Posted on 02/26/2008 3:57:18 PM PST by Tolerance Sucks Rocks
The German government's purchase of data stolen from a Liechtenstein bank has reinvigorated longstanding debates about privacy, law enforcement and international relations. Much of the fallout has followed predictable patterns. Some argue that Germany's richest citizens should be brought to justice for failing to comply with the tax laws, while others point out that it is unseemly for a nation to spy on a peaceful neighbor.
The conflict between Germany and Liechtenstein also has triggered a broader debate about tax competition and the role of so-called tax havens. The Paris-based Organization for Economic Cooperation and Development is trying to use the imbroglio to resuscitate its initiative against tax competition. Willem Buiter, a professor at the London School of Economics, is using the issue to push an even more radical agenda: the forcible annexation -- by nations like Austria and France, under some unknown authority -- of jurisdictions such as Liechtenstein, Andorra and Monaco.
At best, these crusades against tax havens are misguided. At worst, they are an effort to create a tax cartel for the benefit of high-tax nations. This OPEC for politicians would mean higher tax rates for everyone and bigger government.
Wealthy tax evaders may not be sympathetic figures, especially to those of us who meekly comply with the law. But low-tax jurisdictions serve a valuable role in the world economy. Simply stated, they keep other governments honest. Globalization makes it easier for labor and capital to cross national borders, forcing governments to improve tax policy to keep the geese with the golden eggs from flying away.
Tax competition first became a big issue following the Thatcher and Reagan tax cuts in the 1980s. Responding to the increased attractiveness of the U.K. and U.S. economies, every single industrialized nation has been forced to lower personal tax rates in an effort to stay competitive. The average top tax rate in the developed world has dropped from more than 67% in 1980 to barely 40% today.
The same thing is happening to corporate tax rates. Back in 1980, corporate tax rates averaged nearly 50%. Today, led by Ireland's 12.5% corporate tax, the average corporate rate in the industrialized world is less than 27%. As the World Bank explained in its recent "Paying Taxes" report, these lower rates create incentives for more investment, which leads to faster growth, more jobs, higher incomes and what Berlin seems to be most concerned about: better compliance.
Perhaps most amazing, there is now a flat-tax revolution sweeping the globe. In 1980, there were just three flat-tax jurisdictions. Today, prompted by Estonia's 1994 reform, there are 25 governments with simple and fair flat-tax regimes.
All of these reforms have yielded big benefits -- particularly for the nations that have been the most aggressive tax cutters, notably Ireland, Estonia and Slovakia.
But tax rates are just part of the equation. In an ideal tax system, income also should be taxed just one time. This means no death tax, no wealth tax and no double taxation of interest, dividends or capital gains. Politicians often are tempted to impose extra layers of tax on saving and investment, both because they think such policies will give them more money to spend and because voters sometimes are sympathetic to class-warfare campaigns to "tax the rich." Yet the academic literature increasingly shows that excess taxation of capital income causes significant economic damage, largely because people have less incentive to set aside some of today's income to finance tomorrow's growth. High tax rates on saving and investment also cause inefficient tax-avoidance behavior.
Tax havens are particularly helpful since they encourage governments to reduce tax biases against saving and investment. From Sweden to Spain, politicians in Europe have been lowering tax rates on capital income. Death taxes have been killed. Wealth taxes have been abolished. And many nations have adopted lower tax rates for capital income.
Governments are improving their tax systems because they know that punitive tax burdens cause capital flight. In other words, they have finally realized that it is better to have modest tax rates and collect more tax revenue than it is to have confiscatory tax rates and collect less revenue.
But more important, the changes caused by tax competition and tax havens are good for ordinary people. The global economy today is much stronger than it was in the 1970s, in part because tax laws are much less hostile to work, saving and investment. This mean more jobs, higher income and greater prosperity. As Richard Teather of Bournemouth University noted, in a 2005 book published by London's Institute for Economic Affairs, "tax havens benefit us all, whether or not we personally invest through them."
