Skip to comments.Debating Tax Havens
Posted on 07/14/2013 8:47:14 AM PDT by Kaslin
I never thought I would wind up in Costcos monthly magazine, but I was asked to take part in a pro-con debate on Should offshore tax havens be illegal?
Given my fervent (and sometimes risky) support of tax competition, financial privacy, and fiscal sovereignty, regular readers wont be surprised to learn that I jumped at the opportunity.
After all, if Im willing to take part in a debate on tax havens for the upper-income folks who read the New York Times, I should do the same thing for the middle-class folks who patronize big-box stores.
My main argument was that we need tax havens to help control the greed of the political elite. Simply stated, politicians rarely think past the next election, so theyll tax and spend until we suffer a catastrophic Greek-style fiscal collapse unless theres some sort of external check and balance.
politicians have an unfortunate tendency to over-spend and over-tax. And if they over-tax and over-spend for a long period, then you suffer the kind of fiscal crisis that we now see in so many European nations. Thats not what any of us want, but how can we restrain politicians? Theres no single answer, but tax competition is one of the most effective ways of controlling the greed of the political elite. Nations with pro-growth tax systems, such as Switzerland and Singapore, attract jobs and investment from uncompetitive countries such as France and Germany. These tax havens force the politicians in Paris and Berlin to restrain their greed. Some complain that these low-tax jurisdictions make it hard for high-tax nations to enforce their punitive tax laws. But why should the jurisdictions with good policy, such as the Cayman Islands, be responsible for enforcing the tax law of governments that impose bad policy?
I also made the point that the best way to undermine tax havens is to make our tax system fair and reasonable with something like a flat tax.
the best way to reduce tax evasion is lower tax rates and tax reform. If the United States had a flat tax, for instance, we would enjoy much faster growth and we would attract trillions of dollars of new investment.
And I concluded by pointing out that there are other very important moral reasons why people need financial privacy.
In addition to promoting good fiscal policy, tax havens also help protect human rights. To cite just a few examples, tax havens offer secure financial services to political dissidents in Russia, ethnic Chinese in Indonesia and the Philippines, Jews in North Africa, gays in Iran, and farmers in Zimbabwe. The moral of the story is that tax havens should be celebrated, not persecuted.
And what did my opponent, Chye-Ching Huang from the Center for Budget and Policy Priorities, have to say about the issue? To her credit, she was open and honest about wanting to finance bigger government. And she recognizes that tax competition is an obstacle to the statist agenda.
It drains the United States of tax revenues that could be used to reduce deficits or invested in critical needs, including education, healthcare, and infrastructure.
She also didnt shy away from wanting to give the scandal-plagued IRS more power and money.
U.S. policymakers could and should act Policymakers could provide the Internal Revenue Service (IRS) with the funding it needs to ensure that people pay the taxes they owe, including sufficient funds to detect filers who are using offshore accounts to avoid paying their taxes.
Her other big point was to argue against corporate tax reforms.
a territorial tax system would further drain revenues, and domestic businesses and individual taxpayers could end up shouldering the burden of making up the difference.
Given that the United States has the highest statutory tax rate for companies in the industrialized world and ranks only 94 out of 100 nations for business tax attractiveness, I obviously disagree with her views.
And I think shes wildly wrong to think that tax havens lead to higher taxes for ordinary citizens. Heck, even the New York Times inadvertently admitted thats not true.
In any event, I think both of us had a good opportunity to make our points, so kudos to Costco for exposing shoppers to the type of public finance discussion that normally is limited to pointy-headed policy wonks in sparsely attended Washington conferences.
Thats the good news.
The bad news is that I dont think Im going to prevail in Costcos online poll. Its not that I made weak arguments, but the question wound up being altered from Should offshore tax havens be illegal? to Should offshore bank accounts be taxable?
So I imagine the average reader will think this is a debate on whether they should be taxed on their account at the bank down the street while some rich guy isnt taxed on his account at a bank in Switzerland.
