119bn budget next year). Slightly puzzled at what’s going on with the US debt; that does seem very expensive. Though it’s not _entirely_ comparing like for like, in that states have their own separate budgets in the US (local authorities in Ireland do too, but their own revenue raising capabilities are very limited and most of the money comes from central government).
Looks like the US’s cost of servicing works out to about 3.4%, which definitely seems rather high (though, probably still not high enough that you’d necessarily want to aggressively pay it down; 3.4% isn’t a _great_ return). Actually, I’d wonder how much of this is related to the debt ceiling stuff; I would assume that makes refinancing when debt is cheap more difficult.
What happens to the unhealthy Americans? What happens to the Americans who are too poor they cannot pay health insurance and the cost of medicine/surgery.
I think only the wealthiest Americans have much more money in their bank accounts than they would in Europe.
Unhealthy people get left behind in Europe all the time. I hope as a European you’ll never have to go through the hell of trying to deal with any kind of complex chronic illness. The doctors have no clue how to treat these kinds of problems, and any specialists are very few and far between. Go spend some time on forums for people dealing with chronic health problems and you’ll find many Europeans who’ve had to empty out their savings in order to get treatment.
Medicaid expansion has fixed this for the poorest Americans unless you live in a few red states, and ACA subsidies cap private plans at 8.5% of your income (+ cost sharing on top of that obviously, but there is a maximum per year) for the rest.
Honestly health care in Europe isn't great either. My Dutch GP seems to think acetaminophen is the cure for everything. They're decades behind on things like discussing menopause, TRT, etc.
> I think only the wealthiest Americans have much more money in their bank accounts than they would in Europe
Well, you thunk wrong.
Median household income in the US is $80,000 [0] and taxes like VAT are nonexistent.
Throw on top of that access to subsidized plans like Medicaid or ACA plans for households that earn below the median, and most Americans come out ahead.
The big issue with the US is the de facto inability to commit mental health patients to involuntary mental health holds unlike much of Europe due to the current interpretation of the 14th amendment, which has caused the mental health crisis to become a homelessness and drug crisis.
That said, as a whole, most Americans live fairly comparable lives to most Western countries, as HDI shows. In fact, much of Europe has a much lower HDI than the US once you exclude Scandinavia, Germany, the British Isles, and Switzerland.
When you look at a subnational level, it is the Deep South (Alabama, Mississippi, Louisiana, Arkansas) and Appalachia (West Virginia, Kentucky) that continues to lag, but they represent less than 5% of the entire population of the US.
> The big issue with the US is the de facto inability to commit mental health patients to involuntary mental health holds unlike much of Europe due to the current interpretation of the 14th amendment
… Eh? Large-scale involuntary committal largely ended in Western Europe decades ago. What figures are you basing this on?
This is a misconception. Even in the poorest state here in the US, the median income is far more than most countries in Europe, pre tax[1,2]. And unlike what the internet says, we do have government programs that provide healthcare for those that cannot afford it or are out of work.
Agreed. There are many reasons to prefer living in Europe to the US, but "more money in their bank accounts" of non-wealthy people is certainly not one of them even though the American must sometimes use the bank account to pay for things that are provided by the government in Europe.
Unless we talk about Switzerland. But that's like 2% of the continent so what you say is valid.
And given too left-leaning and fanatical green-deal-at-all-costs push from Brussels economical situation won't get better, in contrary. They could be pouring money into defense, its not like in 20 years russia will stop wanting to subjugate/murder us all. Or they could try not killing their own automobile industry so quickly. Or...
EU started a slow but steady decline given changes in global economies, it will take probably a long time due to various factors but trend is clear.
And Switzerland is most like the US out of European countries, albeit an idealized version of the US.
It has private healthcare mandated by the government, and an economy favorable to capital. It has a federal system where most of the power and spending resides with the cantons(states), and much closer to the voters.
The Swiss constitution was actually modeled after that of the US.
> Swiss constitution was actually modeled after that of the US
“The Amercian national constitution, the Articles of Confederation, was constructed on the Swiss model of a confederacy of some over sovereign states. Then, Americans repudiated confederal government in 1787 as impotent and unworkable and adapted a new federal constitution. The opponents of the new charter, the Anti Federalists argued that a Swiss style government was still a viable model which offered the best hope for the preservation of American liberty. The Swiss themselves repudiated confederate government in 1848 using many of the same arguments Americans had marshalled against it in 1787 and adapted a Federal constitution modelled after the American constitution of 1787. After the Civil War many American state and local governments adapted constitutional reforms borrowed from the Swiss. The initiative and referendum – which continues to this hour to give the politics of California and other influential states their distinctive tone.”
I think that supports what I said, but I love the added detail. There was more back and forth exchange than I remembered.
Another fun fact about the Swiss government that I think is superior to the US is that the effectively have seven presidents which form an executive council. The executive council debates behind closed doors and presents a unified public front. Internal debates of the executive counsel are sealed for 20 years before release to the public.
That said, my favorite thing about Switzerland is still that the vast majority of tax collection and public spending occurs at the local level. Federal spending revenue is approximately 30% with the rest being the local cantons. Swiss Cantons are smaller by population then a typical California county.
I think this emphasis on local government results in Civic engagement, oversight, and empowerment while reducing political strife.
No, the Swiss federal constitution is based on America’s federal constitution. The American Article of Confederation, our previous Constitution, was based on our Helvetic Confederation constitution. Strictly speaking our constitution is based on the American Constitution.
> And given too left-leaning and fanatical green-deal-at-all-costs push
Investing heavily in renewable technology and R&D doesn't mean spending less on military or industrial capacity - in fact it's fairly dual use.
Furthermore, US, China, SK, JP, and others manage to balance both.
The issue is most EU members stopped funding their militaries following the fall of the Berlin Wall and redeployed that capital elsewhere - especially during the European Recession+Currency Crisis (1990-95), GFC (2008-11), and Eurozone Crisis (2008-2014).
Death and disease are not real, my mind zones them out. I never remember when i was the last time at the dentist, so why include that part in my lifes plan? That is just a blindspot of everyones mental model. They parked a whole scaming theme park in that in the us.
Just looking at salaries and taxes makes for a very distorted view of wealth and affordable lifestyle in the US vs elsewhere. Even if you take into account ALL the major variables such as college costs/loans, housing prices, real estate taxes, cost of healthcare, retirement, etc, it is very difficult to compare.
You can better see the reality by looking at actual examples of families with massively different incomes living in the US vs elsewhere. It takes WAY higher salary (5x?) in the US to enjoy the same lifestyle as someone in the UK, for example.
..... really? I'd take $200k in the US over 40k GBP any day of the week. And in the US I'd have bug screens in my windows. And air conditioning. And food I can taste.
Depends where in the US of course. $200K isn't going to go very far if you have to pay $1M for a house, 20K for r/e taxes, etc... One or two kids in college and you are f'd.
I don't know exact salary figure, but my sisters family in UK have medium income (1.5 jobs) new BMW, two kids in college, foreign vacations every year, kids got latest Apple phones/watch/laptop growing up ... A bit like 1950's America living the dream on a single income with foreign holidays and iPhones added.
House bought a while back before prices shot up, so maybe mortgage paid off ... I don't know. OTOH college costs alone make the US ruinously expensive.. $200K/kid perhaps... That's the point really - you need to look at full financial picture in the US - especially costs. Looking at income tells you nothing.
I should look more into cost of living in Portugal, maybe, but one of the other commenters mentioned housing prices being… high. In US, making ~$20,000 you’d be considered poor (maybe not “officially”) and probably pay zero federal tax and receive quite a bit of assistance.
$20k is technically above the US federal poverty line for a single person. I live in a state where anyone under $30k is considered low-income and qualifies for full benefits.
Top rates are kind of useless; some countries have many more brackets than others. The US used to have a 90% tax bracket, but that didn’t make it a particularly high-tax country; effectively no-one paid it. Comparisons, are in practice, inherently difficult, because the curves caused by the tax brackets and credits can be very different. It really depends an awful lot on income.
That extra money comes in handy when you're paying $15K/year for health insurance because if you don't a few hours in the hospital would cost you triple that.