Liechtenstein has a tax code that rewards productive behavior, and it is now the world's third-richest jurisdiction according to the World Bank. German tax laws, by contrast, are rated among the world's worst by the World Economic Forum's Global Competitiveness Report. Liechtenstein has privacy laws that respect individual rights, but which also have received a green light from the Financial Action Task Force and the U.S. Internal Revenue Service for being tough on dirty money. Perhaps most interesting, Liechtenstein scores highly on the World Bank's six governance indicators, beating out nations such as -- you guessed it -- Germany.
None of this should be surprising. Researchers have found that tax havens consistently rank as the best governed, most stable, fastest growing and most prosperous places in the world. Promoting better policy in other nations, though, may be their most important role. If Liechtenstein is forced to act as a deputy tax collector for other nations, the world's taxpayers will be the biggest losers.
Non resident alien individuals.I'm not sure you understand what a tax haven is. It's "a place to be used by non-residents to escape high taxes in their country of residence." So if the FairTax taxes the income of non-residents specifically, that pretty much precludes us from becoming a "tax haven."
No. A tax haven, in the traditional sense, is a place where not much more than a post office box allows you to earn money off of investments in that place. Investments are specifically exempt in the legislation.
See post #43.
Better than that, they've got theories and economic studies unencumbered by pesky stuff like real world experience.
“Just the fact that the whole article is a glowing endorsement of flat taxes speaks volumes about the FauxTax, and should be what is being discussed.”
Does that mean that someone is going to answer this simple question: why don’t the flat taxers get together and decide on a specific proposal, get that plan into congress and start working to get people behind it? As long as the flat taxers just support “the flat tax” generically, it isn’t going anywhere.
...and human nature...
It’s happening already, the problem is the pitchfork and torch crowd shouting down anyone who dares to challenge the FT cult. When your movement burns out, the flat tax will win out.
Liechtenstein is cooperative if criminal activity is suspected, however, tax evasion is not a crime in that country.
The fly in the ointment of many a perfect plan.
“It’s happening already.....”
It is? Do you have any evidence to support that assertion?
“...the problem is the pitchfork and torch crowd shouting down anyone who dares to challenge the FT cult.”
So FairTaxers are to blame for the fact that the flat tax has been around for what .... 20 years or more ..... and has never gotten any political traction? You don’t believe in an open marketplace of ideas? I haven’t seen anyone shouting down anyone on this thread. I am also not aware of any public presentations of the flat tax and its benefits. If there were, I can assure you that FairTaxers would not be showing up to disrupt anything.
Oh! I did think of one flat tax presentation recently. Dick Armey did one of Newt’s workshops on the American Solutions event. It was on the web. That event had far fewer participants than the FairTax one. I didn’t see it, but I am fairly certain that no FT supporters disrupted it. I certainly didn’t.
“When your movement burns out, the flat tax will win out.”
So that is why flat taxers are staying on the sidelines (except to criticize the FT)? So they are waiting until the FT movement “burns out” to decide which specific proposal to support?
Does that mean that someone is going to answer this simple question: why donÂ’t the flat taxers get together and decide on a specific proposal, get that plan into congress and start working to get people behind it?Yeah, how's that been working out for the FairTax? Going good?
As long as the flat taxers just support “the flat tax” generically, it isn’t going anywhere.There will not be fundamental tax reform until you have a president willing to get behind it. Bush just gave it lip service. To think that it's an advantage to have a specific bill at this stage in the game is silly.
Explanation — Under current law, there is a 30 percent withholding tax on dividends, interest and other periodic payments to foreign individuals (non-resident aliens) and foreign corporations. Most foreign countries have similar taxes. However, the U.S. has entered into treaties with virtually every major trading partner. These treaties reduce this tax from 5 to 15 percent and in some cases to zero on a reciprocal basis. Thus, U.S. corporations and U.S. individuals investing abroad pay lower taxes to foreign governments and foreigners investing here pay lower taxes to the U.S. government.
