(Would this content be more appropriate for the personal finance board? But somehow I can't select it—could a passing moderator help move it?)
A simple thought experiment: from a purely financial perspective, could the cost of maintaining status reach some critical ratio range between one's account and labor income (W2 income that a green card enables, almost unrestricted and requiring no sponsor), at which point it significantly erodes labor income?
For W2 earners who cannot legally avoid taxes, the combined tax rate (federal, state, local) can reach 40% to 50%. Assuming realized long- and short-term gains of 10% per year, every additional $1 million in the account generates $40,000 to $50,000 in additional tax liability. That means $80,000 to $100,000 of pre-tax income (W2) after-tax net earnings is needed to cover this investment tax burden.
On this basis, it is not hard to derive the critical ratio range where marginal cost and marginal benefit balance: when the account size reaches 10 to 12.5 times income, the after-tax disposable portion of income is just enough to fully cover the tax liability generated by account returns—or, put another way, the tax liability generated by account returns is just enough to fully erode the after-tax disposable portion of income. Even if the expected tax rate structure differs, this critical ratio will only fluctuate within a small range.
In addition, starting from parameters commonly used in FIRE, one can similarly derive an account-to-income ratio roughly in the above critical range. For example, with a SWR of 3% and a combined tax rate of 50%, if 80% of after-tax disposable income is used to maintain living expenses, the account-to-income ratio is 13.3. Does this coincidence suggest that, at the economic level, the choice of status and labor exit (FIRE) have a double-layered effect in this critical region?
What does everyone think about this? Do you think such a critical ratio exists? If so, roughly what range would it be in? And can this issue be effectively avoided through compliant tax-planning paths?
I'm also curious whether anyone has actually done this, or left because of this before submitting a green card application? What was the experience like, and what good places would you recommend?
Of course, the limitation of this whole derivation is that it starts purely from the perspective of economic rationality and finance, completely ignoring non-economic aspects such as the cross-border mobility, family roots, career ecosystem, social stability, and psychological security that maintaining status brings—so it's just a thought experiment.
The assumption that every additional $1 million in the account adds $40,000 to $50,000 in tax liability presumes all gains are realized and there are no losses to offset, right? In practice, it may not be that linear.