There used to be a show from the 90s called America’s Funniest Home Videos, where host Bog Saget would show silly home movies that people sent in from across the country.
The videos typically featured people doing stupid things. And if the video was funny enough, someone could have won the $100,000 grand prize.
All of that was pre-Internet, of course. Now there are people amassing fortunes on YouTube with audiences that rival hit TV shows.
Today, a nine year old boy named Ryan Koji is the highest earning YouTuber. Last year he raked an estimated $30 million from about 12 billion views, all from videos of him opening and playing with toys on camera for his 42 million subscribers.
Another YouTuber named Logan Paul earns $10-$15 million per year, just for being generally annoying and obnoxious on camera.
But he certainly doesn’t keep that much money, because he lives in California. So between federal and state taxes, his income tax burden is around 50%.
And Logan Paul said that high tax rate is the main reason that he is moving to Puerto Rico.
He’s applied for a tax incentive we have discussed many times: most, if not all, of Paul’s income should qualify under the Export Services Act (now called Chapter 3 of Act 60) to be subject to just a 4% corporate tax rate. That could save him $5-7 million PER YEAR.
According to the rules, he will still have to pay himself a reasonable salary. But even that amount will only be subject to Puerto Rico’s top income tax rate of 33%.
The rest will be taxed by Puerto Rico at 4%. And his US federal tax rate will be ZERO.
That’s because bona fide residents of Puerto Rico, a US territory, don’t owe federal taxes on income that’s sourced in Puerto Rico.
And that makes Puerto Rico a phenomenal tax option for US citizens; it’s one of the easiest ways that investors and entrepreneurs can legally slash their taxes.
Like any place, Puerto Rico has advantages and disadvantages. The infrastructure is horrendous, and government corruption is so profane it’s almost comical.
But I’ve been living here under the same tax incentives for a couple of years now, and I can honestly say that the benefits definitely outweigh the drawbacks.
And over the last year there’s been a surge of people moving here, mostly from the US. They’re business owners, entertainers (including some hip hop stars), fund managers, and self-employed professionals (like doctors, lawyers, etc.)
They’re pretty much all here for the tax benefits. They expect taxes in the US, both at the federal and state levels, to increase. So moving here is a no brainer.
It’s not like you need to be earning millions of dollars to benefit from these tax incentives either. There are plenty of location-independent, middle class workers living down here, many who came during the pandemic.
They have regular jobs, and basically asked their employers to start paying their Puerto Rican companies. And, poof, overnight, their tax rate went to 4%.
It’s not just Americans; in Europe, many people have found that one of their best options to save on taxes is moving to Andorra– a tiny independent nation with a population under 80,000 nestled in the mountains between France and Spain.
Andorra’s tax rate is just 10% and the country has fast fiber optic Internet; and that’s one of the reasons why Andorra has become popular with YouTubers.
In fact several Spanish YouTubers moved to Andorra recently, escaping Spain’s 54% top income tax rate.
In response, Spanish media unleashed an onslaught of hatred, condemning the YouTubers as unpatriotic.
One popular television personality said, “I think it’s unsupportive. Railroads and pensions have to be paid for.” And another newspaper published an article criticizing a fitness star’s “unlikely excuses” for moving to Andorra– as if she needs to justify her personal decision to move.
Of course, some YouTube celebrities thrive on controversy, and they’re likely hoping to face criticism for their decision to avoid taxes in a completely LEGAL way.
Logan Paul, for example, explained to his audience:
“It’s getting crazy here in California you know, paying taxes and for what? Because, the potholes in the streets are not fixed. There are homeless people everywhere, a dearth of employment, Covid not handled the right way… I don’t love it.”
And that’s the real point. It would be one thing if the taxes you paid were curing cancer. But they’re not.
Tax dollars are, at best, being squandered by an inefficient bureaucracy. At worst, they’re being used to oppress the very people who pay those taxes.
There is no moral obligation to pay more, when there are legal ways to pay less.
A famous judge named Learned Hand settled this long ago when he wrote:
“Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes… there is nothing sinister in so arranging affairs as to keep taxes as low as possible… nobody owes any public duty to pay more than the law demands.”
Moving is one of the ways to legally reduce what you owe. But that doesn’t mean you have to move across the ocean.
Sometimes it makes a big difference to simply move to a different city, province, or state, like leaving California or New York, for Texas and Florida.
But even if you’re not willing to move, there are still ways to legally reduce what you owe.
You could, for example, maximize your deductions, like maximizing contributions to tax efficient retirement accounts.
That one is a no brainer since it delivers the multiple benefits: you can contribute pre-tax income to reduce what you owe, plus you ensure you’re not depending on Social Security program for retirement, which is on track to run out of money by 2029