If the FairTax were put in place, and there was no withholding tax on nonresident aliens and foreign corporations, foreign governments could be expected to withdraw from their tax treaties with the U.S. Retaining them would be of virtually no value to their residents or corporations and withdrawing would enable them to collect higher taxes on the U.S. residents and the U.S. corporations who have invested in those markets. The withholding tax provision in HR25 gives them a reason to keep their tax treaties in place and their taxes on U.S. businesses low. In regard to Sec. 905, it is not an income tax, it is a tariff (in the form of a gross receipts tax) on payments to non-resident aliens and foreign corporations that is reduced by treaties with most industrialized countries to 5 or 10 percent. If this section were omitted from HR25, there is every reason to believe that other countries will revoke their existing treaties with the U.S. and try to impose confiscatory taxes on U.S. businesses trying to return capital to the U.S.
“Last I heard it was the same place it’s been for the last 10 years—dead in committee.”
Last I heard it had close to 70 co-sponsors, which is far more than any other tax reform proposal.
“The FairTax supporters actually make fundamental tax reform much less likely by fanatically pushing an option that is never going to happen. They suck all the oxygen out of room and stifle any debate of realistic options.”
It’s a free country. Flat taxers have every right to promote their plan whenever and wherever they please. I think it’s a total cop-out to suggest that the reason the flat tax isn’t going anywhere is because of the FairTax. That would be like NY Yankee fans saying they could have made it to the World Series if not for those darned Red Sox.
I have never stifled any real debate, but I don’t see how you can even have a constructive debate when one side refuses to even take a specific position and all they do is attack the other side.
Well put.
“There will not be fundamental tax reform until you have a president willing to get behind it.”
And I don’t think we will see a President making tax reform a priority unless and until enough Americans decide that it is a major public policy issue. Politicians have a finite amount of political capital. A President can’t get it done without the cooperation of congress, which will only happen if congress members believe it is in their best interest to work on the issue.
The fact that Huckabee made it a cornerstone of his campaign is encouraging in that regard. He definitely thinks that it has been a net positive for his campaign. If that perception spreads, then the momentum of the FT will continue to grow.
“Sorry, no tax haven.”
That isn’t the way I interpet it. It appears to me (and I am certainly no expert) that the taxes are only due if the money is sent out of the country. In contrast, we have tax laws now which encourage US citizens to leave their capital outside the country. The FT would encourage those with capital outside the US to repatriate that money, and I understand there is well over $10 trillion in that category. It would also encourage foreign concerns to keep their profits here in the US and invest tax-free, rather than to take the money out of our economy.
That seems far better than the current situation to me.
That isn’t the way I interpet it. It appears to me (and I am certainly no expert) that the taxes are only due if the money is sent out of the country.People who invest in foreign countries usually have the idea that their investment is going to generate income for them. Otherwise it's charity.
In contrast, we have tax laws now which encourage US citizens to leave their capital outside the country. The FT would encourage those with capital outside the US to repatriate that money, and I understand there is well over $10 trillion in that category. It would also encourage foreign concerns to keep their profits here in the US and invest tax-free, rather than to take the money out of our economy.But we weren't really talking about that, were we. (And the Flat Tax would accomplish the same thing - foreign income isn't taxed under the Flat Tax.)
They spend more time throwing other unpleasant FT’s under the bus trying to play CYOA, well never admonishing them for the bad behavior. It just doesn’t make for a credible foundation for what they consider “the future”.
Last I heard it had close to 70 co-sponsors, which is far more than any other tax reform proposal.Maybe you would like to explain what co-sponsorship of a bill means to the legislative process. [Hint: nothing.]
I have never stifled any real debate, but I don’t see how you can even have a constructive debate when one side refuses to even take a specific position and all they do is attack the other side.Please. Your first response when the Flat Tax is mentioned is always "which bill do you support." That's your attempt at stifling discussion about the idea of Flat Tax and make it more about the current bills in Congress - which is totally irrelevant at this stage in the game. The bill that is going to replace our current system hasn't been written.
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