Yes, there is a public health system, but people tend to avoid it when they can. Most opt to go private for their dental, for example. And if they have any kind of systematic (sibo, ibs, autoimmune, etc) problem the public system is useless and they will have to travel to find a private specialist. On the other hand, the private system is really good here, and also pretty cheap.
It is realistically much more than 14 euros. In Eastern Europe I pay almost 700 Euro per month in mandatory state health tax (it is not an insurance, it is a tax because it is a percentage of income, not related to what you are covered for).
I'm paying about 50% tax rate here in NL (we have a very high income), I just wish that those who have 10x and more than our income also had to pay a 50% tax rate. Only our tax rules have been written so that those who are very rich don't pay their fair share.
Many people ignore portugal mandatory social contribution, it is mandatory even if you earn minimum wage, and the tax there is about 34% (forgot exact number, the way they charge make it clunky to calculate). Most portuguese people think this tax is "only" 11% because the rest of the tax is "paid" by the employer. Average people don't understand that if your salary was supposed to be 1000 and you get only 650 after tax you paid 350 in taxes even if your paycheck says your pretax salary is 800.
Note: the income tax is paid on top of the social contribution, so is easy to end paying 50%+ taxes if you are in tech. Then Portugal gets mad with all recent grads moving to Germany. (By the way, I still live in Portugal but all companies I worked for since moving here were German, Portuguese companies can't compete in wages)
They actually get healthcare and other services with that. It's not like it's just taken away in some black hole. They get value from the taxes they pay.
In America the tax rate is higher? People are reacting like this is a lot haven’t seen a paycheck in the US in there lifetime. US is maybe 5% lower under some circumstances. I thought fake outrage was banned here?
Not even close, the marginal federal tax rate is 12% for income between $11k and $44k [0]. This doesn't take into account state/property taxes, but it's nowhere near
At the levels OP described I’d be at 17% federal and state taxes rate. I’m at about 42% with state and federal but you need to add and zero and double the amounts to get close to our household income.
Not sure if Portugal uses marginal tax rates or not.
> Young, educated people are the gold of the western world
No, they (we?) are not. The better analogy is a gold mine. You still need to invest in it to get anything out, and it’ll be a few years before you do. If you fail to do that, all you have is a Superfund site.
> If you are holding gold, you dont want someone to flood your market with more
Right, this is why it’s a stupid analogy. That’s true for gold. But if you’re hiring young, educated people, you do want your country flooded with them.
It sounds like we mostly agree on this. To be honest, I was mostly reacting to how you initially responded with a flat negation, so Im not going to steel man a simple analogy as a universal truth.
I agree that these analogies all depend on which perspective you are framed in. If you are a hiring manager, you want cheap effective candidates. If you are a worker, you want a labor shortage, at least for your role.
Public policy is a whole different mess. It is set by competing self-interested parties and may or may not bear any relation to the aggregate public benefit.
Going by elementary macroeconomic principles, currency unification will always result in "dead zones," because their exchange rates can't stabilize the balance of trade.
This is broadly true for any division of land with a single currency but it’s not as if going to tiny city states with unique currencies is also a good idea.
The balance of payments is always self-stabilizing. The trade component can only have a non-zero integral when somebody is injecting or removing money from the economy by some other means.
What really means that no, economical dead zones have no relation at all with the balance of trade. And also, the balance of trade predicts almost nothing and is controllable by policy, anybody focusing on it is just throwing a red herring and hopping people don't look at actually important things.
(What doesn't mean that currency unification doesn't cause dead zones. I know that this explanation is wrong, I don't know if it happens or not.)
>The trade component can only have a non-zero integral when somebody is injecting or removing money from the economy by some other means.
People late in their careers are buying imports, people early in their careers are leaving the country. That's as clear of a case of the integral going negative as I can imagine.
I feel this has also been a challenge for Greece among other places. Can they adapt within the economic zone, say to become tourist havens while the bigger states provide industry and services? Should they leave the Euro?
Greece should have never joined the Eurozone, and are basically a middle income country despite their high GDP per capita (median household incomes are comparable to Mexico and Malaysia).
That said, leaving the Euro would be too economically traumatic for Greece at this point.
If the US is trading with the EU, say, and the US is importing too much and exporting too little, eventually that affects the exchange rate between the dollar and the euro. That adjusts in a way that somewhat counteracts the trade imbalance.
But if Portugal imports too much from France and exports too little, and they're both using the euro, then there is no exchange rate to adjust, and so you're just left with the trade imbalance and no adjustment.
Exchange rates are determined by markets based on supply and demand, with demand being based on things like investment opportunity, as well as structural demand such as for petro-dollar oil payments.
Currency markets are mostly too big for governments to be able to manipulate (e.g. George Soros & GBP).
The market can adjust the exchange rate between the US and the EU, but not between the Portugal and Spain. This is in a sense the ultimate in government currency control, and if 1:1 is not the exact ratio that the market would have set, one of the two countries will be emptied out.
If the Portuguese economy was booming relative to Spain, then "the market" (investors) can still take advantage of that by investing in other Portuguese assets such stocks and real estate.
If a government wants to address a trade imbalance then import tariffs is one way to do it - or policy changes affecting cost of goods produced for export.
But there is an adjustment in the total wealth owned in aggregate by those in Portugal vs. France, which is what’s important at the end of the day, right?
Eventually those in Portugal will not have enough wealth to import above their exports, depending on how much stored wealth they have in aggregate.
So it’s still guaranteed to balance out on a century timescale…
>So it’s still guaranteed to balance out on a century timescale…
Balance in what sense? In terms of trade, countries can perpetually run a deficit if they share a currency. Wealth isnt zero sum and is continually created. This can be used to pay a perpetual deficit at a cost to growth.
I see. Even if you have little wealth, I dont mind taking it all. It just means you cant buy much.
Imagine of two families. Whenever one gets money, it buys food from the other. The 2nd keeps taking the money and investing in their garden, making it bigger and more efficient.
How can their be a ‘perpetual deficit’ in this case? Or in the case of Portugal and France trading?
Eventually one party will exhaust all their available resources, be that money, gold, desirable trade goods, trust, credibility, etc… and won’t be able to run a deficit anymore.
Countries continually produce new value.
If one party has a gold mine, or scientists, or workers, or anything that produces net positive value, it generates wealth. If you retain that wealth and reinvest it, it can compound and this is called economic growth.
Lets say you, with your human labor, can use 10 bricks to produce 20 bricks. If you do this every year, your wealth grows. first 10, then 20, then 40, then 80, ect.
In this senario, You can trade with your neighbor and run a 10 brick deficit every year, but you wont exponentially grow your production and wealth. You will have 10 the first year, make 20, trade away 10, then end up where you started. You are sustainable forever, but not growing.
Your house will remain small, and the house of your trading partner will grow ever larger.
Yes… but these Portugese bricks have to be somehow better, in some aspect, than French bricks, for them to be traded in the first place.
Be that quality, quantity, availability, pricing, etc…
Eventually Portugal will exhaust all it’s bricks, and future brick opportunities, that are better in some aspect, relative to French bricks and French future brick opportunities.
And when that happens with every possible thing and possibility in Portugal, relative to French things, then the trade deficit naturally disappears.
So what, the exchange rate in that case would change so US consumers lose buying power for EU imports as a sort of automatic customs fee and as a result would prefer locally made alternatives?
I would question how well that works outside completely generic goods that you can buy anywhere, since with economies of scale consolidating production there is often hardly any alternative anymore.
Also, feels like there could be a way to manually address the balance without reducing people's standard of living.
The balance is not maintained for individual goods, but rather for the whole market. If the EU is better than the US at manufacturing everything, the exchange rate will fall until the US can at least do one thing cheaper. Exchange rates don't help raise people's standards of living, but they do prevent countries from becoming economic dead zones.
I think in general the deal in EU is terrible for young and not so young productive people. Taxes on income are high, real estate is very expensive as the land is already taken by others (who usually pay very little tax on it). There is regulatory capture in many industries so you need to first spend years in school then more years to get various certificates and then often you need to work for basically free until you can jump to to the other side of the barricade and start exploiting newcomers.