Heck, even I would be sorely tempted to click Yes if that was the issue.
In reality, I dont think any of our bank accounts should be taxable (whether theyre in Geneva, Switzerland or Geneva, Illinois) for the simple reason that there shouldnt be any double taxation of income that is saved and invested.
The folks at Costco should have stuck with the original question (at least the way it was phrased to me in the email they sent), or come up with something such as Are tax havens good for the global economy?
But just as you cant un-ring a bell, I cant change Costcos question, so Im not holding my breath expecting to win this debate.
P.S. Im at FreedomFest in Las Vegas, where I just debated Jim Henry of the Tax Justice Network on the same topic. I should have asked him what he though of all the politically connected leftists who utilize tax havens.
P.P.S. If you like tax haven debates, here are Part I and Part II of a very civilized debate I had with a young lady from the Task Force on Financial Integrity and Economic Development.
P.P.P.S. Maybe I havent looked hard enough, but I dont have any tax haven-oriented cartoons to share other than one that compares where Romney put his money to where Obama puts our money.
What he calls “the greed of the political elite” is simply what most people call “democracy”.
The irony of this pimp’s argument is that it is the political and economic elite - EXCLUSIVELY - who take advantage of these legal tax avoidance opportunities. The middle class simply does not have the resources to be able to benefit once the sizable friction costs are taken into account. In other words, you have to have enough money that accountants and lawyers and due diligence on your offshore financial institution are rounding errors compared to the potential returns you get from tax avoidance.
This is why Hedge Funds are almost all domiciled offshore. I personally do not understand why as part of a massive reform of the corrupt American financial regulatory system we don’t also make it much more difficult for people like George Soros, who seek to have tremendous influence on our political system, to bypass our regulatory and tax architecture completely.
Freedom requires financial privacy. Where you park your money and what you do with it should be private unless you decide to make it public.
In many countries, keeping your assets private is essential to your physical safety. The ability to have money parked overseas that no one knows about is essential preparation for the day things go really badly. Having a month’s food stored in the basement is a great idea; having money in a safe place is also a great idea.
If we are going to preserve our freedom, we need a system of taxation that doesn’t require you to reveal every detail of your finances to a sometimes hostile and corrupt government under pain of federal prosecution.
“The irony of this pimps argument is that it is the political and economic elite - EXCLUSIVELY - who take advantage of these legal tax avoidance opportunities. The middle class simply does not have the resources to be able to benefit once the sizable friction costs are taken into account.”
It costs less than $2k to set up and offshore LLC in a tax haven. Most middle class people are busy buying cars and large screen TVs. It is accessible, legal and opens doors to investments that do not exist here.
There is no tax avoidance in this case. If a US citizen owns the LLC, it flows back to his tax forms. Deferral? Sure, for a while. But everything must be reported to the IRS and the Treasury Department.
If you have an actual operating business overseas, of course you can decide which jurisdiction it operates within as it conducts business. I have no problem with capitalists choosing where money is welcomed. You do not have to be rich to set up an operating company overseas. It must, however, not be a sham company. There are many laws here that regulate that.
“This is why Hedge Funds are almost all domiciled offshore.”
Hedge Funds are domiciled offshore so that non-Americans are not swept into the tax net of the US. It allows investors from many countries to be taxed only in their own country.
Perhaps I misunderstand your complaints. It sounds like you are mixing together offshore assets in tax havens with offshore real businesses. The businesses locate in favorable tax jurisdictions to arbitrage the system. Good move.
The more the government is hostile to capital, the more it will go where it is welcomed.
The larger problem for the middle class is that they do not think like business people. They were raised to be employees.
The woman he debates is from a group supported wholeheartedly by VP Joe Biden...loser.
The invaluable Center on Budget and Policy Priorities [has] been the go-to resource for consistently reliable analysis on matters of budgets and fiscal policy at every level of government.
Vice President Joseph Biden