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Are Tax Havens Moral or Immoral?
Cato Institute ^ | 09/05/2011 | Daniel Mitchell

Posted on 09/20/2011 8:44:43 AM PDT by SeekAndFind

Being the world’s self-appointed defender of so-called tax havens has led to some rather bizarre episodes.

For instance, the bureaucrats at the Organization for Economic Cooperation and Development threatened to have me thrown in a Mexican jail for the horrible crime of standing in the public lobby of a hotel and giving advice to low-tax jurisdictions.

On a more amusing note, my efforts to defend tax havens made me the beneficiary of grade inflation and I was listed as the 244th most important person in the world of global finance — even higher than George Soros and Paul Krugman.

But if that makes it seem as if the battle is full of drama and (exaggerated) glory, that would be a gross exaggeration. More than 99 percent of my time on this issue is consumed by the difficult task of trying to convince policymakers that tax competition, fiscal sovereignty, and financial privacy should be celebrated rather than persecuted.

Sort of like convincing thieves that it’s a good idea for houses to have alarm systems.

And it means I’m also condemned to the never-ending chore of debunking left-wing attacks on tax havens. The big-government crowd viscerally despises these jurisdictions because tax competition threatens the ability of politicians to engage in class warfare/redistribution policies.

Here’s a typical example. Paul Vallely has a column, entitled “There is no moral case for tax havens,” in the UK-based Independent.

To determine whether tax havens are immoral, let’s peruse Mr. Vallely’s column. It begins with an attack on Ugland House in the Cayman Islands.

There is a building in the Cayman Islands that is home to 12,000 corporations. It must be a very big building. Or a very big tax scam.

As I’ve already explained in a post about a certain senator from North Dakota, a company’s home is merely the place where it is chartered for legal purposes. A firm’s legal domicile has nothing to do with where it does business or where it is headquartered.

In other words, there is nothing nefarious about Ugland House, just as there is nothing wrong with the small building in Delaware that is home to more than 200,000 companies. President Obama, by the way, demagogued about Ugland House during the 2008 campaign.

Let’s see what else Vallely has to say:

Are there any legitimate reasons why anyone would want to have a secret bank account – and pay a premium to maintain their anonymity – or move their money to one of the pink dots on the map which are the final remnants of the British empire: the Caymans, Bermuda, the Turks and Caicos and the British Virgin Islands?

Actually, there are lots of people who have very compelling reasons to keep their money in havens, and only a tiny minority of them are escaping onerous tax burdens.What about:

As this video explains, there are billions of people around the world who are subject to state-sanctioned (or at least state-permitted) religious, ethnic, racial, political, sexual, and economic persecution. These people are especially likely to be targeted if they have any money, so the ability to invest their assets offshore and keep that information hidden from venal governments can, in some cases, be a life-or-death matter.

And let’s not forget the residents of failed states, where crime, expropriation, kidnapping, corruption, extortion, and economic mismanagement are ubiquitous. These people also need havens where they can safely and confidentially invest their money.

Vallely is apparently unaware of these practical, real-world concerns. Instead, he is content with sweeping proclamations:

The moral case against is clear enough. Tax havens epitomise unfairness, cheating and injustice.

But if he is against unfairness, cheating, and injustice, why does he want to empower the institution — government — that is the largest source of oppression in the world?

To be fair, Vallely does attempt to address the other side of the argument.

Apologists insist that tax havens protect individual liberty. They promote the accumulation of capital, fair competition between nations and better tax law elsewhere in the world. They also foster economic growth.

…Yet even if all that were true – and it is not – does it outweigh the ethical harm they do? The numbered bank accounts of tax havens are notoriously sanctuaries for the spoils of theft, fraud, bribery, terrorism, drug-dealing, illegal betting, money-laundering and plunder by Arab despots such as Gaddafi, Mubarak and Ben Ali, all of whom had Swiss accounts frozen.

He can’t resist trying to discredit the economic argument by resorting to more demagoguery, asserting that tax havens are shadowy regimes. Not surprisingly, Vallely offers no supporting data. Moreover, you won’t be surprised to learn that the real-world evidence directly contradicts what he wrote: the most comprehensive analysis of dirty money finds 28 problem jurisdictions, and only one could be considered a tax haven.

Last but not least, the author addresses the issue that really motivates the left: the potential loss of access to other people’s money, funds that they want the government to confiscate and redistribute.