Taxes are high in Europe because we fund older generations and have oversized wasteful public sector. It has nothing to do with education (very low % of overall budget), healthcare (you are funding it mainly for old people paying multiple of you fair share if you have any kind of decent job) or "social safety nets". I hope more countries push against that. Portugal has fantastic weather and landscapes, same for Greece. Attract enough productive people who are fed up with being diary cows for pensioners and bureaucrats who never worked an honest day in their lives but are very qualified to spend your money and things will start happening there.
But life isn’t just about money, it’s about being able to enjoy it, and that is so much easier in countries like Portugal, Spain, Italy, and Germany compared to say the USA. Obviously that’s a stated opinion and everyone wants different things from life.
How much of that is still at high rates? Ireland’s (at one point the second-highest debt to gdp ratio in the eurozone) average cost of debt servicing is ~1.5%; at that rate you don’t _want_ to pay it off. At least in Ireland it was largely refinanced since the crisis; I’d guess it’s similar in the other high-debt nations (except possibly Greece, where refinancing might be difficult).
Ireland is very business and FDI friendly, has a fairly decent budget, and worked very hard to resolve it's debt problem in the 2010s.
Ireland now has a ratio similar to that of Germany's, and Ireland has a credit rating of AAA for years now while Portugal only recently made it to BAA in the past year.
I'd love to move to Portugal, but I have kids that are about to enter school age, and Portuguese education seems much worse (judging by outcomes) than the rest of EU, especially former eastern block.
Portugal already has tax breaks for the youth (aka IRS Jovem), but the new right-wing government is seeking to extend what the previous left-wing government introduced. That includes loosening requirements and extending the duration of the tax breaks.
Now, while in Portugal people talk about these as measures to retain the Portuguese youth in the country, no political party has framed it as a measure to capture foreign youth. Puzzling to me.
https://archive.ph/jfRjL
Portugal is an interesting microcosm of the general economic problems in EU vs US.
I don't think tinkering with income tax brackets/credits is going to fix the actual problem - robust and steady job creation of good paying jobs.
There are ~11M people in Portugal, 3M of which are in Lisbon metro and 2M are in Porto metro areas. This leads them to having the same problem as Japan - the population is decreasing, BUT the countryside and 2nd/3rd tier cities are emptying out.
So housing affordability in the major cities remains poor. The youth therefore get squeezed out and emigrate, leaving an increasing tax burden problem paying for all the benefits given to the increasingly aging population.
My father visited his home town in the countryside in the last decade and found much of the town essentially abandoned. No one lived in the home he grew up in. His uncle owned an inn that had no guests, etc.
Meanwhile, Portugal remains a beautiful place and I will visit more in the future, and could even see wanting to retire there.
The EU and USA both have free movement between states.
But the USA has massive federal tax revenue and spending which redistributes wealth from rich states to poor states. Federal taxes are much higher than state taxes.
By comparison the EU has high state taxes, but very tiny "confederal" EU level revenue. So much less ability to balance things between rich and poor member states.
This puts poor states like Portugal into a bad position where they suffer from brain drain due to the free movement, but don't get enough monetary benefits from the EU to counteract that.
This turns Portugal into a gateway country for the EU: they have loose immigration rules because they want to attract young workers. But as soon as those workers live in Portugal long enough to get an EU passport, many brain drain away to other (better paying) EU countries, and need to be replaced with even more immigrants.
Yes, EU is hurt a lot by being a currency union with freedom of movement without being a true federal state.
It is helpful to the core rich countries and to elite/upwards mobile across countries. But it hollows out the periphery.
A lot of the GFC era EU debt crisis was German banks lending to southern European states to then buy goods/services from.. German industry. So I was not as understanding of the northern countries looking down at the "lazy south". It was far more complicated than this and they were happy to look the other way while it worked for the first decade.
I'm honestly not sure where EU goes from here as the GFC & the response dampers any enthusiasm for a true federal government, unified military, etc. Not that there was much appetite to hand over that much sovereignty to start with. Nor does it help that post-GFC, even the rich parts of EU have further diverged in terms of wealth/income from the US, so they are probably feeling even less "generous".
Draghi wrote a whole report on EU competitiveness recently and in standard Eurocrat form its like a 500 page paper no one will read, let alone action.
And that is precisely the issue with the EU.
I was always supportive of the spirit of the European Union and its ultimate objectives, but in its current state, it's a brutalized self-sabotaging entity that has disillusioned the general public to veer rightwards. And with furthermore technological lagging vis-a-vis China and the US, and the immigration crisis, not to mention the Russian Axis round the corner and the collective inaction of a number of EU states around that, and it's no wonder the EU is falling back into 3rd place.
And for some reason, the EU still thinks net uncontrolled refugee migration is good for their economics,their population and their electability, as is letting American private equity buy up large swathes of residential properties. Guess that's what you get when you let freeloaders who haven't worked a real job in their lives hold unelected positions of power.
> it's a brutalized self-sabotaging entity that has disillusioned the general public to veer rightwards
It hasn’t, it only disillusioned those people (like the brits) who didn’t understand the purpose of the EU to begin with. The economic benefits were always considered secondary objectives, subordinated to the main principle of cooperation. This is public knowledge, it was made very clear in the foundational documents of the EU. And therefore the EU has indeed been very successful and its effect is unprecedented: historically, we are seeing the longest period ever recorded without a war between European countries.
From my impression of Germany I can tell you they would do the same suicide without the eu.
Portugal's GDP PPP is about 485 billion dollars. About the same as Tennessee.
Portugal received about 3 billion dollars from EU funds in 2021. About the same Tennessee received from the US federal government in that same year.
I fail to see how a nominal difference in internal organization leads to much different outcomes.
edit: I got some bad data on my search, my bad, will leave my mistake up.
In 2021, USA federal government spent $113.3 billion in Tennessee according to
https://www.usaspending.gov/state/tennessee/2021
Including $72.6 billion in direct payments.
This misses the component of interstate distribution. Depending on how much federal taxes Tennessee paid, that 113 B could become positive or negative.
It looks like in 2023, the IRS collected ~96 billion from TN
https://www.irs.gov/statistics/soi-tax-stats-gross-collectio...
Indeed - TN budget shows individual departments like DOT getting $1B+ of federal money alone.
https://www.tn.gov/content/dam/tn/finance/budget/documents/2...
Loans and Bonds are not serviced in purchasing power - they are serviced in exchange rate $s and €s.
Portugal (and a significant portion of EU members) had an economic meltdown during the Eurozone crisis from 2008-14, and are still trying to service those loans and bonds to this day.
Also, Portugal's GDP is half that of Tennessee's.
In fact, Portugal has the same population size as Michigan and North Carolina, yet a GDP that is ~50% and ~33% in size respectively.
Right, Portugal nominal GDP is 300B EUR so that 3B EUR subsidy is 1% of GDP.
Tennessee nominal GDP is $420B and the last figure I found for federal aid to TN was $10B but this was 2014 data, at which point TN GDP was $350B. So ~2.5-3% of GDP in aid from the feds, quite a lot more than Portugal.
Also this is simply the direct aid in TN budget that comes from Feds. Often there are other direct payments/transfers from Feds to individuals who file federal taxes while living in TN, which is not captured in that $10B number.
Yep.
A major issue was the ascension of then poorer CEE states in the 1990s and 2000s.
This meant the bulk of EU Development Funds which used to go to Southern European countries like Portugal and Greece ended up getting diverted to countries like Hungary, Poland, Romania, Bulgaria, Slovakia, etc.
Unlike the CEE countries, Portugal's pre-EU era rulers (eg. Salazar, post-Revolution military junta, trade unions) did not invest in human capital to the same degree that CEE's pre-EU rulers did.
PPP is used solely to compare Portugal to a US federation unit. The economy of Portugal happens in Euro and Tennessee in Dollars, and that is immaterial to this argument.
PPP is not a useful comparison unit when nominal $-€ conversions and costs are extremely well understood.
Which US state has an economy of a size comparable to that of Portugal?
Does that change when the relative value of Euro to Dollar fluctuates?
If you are comparing the aid an EU country gets vs the aid a US state gets.. You do not really need to do any PPP or currency conversion.
