The Tax Flight

What happens when your tax base has a boarding pass

The progressive tax agenda rests on a premise that stopped being true sometime around 2010. The assumption: wealthy taxpayers are a captive resource that can be taxed at ever-higher rates because, well, where else are they going to go?

Turns out, lots of places. And they’re going there. We have planes now.

The fundamental miscalculation is a simple one that should be obvious to anyone with a laptop. If you can work from a couch in California, you can work from one in Brazil, just as easily. And this is a problem for anyone who’s still planning on “taxing the rich” in 2026, using a 1936 tax regime.

In 1936, when marginal rates hit 79%, you could actually enforce that—not because people loved paying taxes, but because wealth was physical and escape was hard. Your factory was bolted to the ground in Detroit. Your farmland wasn’t relocating to Panama. Moving gold across the Atlantic meant booking passage on a ship, a four or five day journey at best. Languages fragmented the world into distinct economic zones with very little mobility. The wealthy were, practically speaking, stuck.

Today’s wealth is a different species entirely. Equity portfolios transfer across borders in milliseconds. Intellectual property domiciles wherever the paperwork says it does. Cryptocurrency exists in a jurisdiction called “everywhere and nowhere.” A software consultant in Bali can serve the same clients as one in Boston—the work is identical, but the tax bill is not.

The kicker? Legally reducing taxes isn’t even particularly hard to execute. You don’t need to be a billionaire with Cayman Islands shell companies and Swiss banking secrecy. Senior software developers, social media consultants, and freelance designers are quickly learning that the same work product, for the same clients, can legally generate an 85% reduction in tax liability with nothing more exotic than a plane ticket and an afternoon of paperwork.

The American Disadvantage

Let’s start with the hardest case: American citizens. The US is one of only two countries on Earth that taxes based on citizenship rather than residence. Eritrea is the other, which should tell you something. This means Americans owe US taxes on their worldwide income regardless of where they live or work. Sounds airtight. It’s not.

The mechanics of American tax reduction are straightforward. Establish bona fide residence in a foreign country—meaning you live there, not just visit—and the Foreign Earned Income Exclusion shelters your first $130,000¹. That’s not a deduction or a credit; it’s excluded entirely from taxable income.

But wait, you also get a housing allowance. Live somewhere expensive enough and that could be another $40,000 excluded. You haven’t done anything sophisticated yet—you’ve just moved and filled out Form 2555.

Self employed with a high income? Tack on a solo 401(k). You can contribute up to $72,000 pre-tax, in 2026. Unless you’re over the age of 50, in which case it’s a full $80,000 pre-tax deduction. High earners with more sophisticated setups can add “profit-sharing” plans to scale the deductions even higher.

Run the math: $130,000 (FEIE) + $40,000 (housing) + $72,000 (solo 401k) = $244,000 shielded from federal income tax, legally. And while still subject to Social Security and Self Employment taxes (the employer-side Social Security and Medicare matching), any decent CPA will likely get that portion down substantially by making you an employee of yourself, paying yourself a modest salary, and taking the rest as “business profits” instead of earned income.

From a beach in Bali, a consultant earning $300,000 could now pay US federal income tax on only $56,000. At a 32-35% marginal rate, that’s roughly $18,000 in US income taxes and maybe as little as $9,500 in Social Security and Self Employment taxes. On $300,000 in income. A 9% effective rate, in a country with postcard-perfect beaches, and where a penthouse apartment is $1,500 a month.

Compare that to staying in California: you’re paying 37% federal on income over $191k, plus 9.3-13.3% California state tax, plus payroll taxes, Self Employment taxes, sales taxes, and property taxes. Your effective rate on $300k is pushing 50%, or more. That’s half of your money, right off the top, for the privilege of sitting in Los Angeles traffic while burning gas at $7 a gallon.

For Americans, the system is designed to be inescapable. But inescapable is a spectrum, and the spectrum runs from 50% to 5%. That’s not a rounding error. That’s a different life.

The Everyone-Else Advantage

If you’re not American, it gets really absurd.

Most countries tax based on residence, not citizenship. Establish residence nowhere, pay taxes nowhere. This is not a loophole—it’s the explicit design of territorial tax systems encountering the reality of digital work.

The perpetual traveler strategy is beautifully simple: never stay in any country long enough to trigger tax residency. Most jurisdictions use 183 days as the threshold. Stay 180 days in Thailand, 120 days in Mexico, 65 days bouncing around the EU. You’re a tax resident of nowhere. You owe income tax to no one. Want to be really safe? Get a legal residency in an ultra-low tax jurisdiction and establish official tax residency there.

“But surely that’s illegal!” No, it’s just... how income taxes work. Countries designed their tax systems around the assumption that people live somewhere. Digital nomads do live somewhere—they live everywhere—they just don’t live there long. The systems never contemplated someone whose permanent residence fits in a laptop bag.

Your Estonian software company—which took 3 hours and €200 to incorporate online through e-Residency—bills your American clients. The revenue sits in a Wise business account, accessible from anywhere, convertible to any currency. Or register a C-Corp in Panama, where you only pay taxes on work actually conducted in Panama. So you just don’t go there. Panamanian banks are just as connected to the global banking system as any other bank.

This isn’t theory. Digital nomad communities have turned this into paint-by-numbers. Reddit forums are full of ordinary people comparing notes on visa runs, optimal country rotations, and which coworking spaces have the fastest internet. They’re not criminals. They’re responding rationally to a system that still thinks “where you work” and “where you live” are redundant questions.