Christian Aid reckons that tax dodging costs developing countries at least $160bn a year — far more than they receive in aid. The US research centre Integrity estimated that more than $1.2trn drained out of poor countries illicitly in 2008 alone. …Some say an attack on tax havens is an attack on wealth creation. It is no such thing. It is a demand for the good functioning of capitalism, balancing the demands of efficiency and of justice, and placing a value on social harmony.

There are several problems with this passage, including Vallely’s confusion of tax evasion with tax avoidance. But the key point is that the burden of government spending in most nations is now at record levels, undermining prosperity and reducing growth. Why add more fuel to the fire by giving politicians even more money to waste?

Consider some real-world evidence: The Wall Street Journal has an article on the Canton of Zug, Switzerland’s tax haven within a tax haven. This hopefully won’t surprise anyone, but low-tax policies have been very beneficial for Zug:

Developed nations from Japan to America are desperate for growth, but this tiny lake-filled Swiss canton is wrestling with a different problem: too much of it. Zug’s history of rock-bottom tax rates, for individuals and corporations alike, has brought it an A-list of multinational businesses. Luxury shops abound, government coffers are flush, and there are so many jobs that employers sometimes have a hard time finding people to fill them.

Here’s some more evidence of how better fiscal policy promotes prosperity. This is economic data, to be sure, but isn’t the choice between growth and stagnation also a moral issue?

Zug long was a poor farming region, but in 1947 its leaders began to trim tax rates in an effort to attract companies and the well-heeled. In Switzerland, two-thirds of total taxes, including individual and corporate income taxes, are levied by the cantons, not the central government. The cantons also wield other powers that enable them compete for business, such as the authority to make residency and building permits easy to get.

…[B]usinesses moved in, many establishing regional headquarters. Over the past decade, the number of companies with operations of some sort in the canton jumped to 30,000 from 19,000. The number of jobs in Zug rose 20% in six years, driven by the economic boom and foreign companies’ efforts to minimize their taxes. At a time when the unemployment rate in the European Union (to which Switzerland doesn’t belong) is 9.4%, Zug’s is 1.9%.

It turns out that Zug is growing so fast that lawmakers actually want to discourage more investment. What a nice problem to have.

Describing Zug’s development as “astonishing,” Matthias Michel, the head of the canton government, said, “We are too small for the success we have had.”

…Zug has largely stopped trying to lure more multinationals, according to Mr. Michel.

It’s worth pointing out that the residents of Zug are not some sort of anomaly. The rest of Switzerland is filled with people who recognize the value of limited government:

[T]he Swiss are mostly holding fast to their fiscal beliefs. Last November, in a national referendum, they overwhelmingly rejected a proposal that would have established a minimum 22% tax rate on incomes over 250,000 francs, or about $315,000.

Sadly, even though the world is filled with evidence that smaller government is good for prosperity (and even more evidence that big government is bad for growth), statism is not abating.

Indeed, the anti-tax haven campaign continues to gain steam. At a recent OECD meeting, high-tax nations (with the support of the Obama administration) put in place a bureaucratic monstrosity that is likely to become a world tax organization.

This global tax cartel will be akin to an OPEC for politicians, and the impact on taxpayers will be quite similar to the impact of the real OPEC on motorists.

If that’s a moral outcome, then I want to be amoral.


TOPICS: Business/Economy; Constitution/Conservatism; Culture/Society; Government
KEYWORDS: moral; morality; taxes; taxhaven

1 posted on 09/20/2011 8:44:51 AM PDT by SeekAndFind
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To: SeekAndFind

The above was in response to a column which argues that TAX HAVENS are IMMORAL.

Read the column here :

http://www.independent.co.uk/opinion/commentators/paul-vallely-there-is-no-moral-case-for-tax-havens-2345096.html


2 posted on 09/20/2011 8:46:18 AM PDT by SeekAndFind (u)
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To: SeekAndFind

Income taxes are immoral.


3 posted on 09/20/2011 8:48:00 AM PDT by Retired Greyhound
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To: Retired Greyhound
Yep...let's start the discussion right there....
4 posted on 09/20/2011 8:52:11 AM PDT by rightwingextremist1776
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To: Retired Greyhound

RE: Income taxes are immoral.

How does government get its revenue to function then?


5 posted on 09/20/2011 8:52:11 AM PDT by SeekAndFind (u)
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To: SeekAndFind
INCOME taxes ARE NOT to raise money....income tax exists to empower the government to manipulate society....not to mention one of the most important steps in the COMMUNIST manifesto.
6 posted on 09/20/2011 8:54:37 AM PDT by rightwingextremist1776
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To: Retired Greyhound

Yes, income taxes, and many other taxes are IMMORAL. So, tax havens are moral responses to an immoral situation/government.