Take the GDP, in local value, against the aid they receive, in local value.
Then you have a percent, which you can compare between the two agnostic of PPP/currency/etc.
> Which US state has an economy of a size comparable to that of Portugal
Oklahoma, but Oklahoma also only has 40% of the population of Portugal.
Despite being in the Western half of Europe, Portugal is economically comparable to an Eastern European country like Poland or Slovakia.
The only US territory (not state - even poor Mississippi has a higher median household income and GDP per capita than much of Western Europe excluding Germany and Scandinavia) that is comparable to Portugal is Puerto Rico.
In fact, the problems Puerto Rico faces today in the US mirror those that Portugal faces in the EU.
> This puts poor states like Portugal into a bad position
The only reason Portugal (and Ireland, Spain, Greece, etc) is counted as a "Developed Country" today is because of the EU.
These countries received the lion's share of EU Development Funds until EU expansion in the 1990s-2000s.
If Portugal didn't join the EU, it would have been similar to Argentina - it's economic peer until EU ascension in 1986
Spain is x3 the nominal GDP of Ireland and x6 Greece and the 15th economy in the world and the three together are of the size of Canada.
Maybe your comment about what defines a developed country might be overly simplified...
> developed country
Developmental indicators, nominal GDP per Capita, and median household income.
Before Spain, Ireland, Greece, and Portugal ascended into the EU in the 1970s-80s, their developmental indicators largely mirrored those of developing countries from that era (Malaysia, Turkey, Argentina, Iran).
It was EU developmental funds that helped these countries not fall into the middle income trap.
The only developing countries that were able to escape the middle income trap without EU Development Funds or oil were South Korea, Taiwan, Singapore, and Israel.
Also, having a large GDP does not mean a country is developed. China and India have the 2nd and 5th largest GDP in the world, yet their median household incomes are less than that of Thailand, Mexico, or Malaysia - let alone countries defined as developed by the IMF.
Portugal, like Spain and Argentina, faced significant historical challenges in the 20th century. Portugal's fascist regime, which lasted until 1974, limited investment in infrastructure and economic development. Spain, under Franco's dictatorship, also faced political and economic constraints. Argentina, too, experienced political instability and economic turmoil, particularly during the 1970s military dictatorship.
Also mentioned Malaysia, Turkey, and Iran, which have their own unique historical contexts that I'm not as familiar with.
I mean you've also accurately described Pennsylvania...
Policies lead to results.
If Portugal wants to keep the young people from leaving, why don't they look at where those people are going - and why - and emulate the policies of those destination countries?
If you don't want to adopt the policies that lead to the results that you want, then you don't really want those results.
Maybe most of the voters and politicians in Portugal don't want to change those things that the young people don't like.
The prices for housing, in any form, in the major metropolitan areas suggest this will not be successful.
This looks like is going to help increase the prices even more.
Indeed - people cannot live in money. Giving them more money will not help them get a place if there are not more places available to get. It would only drive up the price as the same people compete for the same housing with more money. Or, if they have some form of rent control - simply greater frustration all around.
Another possible consequence is greater inter-generational friction as young people with more money out-compete existing, older tenants/owners for those homes.
meanwhile Norway has started a controversial exit tax that can kill many tech startups:
https://www.forbes.com/sites/danieladelorenzo/2024/04/09/nor...
A typical bit of Forbes scaremongering.
According to the local the threshold for share gains is 3 million kr, about 300 thousand USD. You only pay the exit tax on amounts above that.
"Those subject to the tax will have to address their tax obligations related to gains exceeding 3 million kroner on shares acquired during their time in Norway.
They will have several options to fulfil this obligation, including immediate payment, interest-free instalments spread over 12 years, or deferred payment with accrued interest.
The changes are part of the government's efforts to counter the recent outflow of wealth from Norway, with Switzerland being a popular destination for tax exiles."
https://www.thelocal.no/20241007/whats-the-latest-on-norways...
The Forbes article is from April, while The Local article you're quoting is from October. Back in April, the proposal was different, as The Local explains.
And the biggest problem for startup founders remains: you're taxed, on leaving the country, on unrealized gains. Being taxed on 5 millions of profit sounds fair, being taxed on 5 millions (or 30 millions) of valuation used for raising capital, in a startup that then fails and is worth nothing after a few years, maybe not so much. Neighboring countries do not have this kind of taxation.
Yeah, but I think the point is that this applicable on unrealized capital gains too. So if I start a company in Norway, raise a bunch of money and then move to the US because the company wants to have a presence there, I now have to pay the tax on the basis of the money raised; It's quite common for a reasonable successful founder to be worth millions on paper while having no cash.
On the other hand, not taxing unrealized capital gains on exit would effectively create a loophole by which it would be possible to avoid taxation simply by moving to a tax haven for a while and realize the gains there.
It is and the effect is immediate and destructive to any value creation in startups. It basically forces companies to leave before raising any serious money or founders will end up with tax bills that have to be paid out of investment money
Or just staying in the country, thereby bolstering their economy. Which is almost certainly the end goal. I mean, it kind of sucks if these countries provide the tools to create successful businesses and then those businesses just move to cheaper countries. You're kind of getting screwed over.
Countries invest too. In their economy. Providing high quality education at a low price is a huge investment, for example. It's not a good deal if citizens take that and you don't get a return on your investment, i.e. they're not creating innovative companies in your country.
Not at all. As soon as you get VC money, your valuation likely is in the millions, and then you're already way beyond the threshold. Good luck with the exit tax then.
Many sub-aspects of this are debatable, of course: Is VC money good? Are high startup valuations good? Also: Sure, you can defer the payment, you can pay it later with interest, etc., etc. But that's besides the point.
The problem here is: Once your startup reaches a high valuation, exiting the country, for whatever reason, will become difficult. And this might happen for rather innocuous reasons: Temporarily moving to the US to open up a subsidiary, staying there > 180 days / year? --> Exit tax. Etc. The number of second-order consequences is high, and I'd wager most of them are not good if your goal, as a country, is to foster a startup ecosystem.
> When the natural interest for start-ups is to scale up and expand in foreign markets, or to leave the country to seek better deals, the proposed 37.8% exit tax on unrealized assets over $46.5 thousand that have been accumulated in Norway, seems to be the last drop for any foreigner or Norwegian with big dreams to set a business in the Nordic country.
As prior art, doesn't the US have something similar where if you want to leave your residency/citizenship, you have to pay up, even for unrealized gains and such? Seems like Norway is modelling something similar to what the US already has, and the US seems to still have tech startups coming out of it.
The US exit tax isn't a fixed penalty for leaving, but rather a way to wring "pending taxes" out of citizens renouncing their citizenship. Per the exit tax you pay taxes as if all your assets had been sold, thereby forcing security gains to be "recognized" at that point.
How is that different from the thing Norway might implement? Besides the obvious difference of the US exit tax seems to be about citizenship while the Norwegian one seems to be about residency of the company itself.
> Besides the obvious difference of the US exit tax seems to be about citizenship while the Norwegian one seems to be about residency of the company
That’s a big difference. (Also, is it company or personal residence?)
Sure, but also the least interesting because that difference is very obvious, that's why I'm asking for other differences...
> that's why I'm asking for other differences
If the obvious difference explains the gap, this is unnecessary. Switch American taxation to a territorial system and you’d see a similar flourishing of start-ups and founders in Canada and Mexico.
You're right - maybe it is the same - I don't read closely enough, but the Norwegian tax is on "unrealized assets" which may be the same thing.
The big difference is that the US will sting you for tax wherever you are in the world, whereas most will only tax residents (complexities in terms of tax treaties notwithstanding).
Hence in both cases they are both looking to realise gains at the point where they no longer have control over the taxes being charged. A `penalty` for leaving their tax jurisdiction, notionally for the tax they are 'owed'.
I think the difference is that the US is where you'd want to found your startup anyway.
If I imagine being Norwegian, I bet the answer to that question is "Nope" more than "Yes".
I dunno, even Norwegians like money.
well. but these two countries are very different, so can't just copy paste policies.
Weird that they would even consider that – Norway is so rich from oil and gas, it may be able to keep going without collecting any taxes.