The Corporate Shell Game

For those with more substantial operations, the optimization becomes trivial. Incorporate in Singapore (17% corporate tax, territorial system, global business hub). Or Ireland (12.5% corporate tax rate). Or the UAE (0% corporate tax for most activities). Or Estonia (0% on retained earnings). Or, ironically for non-Americans, Wyoming (no corporate income tax, no annual report requirements, full anonymity).

These aren’t exotic frontier zones. They’re legitimate jurisdictions with robust legal systems, actively competing for your business registration. And why wouldn’t they? Corporation registration fees, local employment, registered agent services, office leases—these generate revenue and boost local economies without requiring the corporation to pay tax on global operations or inflating the costs of local housing stock.

Your US clients pay your Irish company. Your developers work remotely from Portugal, Argentina, and the Philippines. Your servers are in AWS data centers spread across continents. The company pays Irish corporate tax on Irish-sourced income—which is minimal because the value creation happens elsewhere. The actual profits? They sit in the corporate account, undistributed, growing or reinvested back into the business. Eventually you move to somewhere low tax, establish residence, and take distributions for the rest of your life.

Every step is legal. Every step is well-documented on government websites. Every step is exactly what the respective jurisdictions intended. It’s just that no single jurisdiction designed their rules expecting them to be chained together quite this efficiently.

The Enforcement Asymmetry

The standard objection: “Can’t governments just crack down on this?”

On what, exactly? Following the law? The problem isn’t rule-breaking—it’s that the rules were written for a world where people and capital couldn’t move freely, and now they can.

Enforcement scales nonlinearly with global mobility. When wealth was a factory, you just walked in and counted the machines. When wealth is a portfolio of global equities, a crypto wallet, and IP rights to software, what exactly are you enforcing? Every enforcement mechanism requires international cooperation, and international cooperation requires every country to act against their own interest in attracting that tax base.

The OECD’s Base Erosion and Profit Shifting (BEPS) initiative and global minimum tax proposals are attempts at coordination. They’re failing for the obvious reason: coordination only works when defection isn’t profitable. Ireland isn’t going to torch its competitive advantage. Estonia isn’t going to close e-Residency. Dubai isn’t going to stop attracting digital businesses. They benefit from the capital flight, and capital will fly to whoever doesn’t coordinate on higher taxes. It only takes a few holdouts.

Meanwhile, the costs of implementing these tax optimization strategies are falling toward zero. Stripe Atlas will incorporate your company in Delaware for $500. E-Residency in Estonia is €200 and takes 72 hours. The Bank of Georgia will gladly accept your deposit and open your account online. International wire transfers are free or near-free through digital banks. Legal templates are available online. The infrastructure for optimization is now commoditized.

You’re asking governments to fight an asymmetric war against their own interests, where the attack surface is essentially infinite and defense costs scale exponentially.

The Marginal Taxpayer Problem

The one counterargument, that most people won’t move for tax reasons, is mostly true. And largely irrelevant.

Sure, people have family, friends, roots. But a flight costs a few hundred dollars, and taxes at these levels cost a hundred thousand. At a certain point, it’s cheaper to fly them to you. Or fly to them. Hell, fly private. You can afford it with all that extra money you have.

The point is, the problem is real even if most people don’t move. You only need the marginal taxpayer to move. And high earners are, definitionally, marginal in the distribution. The top 10% of households pay over 70% of the federal income taxes in the US. If even a fraction of them optimize internationally—and they represent the top-end distribution of that revenue—you’ve just blown a $300+ billion crater in the federal budget.

And here’s the thing about human behavior: people don’t move for a 2% difference. They move for a 20% difference. Tax rates operate as a step function in behavior, not a smooth curve. Most people absorb modest rate increases with grumbling. But when the gap between “stay and pay 50%” and “move and pay 5%” gets large enough, the calculus flips. And once it flips for your peers, the social cost of relocation drops to approximately zero. Your reference group isn’t the neighbors who stayed—it’s the network who left. When enough of your friends are drinking beers in Thailand, you might just find yourself transplanting your roots.

There’s a tipping point. And we’re approaching it faster than anyone in Washington, London, or Sacramento seems to realize.

The Incoherent System

Free people aren’t just captive revenue sources for the government. Short of a Berlin wall across Niagara Falls, and F-35s shooting down private jets, people are going to go where they want. If you want their tax revenue, you have to actually be the place where they want to go. That should be easy. For decades, millions of people have gladly lived in California and paid comparatively exorbitant state taxes to do so. They could have walked across the border to Nevada any time they wanted to. They didn’t, because California has a lot to offer.

The US has a lot to offer. As does the UK and the European Union. But quality of life isn’t a certification you get once that lasts forever. It’s something you have to deliver day after day, and year after year.

When people couldn’t easily up and leave, the pressure to innovate and compete on tax policy was modest. It’s not any more. Leaving is trivial now. The 20th-century model of high marginal rates funding expansive government assumes a captive tax base, or broad political consensus. Those assumptions are obsolete. The infrastructure for legal tax optimization is built, documented, and accessible to anyone with internet access and a plane ticket.

We can continue to insist that the wealthy should pay their “fair share.” We can pass laws raising rates to whatever feels satisfying. But the wealthy aren’t blindly accepting any one tax code anymore—they’re comparing Portugal’s and Panama’s. And the gap between what governments think they can extract and what they’ll actually collect is widening every year.

The tax competition isn’t some theoretical game we should start playing. We’re already in it. And we’re losing. Countries are competing for each other’s tax base whether they realize it or not. Some—Dubai, Estonia, Portugal—are competing intentionally. Others are watching capital flee and their tax bases shrink while chanting “tax the rich” at self-congratulation rallies.

10% of Americans pay 70% of the taxes. And they have passports. We might want to start thinking about what they want, and offering it to them. If we don’t, it’s the other 90% who will pay.

1. in 2026