I’m on my may to El Salvador to give a speech about the principles of good fiscal policy and I stopped off in Panama for a luncheon speech sponsored by the Fundacion Libertad about the dangers of excessive government spending. I have two observations based on my day of discussions.
First, Panama has a very large banking sector, in part because it is a tax haven and in part because it is a “dollarized” economy. But Panama, like Canada, did not have any sectoral problems during the financial crisis. Why? Because unlike the United States, there are no policies to subsidize housing. There is no Fannie Mae, no Freddie Mac, and no Community Reinvestment Act. So even though there has been a housing boom in Panama City that has since cooled off, this did not lead to significant problems since banks had no government-created incentive to make zero-downpayment loans or offer loans to people with inadequate income and assets.
Second, Panama is a safe haven for oppressed people in Latin America. Many people from unstable regimes such as Venezuela have fled to Panama – or at least moved their money to Panama - to protect their families. Other people from places such as Ecuador and Argentina have moved their money to Panama to guard against expropriation and theft by corrupt governments. And others from nations like Mexico have placed their money in Panama because of rampant crime and kidnapping in their home nations – often triggered when corrupt bureaucrats in national tax offices sell information to criminal gangs. Putting money in Panama minimizes these terrible risks because so-called tax havens have strong human rights policies that protect financial privacy. But for many Latin Americans, the goal is not to protect against punitive taxation, but rather to guard against thuggish and incompetent governments. These are some of the issues highlighted in this video about “The Moral Case for Tax Havens.”
For taxpayers from North America and Western Europe, tax havens are an important safety valve to guard against bloated and wasteful government. For taxpayers in most other parts of the world, though, tax havens can mean the difference between life and death. So every time you hear greedy politicians like Barack Obama and Nicolas Sarkozy attack tax havens, remember that they are willing to put people’s lives at risk to promote their big government agenda.