Taxes make a government accountable to citizens. While not paying taxes because of oil wealth might seem enticing in the short term, it'll lead to disaster in the long term if a government becomes accountable mainly to the resource industry and neglects to invest in a diversified, productive economy.
Norway has high tax rates despite having oil wealth-- this ensures citizens remain productive and don't get too complacent by depending on a fluctuating commodity.
This is exactly the reason why we crossed out Austria as destination. Not only they have an exit tax, they want to tax the unrealized gains since the purchase of the asset instead of since entry to Austria. I wish they'd fix that weirdness.
Or just let people move between there and US without forcing asset sales at bad times to cover tax payments on unrealized gains.
Whenever I read about these schemes I wonder ... did it not occur to the people running the governments of these countries that people are not purely economic maximisers, and that they can attract and retain people by having a country that is fun and comfortable and safe to live in? People in Denmark pay a lot in taxes, but I haven't seen many of them rushing to leave.
Is there any place in the world that is "fun and comfortable" that isn't an economic maximiser?
Thailand comes to mind, but its only "fun and comfortable" if you're an economic maximiser, bringing western money in. For locals, it is not fun or comfortable.
Denmark pays the highest wages in the EU [0], so you can't consider there.
[0] - https://nordicbusiness.media/denmark-pays-the-highest-wage-i...
> a country that is fun and comfortable and safe to live in
I think Portugal is fun, comfortable and safe. It is a fantastic place if you want to visit.
Living there can be an issue. One of the problems, as another comment says, is that salaries are really low. That's probably compounded by the amount of bureaucracy one needs to wade through to do anything, and the overall 'old school' thinking of folks.
Generalizing(perhaps unfairly), the Portuguese seem to look fondly at the rear view mirror, but more progressive ideas are not viewed in the same light.
You would probably see more people staying if they had a space for their ideas, and a living wage.
I've been to Portugal and it's lovely. But I don't think earning a low salary and not having enough is fun. Wouldn't be for me, at least.
> That's probably compounded by the amount of bureaucracy one needs to wade through to do anything
That does not sound like the description of a "fun" or "comfortable" country to live in. :-(
My friend created a tech company there because salaries are low. He employs a dozen capable smart professionals. He pays them well for the local economy and arbitrage of tech works means he’s able to offer low rates and high quality on the international market. He’s a rich expat gobbling up a housing unit but also creating jobs. It’s probably a net win for the locals.
A cool policy would be every newcomer has to construct (or cause to be constructed) at least one housing unit. If that was a condition of the golden visa everyone would do it and the benefits would be in injecting significant additional supply into the local rental and real estate market preventing supply and demand from raising housing costs.
The US investor visas get abused by elites building their own apartments as "economic development".
> I think Portugal is fun, comfortable and safe.
Yeah, apart from the pickpockets in Lisboa. They are really the most brazen I have ever seen anywhere. They don't seem dangerous, but constantly having someone trying to pick a wallet from your bag is pretty annoying.
> People in Denmark pay a lot in taxes, but I haven't seen many of them rushing to leave.
The issue is salaries in Portugal are VERY VERY low - they are comparable to Poland, Romania, and Greece - yet their tax burden and cost of living is comparable to Denmark.
A 25 year old Portuguese college graduate can immigrate visa free to Denmark and double-to-triple their salary almost overnight.
The same can't be said for a Dane unless they immigrate to the US, but they're in the H1B queue like everyone else so it just isn't worth the hassle unless it's a high paying white collar job.
The EEC has a massive disparity in incomes, with average monthly wages ranging from €700 to €5,000 depending on the country, and as EEC members tend to have fairly simplified immigration policies between each other, this causes a brain drain in the countries with lower wages.
Right, but there are two variables in that equation. If the economy were stronger and more productive people could earn higher salaries. Don't get me wrong, I don't like taxes either (I live in Switzerland and pay relatively low rates of income tax) but it just seems like a loser move to decide that the solution is to fiddle with the taxes, rather than figure out how to make it a place people can build a great life in, including salaries, services, fun, comfort, safety ... all the different things that are important to people.
PIGS Countries don't have capital available to invest in salaries / services / fun / comfort in the first place, due to historical reasons, the 2010s debt crisis etc.
So the move of bringing people and capital by available means (tax breaks) and be less hostile to startups & companies (they have been very hostile and bureaucratic historically) is one of the few things they can do, and it works.
> If the economy were stronger and more productive people could earn higher salaries
The issue is Portugal is very business unfriendly and human capital is weak.
It's hard to make the case to invest in Portugal when you can invest a similar amount in neighboring Spain and get a much better return.
Nor do local businesses earn enough to pay comparable to higher income countries in the Single Market - especially because Portugal essentially penalizes large employers
This means the only way to make up the salary differnce that is the cause of the brain drain is to decrease taxes for early career Portuguese.
Denmark and Portugal are nowhere near the same level of development, and what works for Denmark does not work for Portugal.
> business unfriendly and human capital is weak
Exactly. So I would focus on improving that, rather than try a quick and desperate trick of tax cuts. Why not collect the taxes and then invest them wisely in great modernised services, for example?
Becuase such changes are extremely difficult and take a generation.
Easing hiring means pissing off unions, which means you piss off voters and donors.
Simplifying entry of foreign businesses and competitors means pissing off small and medium businesses, which means you piss off voters and donors.
Shrinking Portugal's notorious bloated public sector will save money, but means firing a significant number of Portuguese, which means you piss off voters.
Shrinking Portugal's notoriously large spending on social programs will save money, but means you piss off voters.
You can't just "modernize services" overnight. It requires a generation, a lot of capital, and strategy to invest in building a High Tech industry.
> Why not collect the taxes and then invest them wisely in great modernised services, for example?
Because Portugal has had an elevated debt-to-GDP ratio for almost 20 years now, which makes it extremely difficult to get the capital to do any of the above, which means a significant amount of Portugal's tax revenue is spent on servicing those debts.
The average Portuguese gets paid too little, the average Portuguese business is too small to generate significant business taxes, and every individual Portuguese person who has hireable skills has no incentive to be paid a fraction of what they would earn in London, Frankfurt, or Madrid.
Lowering taxes for early career Portuguese in order to entice them to stay until they become mid-career is the least bad option of the multiple bad options Portugal has.
Thanks for describing the complexity clearly. I think I agree now. It's a disappointing solution that is quite possibly better than other options.
Romania total taxes are quite high, because we don't have tax ladders, it's one size fits all solution and it's a lot. It's that cost of living here is smaller and as result it's not that bad
Yep, but realistically, Romania (as well as Poland and the rest of Eastern Europe) will end up in the same kind of middle income trap just like Portugal within the next 10-20 years.
Pretty nominal for Europe to be honest. Most Americans don't realize a) how much money they make and b) how little taxes they pay. Apples and oranges with all the social safety nets and such of course, but still most (healthy) Americans get much more money in their bank accounts after all is said and done than they would in Europe.
Portugal is in a weird situation where it has high taxes and at the same time the median salary is too close to the minimum wage. This is difficult to overcome, and thus salaries are stagnated.
The government has no reason, in the medium to long term, to have such high taxes. Since, by keeping high taxation the state retrieves less money in absolute terms than they would if they let wages increase and steer away from the minimum wage.
I don't think you could say that about most EU countries. Portugal really is in a bad place.
(Edit: just clarifying that the situation is different, yes taxation is high as most others but in the case of Portugal its much worse)
It's not that weird, France is in the same situation.
It's similar, in relative terms. In France the minimum wage is currently at 75.5% of the median, in Portugal it is 73.1%.
However, the issue lies in the absolute amounts. In France, the median (monthy) is 2340€, but in Portugal it is 1039€.
When you are taxed in relative terms this amounts to quite a big difference when comparing what both government get from their citizens.
I concur that France's cost of living is higher and that I'm wayyyy oversimplifying it.
> The government has no reason, in the medium to long term, to have such high taxes
It does - Debt.
Portugal's debt as percent of GDP skyrocketed during the GFC and Eurozone crisis from 75.8% in 2008 to 129% by 2012.