7 posted on 09/20/2011 8:56:29 AM PDT by Former Proud Canadian (We .. have a purpose .. no longer to please every dictator with a vote at the UN. PM Harper)
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To: SeekAndFind

According to Harry Reid income taxes are voluntary. Is it immoral not to volunteer.

http://www.youtube.com/watch?v=H6q0slMhDw8


8 posted on 09/20/2011 8:56:49 AM PDT by DManA
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To: SeekAndFind
How does government get its revenue to function then?

How did we manage until 1913?

9 posted on 09/20/2011 8:57:26 AM PDT by Retired Greyhound
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To: SeekAndFind

There are not two equal sides to every question.

Separate sovereign nations are moral. Since they are sovereign, they often have different tax structures.

No long drawn out screed which seeks to sidestep or obscure this has any merit, nor does its author.


10 posted on 09/20/2011 8:58:49 AM PDT by MrEdd (Heck? Geewhiz Cripes, thats the place where people who don't believe in Gosh think they aint going.)
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To: SeekAndFind
Most taxes and fees are immoral. Why do we have to pay taxes to a system where IRS leader is a tax cheat. Ted Kennedy took the Kennedy fortune offshore to avoid taxes. Dashel had to pay $100,000 he “missed”.
11 posted on 09/20/2011 9:00:34 AM PDT by mountainlion (I am voting for Sarah after getting screwed again by the DC Thugs.)
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To: rightwingextremist1776; SeekAndFind
INCOME taxes ARE NOT to raise money....income tax exists to empower the government to manipulate society....not to mention one of the most important steps in the COMMUNIST manifesto.

What HE said. Ditto.

Excise, import, consumption taxes - all would raise money to run the constitutional necessary functions of government, without giving the government the ability to manipulate society and pick winners and losers.

12 posted on 09/20/2011 9:01:23 AM PDT by MrB (The difference between a Humanist and a Satanist - the latter knows whom he's working for)
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To: mountainlion

RE: Most taxes and fees are immoral

OK, let’s say they are... how does government get its revenue in order to function then?

WHAT SHOULD TAKE THE PLACE OF TAXES?


13 posted on 09/20/2011 9:02:05 AM PDT by SeekAndFind (u)
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To: Former Proud Canadian

I know of a graduate student in MIT from Taiwan who inherited money back home BEFORE he came to America and has the inherited money deposited in a Taiwanese bank earning interest. Quite substantial amount too.

After getting his graduate degree, He worked for a Silicon Valley company after graduation and became a permanent resident two years ago ( a green card holder ). He pays taxes on his income from his salary here in the US.

He is now in a dilemma — because according to our tax code, he has to declare income FROM ALL SOURCES.

Is it immoral and criminal of him if he did not declare the interest income he gets from the money deposited in a bank account in Taiwan under his Chinese name? ( THAT WAS EARNED BY HIS PARENTS AND NEVER ENTERED THE US AT ALL ).

This is a very important question because MANY hard working LEGAL immigrants, who never depend on government largesse are asking themselves the same question.... many have money deposited back home BEFORE they came to the US. Does Uncle Sam have a moral claim to that money?


14 posted on 09/20/2011 9:09:38 AM PDT by SeekAndFind (u)
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To: SeekAndFind

See: “Taxes for Revenue are Obsolete” by Beardsley Ruml


15 posted on 09/20/2011 9:09:49 AM PDT by eyeamok
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To: eyeamok

You forgot to provide the link :

http://hiwaay.net/~becraft/RUMLTAXES.html

And for the benefit of those who don’t know.... this article was published 65 years ago.


16 posted on 09/20/2011 9:11:55 AM PDT by SeekAndFind (u)
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To: SeekAndFind

“How does government get its revenue to function then?”

How did they do it before the imposition of the income tax?


17 posted on 09/20/2011 9:19:40 AM PDT by chooseascreennamepat (I have a liberal arts degree, do you want fries with that?)
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To: MrEdd

So ... you’re saying that it’s perfectly moral for these sovereign countries - the so-called tax havens - to have different tax structures from the US.

Glad we agree!

Other countries compete on taxes. In a perfect world the US would make its tax regime attractive enough to keep its taxpayers. But instead the tax code keeps getting more abstruse and more onerous, and the IRS are equipped with their own SWAT teams.

Way to go, land of the free.


18 posted on 09/20/2011 9:20:24 AM PDT by agere_contra ("Debt is the foundation of destruction" : Sarah Palin.)
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To: MrB

Only problem is, the supreme courts of old saw “income taxes” AS excise taxes and the IRS still does today.


