Andorra-- Probably Not A Place Elizabeth Warren Will Be Buying A Home

If you're even a semi-regular DWT visitor you're probably familiar with the video above that helped make Elizabeth Warren's election campaign a cause célèbre for progressives across Massachusetts and across America. Over a million people have watched it on YouTube. "There is nobody in this country," she told her small audience," who got rich on his own; nobody" Rich people don't like hearing that. Rich people have their own fantasy about how they got rich-- very much on their own. "You built a factory out there," she continued. "Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come seize everything at your factory and hire someone to protect against this because of the work the rest of us did. Now look... you built a factory and if it turned into something terrific, or a great idea-- God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."

In the last cycle, Wall Street gave $3,398,805 in legalistic bribes to Speaker of the House John Boehner. It was the second biggest amount they gave anyone. They also gave $2,115,050 to his chief deputy, Eric Cantor. The top Republican in the Senate, Mitch McConnell got $1,837,299 from the banksters (he wasn't up for reelection). Those are hefty sums but they were dwarfed by the $5,224,231 Wall Street funneled into the campaign warchest of Warren's opponent, Scott Brown. The partial term freshman with no legislative accomplishments whatsoever got more money than any other Senator-- as much as any two senators-- and more than anyone in either House of Congress, including toadies who have been working for Wall Street and against their own constituents for decades. Yes, they like Scott Brown. But the motivating factor was Elizabeth Warren's ability and willingness to articulate ideas almost no one among our political elites will do. Ideas like that scare the bejeezus out of the banksters and the plutocrats. Their $5 and a quarter million dollar pile didn't do much to keep Warren out of the Senate. She unseated Brown 54-46%. He was the only incumbent senator ousted last year.

I'm retired from business now. But when I was president of a division of large international corporate entity, I was making well over a million dollars annually. I couldn't believe it. How did that happen! More than a few of my peers put a great deal of energy into sheltering their income from taxes. I was very clear with my accountant-- no tricky stuff, no off shore bullshit... I didn't want to pay more than I owed. I wanted to pay what I owed. And some years that looked painful-- at least on tax day. Most of the time, though, I felt very proud to write those tax checks-- paying the government back for my public school-- including a state university-- education and even for the food stamps I existed on for one tough stretch while I was starting my company that led directly to that pot of gold. I was never unaware that I didn't get rich on my own.

Friday, I was on an 11 hour Lufthansa flight with no book. I slept a lot-- but not for 11 hours. I read every remotely plausible article in the International Herald Tribune and one that you probably missed-- and I surely would have-- was about Andorra's tax laws and how the tiny country tucked away between France and Spain is still a tax haven for rich people who don't want to pay their share. What struck me is how "normal" the idea of not paying taxes was treated by the writer, the NY Times' Laura Latham. "One of the world’s most lenient tax havens," she wrote matter of factly about a country that existed as a haven for cigarette smugglers for decades, "the principality of Andorra, announced in June that it would collect its first income tax in 2016. It is just one of the changes that the tiny country, on the border of France and Spain, has made over the past two years. But it was one that real estate agents feared would compound the property slump in Andorra since the beginning of the 2008 financial crisis."

Yet there has been little evidence of further trouble because of this tax, said Roger Munns, owner of Tribune Properties, a British agency specializing in sales in Andorra.

“We’ve sold properties with a combined value of over €2 million”-- about $2.7 million-- “since the confirmation of income tax being introduced,” Mr. Munns said. “Which, I think, shows that Andorra is still a serious contender for those wanting to lower their tax bills.”

After all, he noted, someone with residency in Andorra earning €100,000 a year would pay €6,800 in taxes.

Andorra’s main industry is tourism. The country attracts around 10 million visitors each year to its 468 square kilometers, or 180 square miles. Its lack of income tax has also attracted many wealthy people who are not citizens but who make up more than 50 percent of Andorra’s population of 85,000.

Many have chosen Andorra over better-known havens like Monaco because of lower property prices. These start at around €1,000 per square meter, or $124 per square foot, and rise to around €7,0000 per square meter. In Monaco, the average price per square meter is €38,000, a level that is starting to challenge even the wealthiest buyers.

In Andorra’s ski resorts of Soldeu, La Massana and Ordino, prices are from around €165,000 for a two-bedroom apartment of 87 square meters, with luxury chalets or apartments of four to five bedrooms ranging from around €1 million to €3.5 million.

Homes in Andorra rarely offer the level of finishing and fixtures that is available to buyers in the super-prime markets of Monte Carlo, Hong Kong or London. Because sales have been at a near standstill since 2008, there has been little new construction, so the market now is mainly resales.

Andorra announced its income tax after pressure from the Organization for Economic Cooperation and Development. The organization, based in Paris, is helping to streamline aspects of global economic policy and had requested greater transparency in Andorra’s tax laws.

The new tax will apply to anyone who lives in the principality for at least 183 days in a calendar year. The first €24,000 of income will be tax free, with the next €16,000 taxed at 5 percent. The balance of income exceeding that initial €40,000 will be taxed at 10 percent, which is still less than most West European countries and even some countries in Eastern Europe.

Mr. Munns said most of the people buying property in Andorra were not working and would have no income tax to pay. Many retirees enjoy the lifestyle there, and will benefit from the continued lack of inheritance or wealth taxes. There also is no capital gains tax on property held for more than 12 years.

The General Council, which acts as Andorra’s government, also relaxed its residency and investment laws last year to make the country more attractive to foreign investors.

A person now must spend 90 days a year in the principality to qualify for residency, compared with the previous 180-day requirement. Also, foreigners now have the same property ownership rights as citizens.

In addition, three new categories of residency permits were introduced. Anyone who is retired or at least not working in Andorra can obtain a permit in the first category by making a financial investment in the country of at least €400,000, which can include a property purchase.

Then there is a professional permit, which applies to business owners who live in Andorra but operate businesses elsewhere.

The third category is for international sports and science professionals and celebrities from the performing arts. This permit is being seen as an attempt to woo the kind of buyer who otherwise would go to places like Switzerland or Monaco, which continues to have no income tax.

It didn't help Mitt Romney's campaign last year when it came out hat he was sheltering many millions of dollars from taxes by hiding it in tax havens all over the world. Republicans and libertarians may think this is heroic, but normal Americans find something untoward and even sordid about this kind of behavior. It's not uncommon and there are far too few Democrats willing to stand up and make an effective case for what's wrong with it.