Unlike economies with a similar debt-to-GDP ratio like Italy, Portugal's economy is a relative minnow, and doesn't have a significant domestic capital market which can at least help stem some of the issues, nor can Portugal attract FDI at the same level as much more business friendly Spain, which made income taxes their only lever.
That said, the Portuguese debt-to-GDP ratio has gotten much better (99.10% in 2023), but that was because of how much of the Portuguese budget was spent on servicing debt.
I'm aware, but we have been in that situation for almost a decade now. I'm portuguese.
I just think we would've gotten through this sooner by making use of the invisible hand and lead businesses to be able to prosper more and as a result, higher wages. This would lead to more modest taxes having a higher wield to the state.
As it stands, they are taxing people for a very low absolute amount in the end. Not to mention that taxes go way lower the closer you are to minimum wage (a good thing, but it also shows how little they gain from this strategy). In the meantime they strangle any small to medium sized company, which are the ones driving the wages for most.
It’s presumably very _cheap_ debt, though? Ireland’s in a somewhat similar situation (don’t be fooled by the headline debt to GDP figure; Ireland’s GDP is distorted to the point that the government has had to make up its own adjusted metrics), though it’s currently running big budget surpluses, and from time to time someone will ask “why, instead of lowering taxes and investing in infrastructure, are we not using this surplus to pay down debt?” And the answer is that the average cost of the debt is 1.5% (the expensive stuff from the financial crisis has largely refinanced). It makes little sense to aggressively pay down debt at those sorts of rates.
A quick google search indicated debt interest is about 5% of the national budget.
This does seem low in comparison to the US, where ~17% of the national budget is spent servicing debt interest. For context, this is approximate 1.5X what we spend on national defense. [1]
https://www.investopedia.com/why-interest-payments-are-blowi...
Huh. Ireland’s is about 2.5% (3.1bn on 119bn budget next year). Slightly puzzled at what’s going on with the US debt; that does seem very expensive. Though it’s not _entirely_ comparing like for like, in that states have their own separate budgets in the US (local authorities in Ireland do too, but their own revenue raising capabilities are very limited and most of the money comes from central government).
Looks like the US’s cost of servicing works out to about 3.4%, which definitely seems rather high (though, probably still not high enough that you’d necessarily want to aggressively pay it down; 3.4% isn’t a _great_ return). Actually, I’d wonder how much of this is related to the debt ceiling stuff; I would assume that makes refinancing when debt is cheap more difficult.
for Ireland, are you talking about % GDP or %governmental budget.
I don't know how or if the debt ceiling has any impact on refinancing.
What happens to the unhealthy Americans? What happens to the Americans who are too poor they cannot pay health insurance and the cost of medicine/surgery. I think only the wealthiest Americans have much more money in their bank accounts than they would in Europe.
Unhealthy people get left behind in Europe all the time. I hope as a European you’ll never have to go through the hell of trying to deal with any kind of complex chronic illness. The doctors have no clue how to treat these kinds of problems, and any specialists are very few and far between. Go spend some time on forums for people dealing with chronic health problems and you’ll find many Europeans who’ve had to empty out their savings in order to get treatment.
Medicaid expansion has fixed this for the poorest Americans unless you live in a few red states, and ACA subsidies cap private plans at 8.5% of your income (+ cost sharing on top of that obviously, but there is a maximum per year) for the rest.
The God clearly doesn’t like them so it’s not worth making policy choices that take their problems into account
Honestly health care in Europe isn't great either. My Dutch GP seems to think acetaminophen is the cure for everything. They're decades behind on things like discussing menopause, TRT, etc.
> cannot pay health insurance and the cost of medicine/surgery
https://www.medicaid.gov/
https://www.healthcare.gov/health-coverage-exemptions/forms-...
> I think only the wealthiest Americans have much more money in their bank accounts than they would in Europe
Well, you thunk wrong.
Median household income in the US is $80,000 [0] and taxes like VAT are nonexistent.
Throw on top of that access to subsidized plans like Medicaid or ACA plans for households that earn below the median, and most Americans come out ahead.
The big issue with the US is the de facto inability to commit mental health patients to involuntary mental health holds unlike much of Europe due to the current interpretation of the 14th amendment, which has caused the mental health crisis to become a homelessness and drug crisis.
That said, as a whole, most Americans live fairly comparable lives to most Western countries, as HDI shows. In fact, much of Europe has a much lower HDI than the US once you exclude Scandinavia, Germany, the British Isles, and Switzerland.
When you look at a subnational level, it is the Deep South (Alabama, Mississippi, Louisiana, Arkansas) and Appalachia (West Virginia, Kentucky) that continues to lag, but they represent less than 5% of the entire population of the US.
[0] - https://fred.stlouisfed.org/series/MEHOINUSA672N
> The big issue with the US is the de facto inability to commit mental health patients to involuntary mental health holds unlike much of Europe due to the current interpretation of the 14th amendment
… Eh? Large-scale involuntary committal largely ended in Western Europe decades ago. What figures are you basing this on?
This is a misconception. Even in the poorest state here in the US, the median income is far more than most countries in Europe, pre tax[1,2]. And unlike what the internet says, we do have government programs that provide healthcare for those that cannot afford it or are out of work.
[1] https://www.statista.com/statistics/205960/median-household-... [2] https://www.euronews.com/business/2024/07/08/european-averag...
Agreed. There are many reasons to prefer living in Europe to the US, but "more money in their bank accounts" of non-wealthy people is certainly not one of them even though the American must sometimes use the bank account to pay for things that are provided by the government in Europe.
Unless we talk about Switzerland. But that's like 2% of the continent so what you say is valid.
And given too left-leaning and fanatical green-deal-at-all-costs push from Brussels economical situation won't get better, in contrary. They could be pouring money into defense, its not like in 20 years russia will stop wanting to subjugate/murder us all. Or they could try not killing their own automobile industry so quickly. Or...
EU started a slow but steady decline given changes in global economies, it will take probably a long time due to various factors but trend is clear.
And Switzerland is most like the US out of European countries, albeit an idealized version of the US.
It has private healthcare mandated by the government, and an economy favorable to capital. It has a federal system where most of the power and spending resides with the cantons(states), and much closer to the voters.
The Swiss constitution was actually modeled after that of the US.
> Swiss constitution was actually modeled after that of the US
“The Amercian national constitution, the Articles of Confederation, was constructed on the Swiss model of a confederacy of some over sovereign states. Then, Americans repudiated confederal government in 1787 as impotent and unworkable and adapted a new federal constitution. The opponents of the new charter, the Anti Federalists argued that a Swiss style government was still a viable model which offered the best hope for the preservation of American liberty. The Swiss themselves repudiated confederate government in 1848 using many of the same arguments Americans had marshalled against it in 1787 and adapted a Federal constitution modelled after the American constitution of 1787. After the Civil War many American state and local governments adapted constitutional reforms borrowed from the Swiss. The initiative and referendum – which continues to this hour to give the politics of California and other influential states their distinctive tone.”
https://www.legalanthology.ch/hutson_swiss-and-american-stat...
I think that supports what I said, but I love the added detail. There was more back and forth exchange than I remembered.
Another fun fact about the Swiss government that I think is superior to the US is that the effectively have seven presidents which form an executive council. The executive council debates behind closed doors and presents a unified public front. Internal debates of the executive counsel are sealed for 20 years before release to the public.
That said, my favorite thing about Switzerland is still that the vast majority of tax collection and public spending occurs at the local level. Federal spending revenue is approximately 30% with the rest being the local cantons. Swiss Cantons are smaller by population then a typical California county.
I think this emphasis on local government results in Civic engagement, oversight, and empowerment while reducing political strife.
> seven presidents which former executive council. The executive council debates behind closed doors and presents a unified public front
This resembles the Athenian executive. It works in peacetime but less so in war. It’s also bad if you polarise because it blamelessly deadlocks.
You said "A was modeled on B", the answer said "B was modeled on A".
No, the Swiss federal constitution is based on America’s federal constitution. The American Article of Confederation, our previous Constitution, was based on our Helvetic Confederation constitution. Strictly speaking our constitution is based on the American Constitution.
> And given too left-leaning and fanatical green-deal-at-all-costs push
Investing heavily in renewable technology and R&D doesn't mean spending less on military or industrial capacity - in fact it's fairly dual use.