19 posted on 09/20/2011 9:20:24 AM PDT by Michael Barnes (Obamaa+ Downgrade)
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To: SeekAndFind

I didn’t actually forget, I find people get more out of learning when they are interested enough to actually track down the information once given a direction. And yes it is a very old article by then Fed Chairman, but still very relevant, as are numerous others.


20 posted on 09/20/2011 9:23:33 AM PDT by eyeamok
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To: SeekAndFind

It depends on whether you consider draft dodging as moral or immoral.


21 posted on 09/20/2011 9:43:19 AM PDT by ex-snook ("above all things, truth beareth away the victory")
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To: chooseascreennamepat

At the federal level, we had excise taxes, import taxes. But of course we did not have EPA, education, energy, HHS and all the other unconstitutional bureaus etc. States and municipalities levied most of the total taxes then through sales, property tax etc.


22 posted on 09/20/2011 9:44:52 AM PDT by grumpygresh (Democrats delenda est)
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To: SeekAndFind

Wow, just wow wow wow!

Go to that last link in the article and read what obamination is doing to this country and what he is doing w/ OUR TAX MONEY.


23 posted on 09/20/2011 9:54:50 AM PDT by parisa
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To: SeekAndFind

WHAT SHOULD TAKE THE PLACE OF TAXES?

Spending cuts should be a start. Several states have no tax due to income on gas, oil and such. Gas tax should be used to repair roads not go to welfare. Sales tax should be used on in the industry collected. Use tax would be a start. Just a start!


24 posted on 09/20/2011 9:54:56 AM PDT by mountainlion (I am voting for Sarah after getting screwed again by the DC Thugs.)
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To: Former Proud Canadian

I agree. Not paying taxes may be illegal and an immoral act if the government levied a flat tax that met the needs of a limited government. The government is clearly acting immorally by exceeding its authority in every sense.
This would be similar to the moral delema faced by the people who used deception to hide Jews from Nazi authorities. In both cases, liberty is being preserved.
If you are going to evade or avoid taxes, you do have to weigh the risks and the benefits. And in the long run, that is probably your most important decision.


25 posted on 09/20/2011 10:31:31 AM PDT by grumpygresh (Democrats delenda est)
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To: SeekAndFind

Why not look back in history and see how the LEGITIMATE functions of government were funded before the evils of income and property taxes were foisted upon We, the People. Funding only what the government is allowed by the Constitution to do would cost only a tiny fraction of what we pay now and could well be done by a few bake sales or similar fundraising...


26 posted on 09/20/2011 11:12:45 AM PDT by dcwusmc (A FREE People have no sovereign save Almighty GOD!!! III OK We are EVERYWHERE)
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To: SeekAndFind
The IRS is absolutely out of control. The morality of your friend's situation is for someone else to decide. If you ask the IRS, he is a criminal if he does not report the income.

The result of this will be to debase the advantages of being a US citizen. Eventually it will make it harder for companies to employ talented individuals in the US. It will contribute to the decline of the US as an economic power.

27 posted on 09/20/2011 11:12:58 AM PDT by Former Proud Canadian (We .. have a purpose .. no longer to please every dictator with a vote at the UN. PM Harper)
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To: SeekAndFind
"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. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands." - Judge Learned Hand.

Learn more about Judge Hand - a judge who has been quoted more often than any other lower-court judge by legal scholars and by the Supreme Court of the United States.

28 posted on 09/20/2011 12:00:55 PM PDT by FromTheSidelines ("everything that deceives, also enchants" - Plato)
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To: SeekAndFind
This is a very important question because MANY hard working LEGAL immigrants, who never depend on government largesse are asking themselves the same question.... many have money deposited back home BEFORE they came to the US. Does Uncle Sam have a moral claim to that money?

It has no such moral claim - but it has a claim nevertheless. Likewise with monies earned overseas; the US and Eritrea are the only two nations that tax based upon citizenship, not locale. The US makes a claim to taxes on any money you earn anywhere in the world, if you're a citizen or permanent resident. Highly immoral - but a claim nevertheless.

As far as income taxes go, I'm not sure they are inherently immoral - but I do consider non-flat income tax rates as immoral. If we're going to tax income, then it should be a single flat rate that all pay, regardless of amount of income.

29 posted on 09/20/2011 12:05:53 PM PDT by FromTheSidelines ("everything that deceives, also enchants" - Plato)
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To: SeekAndFind

Is putting your money in a safe instead of leaving lying around for the burglars you know are coming for it moral or immoral?