Furthermore, US, China, SK, JP, and others manage to balance both.
The issue is most EU members stopped funding their militaries following the fall of the Berlin Wall and redeployed that capital elsewhere - especially during the European Recession+Currency Crisis (1990-95), GFC (2008-11), and Eurozone Crisis (2008-2014).
Death and disease are not real, my mind zones them out. I never remember when i was the last time at the dentist, so why include that part in my lifes plan? That is just a blindspot of everyones mental model. They parked a whole scaming theme park in that in the us.
Just looking at salaries and taxes makes for a very distorted view of wealth and affordable lifestyle in the US vs elsewhere. Even if you take into account ALL the major variables such as college costs/loans, housing prices, real estate taxes, cost of healthcare, retirement, etc, it is very difficult to compare.
You can better see the reality by looking at actual examples of families with massively different incomes living in the US vs elsewhere. It takes WAY higher salary (5x?) in the US to enjoy the same lifestyle as someone in the UK, for example.
..... really? I'd take $200k in the US over 40k GBP any day of the week. And in the US I'd have bug screens in my windows. And air conditioning. And food I can taste.
Depends where in the US of course. $200K isn't going to go very far if you have to pay $1M for a house, 20K for r/e taxes, etc... One or two kids in college and you are f'd.
I don't know exact salary figure, but my sisters family in UK have medium income (1.5 jobs) new BMW, two kids in college, foreign vacations every year, kids got latest Apple phones/watch/laptop growing up ... A bit like 1950's America living the dream on a single income with foreign holidays and iPhones added.
if you live in a major city in Europe you are going to also be paying $1M for a decent family sized house.
When did they buy their house (or flat)?
House bought a while back before prices shot up, so maybe mortgage paid off ... I don't know. OTOH college costs alone make the US ruinously expensive.. $200K/kid perhaps... That's the point really - you need to look at full financial picture in the US - especially costs. Looking at income tells you nothing.
My alma mater is coming in around $16,000 a year or so for tuition, books, and fees - https://www.calpoly.edu/undergraduate-costs-attendance-2024-... . It's generally considered a not-terrible school. $200k is quite rare.
I should look more into cost of living in Portugal, maybe, but one of the other commenters mentioned housing prices being… high. In US, making ~$20,000 you’d be considered poor (maybe not “officially”) and probably pay zero federal tax and receive quite a bit of assistance.
$20k is technically above the US federal poverty line for a single person. I live in a state where anyone under $30k is considered low-income and qualifies for full benefits.
This is correct.
Here's a handy table: https://en.wikipedia.org/wiki/Tax_rates_in_Europe
Top rates are kind of useless; some countries have many more brackets than others. The US used to have a 90% tax bracket, but that didn’t make it a particularly high-tax country; effectively no-one paid it. Comparisons, are in practice, inherently difficult, because the curves caused by the tax brackets and credits can be very different. It really depends an awful lot on income.
That extra money comes in handy when you're paying $15K/year for health insurance because if you don't a few hours in the hospital would cost you triple that.
When counting your tax in the US add in your health insurance cost to compare to most of Europe.
Or if it's parts of Europe like Portugal where there is health insurance check the cost - looks like 14 euros to 90 euros a month:
https://www.beportugal.com/health-insurance-in-portugal/
Yes, there is a public health system, but people tend to avoid it when they can. Most opt to go private for their dental, for example. And if they have any kind of systematic (sibo, ibs, autoimmune, etc) problem the public system is useless and they will have to travel to find a private specialist. On the other hand, the private system is really good here, and also pretty cheap.
Dental is also typically not covered by medical insurance in the US (dental insurance is separate and works differently).
It is realistically much more than 14 euros. In Eastern Europe I pay almost 700 Euro per month in mandatory state health tax (it is not an insurance, it is a tax because it is a percentage of income, not related to what you are covered for).
laughs in swedish.
32.75% taxes. That is so low.
I'm paying about 50% tax rate here in NL (we have a very high income), I just wish that those who have 10x and more than our income also had to pay a 50% tax rate. Only our tax rules have been written so that those who are very rich don't pay their fair share.
Portugal taxes are probably higher than Sweden.
Many people ignore portugal mandatory social contribution, it is mandatory even if you earn minimum wage, and the tax there is about 34% (forgot exact number, the way they charge make it clunky to calculate). Most portuguese people think this tax is "only" 11% because the rest of the tax is "paid" by the employer. Average people don't understand that if your salary was supposed to be 1000 and you get only 650 after tax you paid 350 in taxes even if your paycheck says your pretax salary is 800.
Note: the income tax is paid on top of the social contribution, so is easy to end paying 50%+ taxes if you are in tech. Then Portugal gets mad with all recent grads moving to Germany. (By the way, I still live in Portugal but all companies I worked for since moving here were German, Portuguese companies can't compete in wages)
It can go up to 48%. But as in most countries, it's progressive: you pay X% over the first A€, then Y% over the next B€, etc.
Then you have Social Security (mandatory): 11% on the employee and 23,75% on the employer, or 21,4% for independent workers.
Cries in throat sounds and having tax discount expiring at the end of this month
Pretty similar to anywhere else in Western Europe. Includes health care and a state pension and things like that.
They actually get healthcare and other services with that. It's not like it's just taken away in some black hole. They get value from the taxes they pay.
In America the tax rate is higher? People are reacting like this is a lot haven’t seen a paycheck in the US in there lifetime. US is maybe 5% lower under some circumstances. I thought fake outrage was banned here?
Not even close, the marginal federal tax rate is 12% for income between $11k and $44k [0]. This doesn't take into account state/property taxes, but it's nowhere near
[0]https://www.irs.gov/filing/federal-income-tax-rates-and-brac...
you have to adjust for median income and PPP. also, state taxes are often substantial.
Both calculations should include VAT btw
At the levels OP described I’d be at 17% federal and state taxes rate. I’m at about 42% with state and federal but you need to add and zero and double the amounts to get close to our household income.
Not sure if Portugal uses marginal tax rates or not.
A expected step. Nobody has a intention, to build a anti-(age)-statistic protection wall.
Young, educated people are the gold of the western world- and the gold must not always flow towards rome as tax.
> Young, educated people are the gold of the western world
No, they (we?) are not. The better analogy is a gold mine. You still need to invest in it to get anything out, and it’ll be a few years before you do. If you fail to do that, all you have is a Superfund site.
Different analogies, but both are true.
Young, educated, [and motivated] workers are a desired and contested resource.
Producing them is also important.
> Young, educated, [and motivated] workers are a desired and contested resource
Theoretically, sure. In reality this isn’t reflected in the immigration policy of any large economy. Portugal makes news with this for a reason.
> Producing them is also important
The point is having lots of underutilised young people is a liability. Gold doesn’t join gangs or riots.
Agreed. There are also interests that benefit greatly from them them being a highly contested resource with restricted supply.
If you are holding gold, you dont want someone to flood your market with more.
> If you are holding gold, you dont want someone to flood your market with more
Right, this is why it’s a stupid analogy. That’s true for gold. But if you’re hiring young, educated people, you do want your country flooded with them.
It sounds like we mostly agree on this. To be honest, I was mostly reacting to how you initially responded with a flat negation, so Im not going to steel man a simple analogy as a universal truth.
I agree that these analogies all depend on which perspective you are framed in. If you are a hiring manager, you want cheap effective candidates. If you are a worker, you want a labor shortage, at least for your role.
Public policy is a whole different mess. It is set by competing self-interested parties and may or may not bear any relation to the aggregate public benefit.
Going by elementary macroeconomic principles, currency unification will always result in "dead zones," because their exchange rates can't stabilize the balance of trade.
This is broadly true for any division of land with a single currency but it’s not as if going to tiny city states with unique currencies is also a good idea.
You could have more currencies than states. That is how it used to work in the US.
> how it used to work in the US
For a definition of “work” which normalises constant financial crisis.
Frequent financial crises. Constant financial crisis better describes our dying small towns.
The balance of payments is always self-stabilizing. The trade component can only have a non-zero integral when somebody is injecting or removing money from the economy by some other means.
What really means that no, economical dead zones have no relation at all with the balance of trade. And also, the balance of trade predicts almost nothing and is controllable by policy, anybody focusing on it is just throwing a red herring and hopping people don't look at actually important things.
(What doesn't mean that currency unification doesn't cause dead zones. I know that this explanation is wrong, I don't know if it happens or not.)
>when somebody is injecting or removing money from the economy by some other means.
Which should be considered the normal state for an economy that with growth and production.
The issue is that a negative trade deficits are sustainable, but come directly out of the wealth growth of the importing country.
If you have $2 of value per year, and loose net $1 across the boarder, you never accumulate wealth.
That's a little flattened because oftentimes that $1 will go across the border in exchange for ownership of foreign assets.
>The trade component can only have a non-zero integral when somebody is injecting or removing money from the economy by some other means.
People late in their careers are buying imports, people early in their careers are leaving the country. That's as clear of a case of the integral going negative as I can imagine.
"By some other means" literally means that how people trade can't impact the balance.
People leaving the country carrying money is an example of those "other means", people buying imports isn't.
Either way, it's a bad number to even look at. It meaningless.
I feel this has also been a challenge for Greece among other places. Can they adapt within the economic zone, say to become tourist havens while the bigger states provide industry and services? Should they leave the Euro?
Greece should have never joined the Eurozone, and are basically a middle income country despite their high GDP per capita (median household incomes are comparable to Mexico and Malaysia).
That said, leaving the Euro would be too economically traumatic for Greece at this point.
What does ‘ exchange rates can't stabilize the balance of trade’ mean?
If the US is trading with the EU, say, and the US is importing too much and exporting too little, eventually that affects the exchange rate between the dollar and the euro. That adjusts in a way that somewhat counteracts the trade imbalance.
But if Portugal imports too much from France and exports too little, and they're both using the euro, then there is no exchange rate to adjust, and so you're just left with the trade imbalance and no adjustment.
Exchange rates are determined by markets based on supply and demand, with demand being based on things like investment opportunity, as well as structural demand such as for petro-dollar oil payments.
Currency markets are mostly too big for governments to be able to manipulate (e.g. George Soros & GBP).
The market can adjust the exchange rate between the US and the EU, but not between the Portugal and Spain. This is in a sense the ultimate in government currency control, and if 1:1 is not the exact ratio that the market would have set, one of the two countries will be emptied out.
If the Portuguese economy was booming relative to Spain, then "the market" (investors) can still take advantage of that by investing in other Portuguese assets such stocks and real estate.
If a government wants to address a trade imbalance then import tariffs is one way to do it - or policy changes affecting cost of goods produced for export.
But there is an adjustment in the total wealth owned in aggregate by those in Portugal vs. France, which is what’s important at the end of the day, right?
Eventually those in Portugal will not have enough wealth to import above their exports, depending on how much stored wealth they have in aggregate.
So it’s still guaranteed to balance out on a century timescale…
The end states are different however.
>So it’s still guaranteed to balance out on a century timescale…
Balance in what sense? In terms of trade, countries can perpetually run a deficit if they share a currency. Wealth isnt zero sum and is continually created. This can be used to pay a perpetual deficit at a cost to growth.
Isn’t it the relative level that decides the balance between imports and exports? Not the absolute level of wealth?
relative level of what?
I dont understand your question.
Relative level of wealth available for importing…
I see. Even if you have little wealth, I dont mind taking it all. It just means you cant buy much.
Imagine of two families. Whenever one gets money, it buys food from the other. The 2nd keeps taking the money and investing in their garden, making it bigger and more efficient.
IF they share a currency,
How can their be a ‘perpetual deficit’ in this case? Or in the case of Portugal and France trading?
Eventually one party will exhaust all their available resources, be that money, gold, desirable trade goods, trust, credibility, etc… and won’t be able to run a deficit anymore.
Countries continually produce new value. If one party has a gold mine, or scientists, or workers, or anything that produces net positive value, it generates wealth. If you retain that wealth and reinvest it, it can compound and this is called economic growth.
Lets say you, with your human labor, can use 10 bricks to produce 20 bricks. If you do this every year, your wealth grows. first 10, then 20, then 40, then 80, ect.
In this senario, You can trade with your neighbor and run a 10 brick deficit every year, but you wont exponentially grow your production and wealth. You will have 10 the first year, make 20, trade away 10, then end up where you started. You are sustainable forever, but not growing.
Your house will remain small, and the house of your trading partner will grow ever larger.
Yes… but these Portugese bricks have to be somehow better, in some aspect, than French bricks, for them to be traded in the first place.
Be that quality, quantity, availability, pricing, etc…
Eventually Portugal will exhaust all it’s bricks, and future brick opportunities, that are better in some aspect, relative to French bricks and French future brick opportunities.
And when that happens with every possible thing and possibility in Portugal, relative to French things, then the trade deficit naturally disappears.
So what, the exchange rate in that case would change so US consumers lose buying power for EU imports as a sort of automatic customs fee and as a result would prefer locally made alternatives?
I would question how well that works outside completely generic goods that you can buy anywhere, since with economies of scale consolidating production there is often hardly any alternative anymore.
Also, feels like there could be a way to manually address the balance without reducing people's standard of living.
The balance is not maintained for individual goods, but rather for the whole market. If the EU is better than the US at manufacturing everything, the exchange rate will fall until the US can at least do one thing cheaper. Exchange rates don't help raise people's standards of living, but they do prevent countries from becoming economic dead zones.
As Portuguese I have my doubts about this actually being successful.
What does "young people" entail? What age group?
Excerpt from the article: >The current proposal would apply to everyone under 35.
I think in general the deal in EU is terrible for young and not so young productive people. Taxes on income are high, real estate is very expensive as the land is already taken by others (who usually pay very little tax on it). There is regulatory capture in many industries so you need to first spend years in school then more years to get various certificates and then often you need to work for basically free until you can jump to to the other side of the barricade and start exploiting newcomers.
Taxes are high in Europe because we fund older generations and have oversized wasteful public sector. It has nothing to do with education (very low % of overall budget), healthcare (you are funding it mainly for old people paying multiple of you fair share if you have any kind of decent job) or "social safety nets". I hope more countries push against that. Portugal has fantastic weather and landscapes, same for Greece. Attract enough productive people who are fed up with being diary cows for pensioners and bureaucrats who never worked an honest day in their lives but are very qualified to spend your money and things will start happening there.
But life isn’t just about money, it’s about being able to enjoy it, and that is so much easier in countries like Portugal, Spain, Italy, and Germany compared to say the USA. Obviously that’s a stated opinion and everyone wants different things from life.
More than a million greeks have emigrated since the debt crisis. Life is enjoyable for tourists
> Taxes are high in Europe because we fund older generations and have oversized wasteful public sector
Everyone seems to forget the Eurozone Crisis from 2008-2014 and how government debt skyrocketed.
A lot of that debt was also at bad terms due to the high risk profile during that time period.
The only easy lever a lot of European countries had to service their budgets was taxes, because a lot of other levels were handed off to the ECB.
How much of that is still at high rates? Ireland’s (at one point the second-highest debt to gdp ratio in the eurozone) average cost of debt servicing is ~1.5%; at that rate you don’t _want_ to pay it off. At least in Ireland it was largely refinanced since the crisis; I’d guess it’s similar in the other high-debt nations (except possibly Greece, where refinancing might be difficult).
Portugal is in a similar boat to Greece.
Ireland is very business and FDI friendly, has a fairly decent budget, and worked very hard to resolve it's debt problem in the 2010s.
Ireland now has a ratio similar to that of Germany's, and Ireland has a credit rating of AAA for years now while Portugal only recently made it to BAA in the past year.
I'd love to move to Portugal, but I have kids that are about to enter school age, and Portuguese education seems much worse (judging by outcomes) than the rest of EU, especially former eastern block.
Portugal already has tax breaks for the youth (aka IRS Jovem), but the new right-wing government is seeking to extend what the previous left-wing government introduced. That includes loosening requirements and extending the duration of the tax breaks.
Now, while in Portugal people talk about these as measures to retain the Portuguese youth in the country, no political party has framed it as a measure to capture foreign youth. Puzzling to me.