30 posted on 09/21/2011 2:49:09 AM PDT by Impy (Don't call me red.)
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To: Impy

RE: Is putting your money in a safe instead of leaving lying around for the burglars you know are coming for it moral or immoral?

Liberals will argue that using the term “burglar’ to make it analogous to government is not an apt use of the word.

After all, we do get something back from the government ( e.g. defending our shores, protection from crime, peace and order, infrastructure, social security, medicare etc.). We don’t get anything from a burglar. When the money is taken, it’s gone.


31 posted on 09/21/2011 8:56:45 AM PDT by SeekAndFind (u)
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To: FromTheSidelines

RE: the US and Eritrea are the only two nations that tax based upon citizenship, not locale

Interesting. Can you share with us your sources for this information?


32 posted on 09/21/2011 8:58:21 AM PDT by SeekAndFind (u)
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To: SeekAndFind
Source.

Also, as a guy who's worked internationally a few times - and has several acquaintances and friends here in the US who are from foreign nations - I've confirmed it first-hand. My friend from Germany (and still a German citizen) who works at Microsoft doesn't pay German income taxes; only US taxes. But when I worked in Germany for 9 months I paid both US and German taxes.

We're pretty unique in that regard - you earn a dollar anywhere in the world, and even if you don't step foot in the US for the entire year, the US still wants a cut of your income - or proof that you gave taxes (at least equivalent to what you'd pay in the US) to someone else, on your first $107,000. Above that point - you get to pay foreign and US income taxes guaranteed.

Oh, and if you spend more than 35 days a year in the US, you don't even get to deduct those foreign income taxes you paid. Full double-taxation - your foreign domicile and US. Better plan your business trips and vacations back to the US with care, because staying here 1 day too long could cost you $30,000 in taxes.

33 posted on 09/21/2011 10:08:26 AM PDT by FromTheSidelines ("everything that deceives, also enchants" - Plato)
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To: FromTheSidelines

This double taxation system of the USA looks immoral to me.

Do you think the double taxation system has any chance of being repealed if proposed in our Congress at all?

I’d be the first to support ANYONE ( Democrat included, although that will be when pigs fly ) if he/she proposes to end it.


34 posted on 09/21/2011 10:19:33 AM PDT by SeekAndFind (u)
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To: FromTheSidelines

EDIT TO ADD:

Double taxation (by citizenship ) is also stupid.

America will have to spend so much more money, time and resources snooping on citizens overseas, bullying foreign banks and generally making an ass of herself all for the sole purpose of grabbing cash.

Why not use those resources more efficiently back home (e.g. protecting us from terrorists ) instead?


35 posted on 09/21/2011 10:22:13 AM PDT by SeekAndFind (u)
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To: SeekAndFind
This double taxation system of the USA looks immoral to me.

It totally is. And we keep company with exactly one other nation in this regard - the total dictatorship known as Eritrea. At least their tax is only 2% on your earnings, not like what the US claims...

Do you think the double taxation system has any chance of being repealed if proposed in our Congress at all?

Nope. Not with the way so many in Congress are looking to maximize tax collections. It would be immediately branded as a "tax cut for the rich" because only "the rich" live overseas. Never mind several people I know who make less than $20,000 a year live and work overseas - because it IS a decent wage over there, and it's a fun adventure.

We're stuck with this until we get a solid conservative Congress (House and Senate) and a GOP President.

America will have to spend so much more money, time and resources snooping on citizens overseas, bullying foreign banks and generally making an ass of herself all for the sole purpose of grabbing cash.

Yep. Any many foreign banks are now contemplating pulling out of the US altogether because the IRS is demanding they provide any and all information about US citizens and US residents who have overseas bank accounts. It's not about setting up a logical system, but trying to squeeze every penny out of the current insane one.

Real simple way to eliminate the issue with overseas income being sheltered overseas - do what all other nations (save Eritrea) do: you earn a buck overseas, you don't have to pay taxes over there. That will encourage people to repatriate their overseas earnings, and that tends to be spent here in the US, rather than overseas.

Our tax system is the reason many corporations move chunks - or entirely - overseas, and why you have US residents and citizens trying to shelter funds outside the US. Our Government is greedy and vengeful to no end, even if it hurts our overall economy.

For goodness sake, our tax system is more fiscally restrictive than China! Source. Spend some time poking around at that link and you'll learn a LOT.

36 posted on 09/21/2011 11:03:32 AM PDT by FromTheSidelines ("everything that deceives, also enchants" - Plato)
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