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Posts Tagged ‘Sovereignty’

I’ve always had a soft spot in my heart for Bill Clinton. In part, that’s because economic freedom increased and the burden of government spending was reduced during his time in office.

Partisans can argue whether Clinton actually deserves the credit for these good results, but I’m just happy we got better policy. Heck, Clinton was a lot more akin to Reagan that Obama, as this Michael Ramirez cartoon suggests.

Moreover, Clinton also has been the source of some very good political humor, some of which you can enjoy here, here, here, here, and here.

Most recently, he even made some constructive comments about corporate taxation and fiscal sovereignty.

Here are the relevant excerpts from a report in the Irish Examiner.

It is up to the US government to reform the country’s corporate tax system because the international trend is moving to the Irish model of low corporate rate with the burden on consumption taxes, said the former US president Bill Clinton. Moreover, …he said. “Ireland has the right to set whatever taxes you want.” …The international average is now 23% but the US tax rate has not changed. “…We need to reform our corporate tax rate, not to the same level as Ireland but it needs to come down.”

Kudos to Clinton for saying America’s corporate tax rate “needs to come down,” though you could say that’s the understatement of the year. The United States has the highest corporate tax rate among the 30-plus nations in the industrialized world. And we rank even worse – 94th out of 100 countries according to a couple of German economists – when you look at details of how corporate income is calculated.

And I applaud anyone who supports the right of low-tax nations to have competitive tax policy. This is a real issue in Europe. I noted back in 2010 that, “The European Commission originally wanted to require a minimum corporate tax rate of 45 percent. And as recently as 1992, there was an effort to require a minimum corporate tax rate of 30 percent.” And the pressure remains today, with Germany wanting to coerce Ireland into hiking its corporate rate and the OECD pushing to undermine Ireland’s corporate tax system.

All that being said – and before anyone accuses me of having a man-crush on Bill and/or of being delusional – let me now issue some very important caveats.

When Clinton says we should increase “the burden on consumption taxes,” that almost surely means he would like to see a value-added tax.

This would be a terrible idea, even if at first the revenue was used to finance a lower corporate tax rate. Simply stated, it would just be a matter of time before the politicians figured out how to use the VAT as a money machine to finance bigger government.

Indeed, it’s no coincidence that the welfare state in Europe exploded in the late 1960s/early 1970s, which was also the time when the VAT was being implemented. And it’s also worth noting that VAT rates in recent years have jumped significantly in both Europe and Japan.

Moreover, Clinton’s position on fiscal sovereignty has been very weak in the past. It was during his tenure, after all, that the OECD – with active support from the Clinton Treasury Department – launched its “harmful tax competition” attack against so-called tax havens.

In other words, he still has a long way to go if he wants to become an Adjunct Fellow at the Cato Institute.

P.S. Just in case anyone want to claim that the 1993 Clinton tax hike deserves credit for any of the good things that happened in the 1990s, look at this evidence before embarrassing yourself.

P.P.S. There’s very little reason to think that Hillary Clinton would be another Bill Clinton.

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I’m very worried about America’s fiscal future. Simply stated, data from several sources (BIS, OECD, and IMF) indicates that we face a future Greek-style fiscal crisis unless policy makers implement genuine entitlement reform.

Unfortunately, politicians have little incentive to control spending and reform programs if they think that higher taxes are an option.

So how do we control their appetite for more revenue? There’s no silver bullet solution, but part of the answer is that we need tax competition and tax havens. Politicians are less likely to over-tax and over-spend if they’re afraid that the geese that lay the golden eggs can fly across the border.

In other words, tax competition is a necessary but not sufficient condition to promote good policy. And that’s why I’m willing to defend tax havens, even if it requires bringing a message of liberty to traditionally hostile audiences such as readers of the New York Times and viewers of CNN.

That’s also why I share well-written and compelling articles on the topic, such as this editorial by Pierre Bessard from Switzerland’s Liberales Institut and this column by Allister Heath of England’s City AM business newspaper.

I have a new piece to add to this collection. Professor Philip Booth and Dr Richard Wellings of the London-based Institute of Economic Affairs have produced a succinct and powerful case for tax competition and tax havens.

Here are some excerpts from the article they wrote for IFC Review. They start by warning that politicians have done a crummy job in most developed nations.

If we consider the performance of high-tax Western countries in recent years – which includes, amongst others, every EU country, plus the US – it has been pretty grim. These are countries which, despite their high levels of taxation, are building up huge debts. These countries also regulate their financial systems heavily, often through bodies which have huge discretion, and yet they have recently suffered the worst financial crisis since the Second World War. You would think that it would be this model – the corporatist model of high taxes and extensive regulation – that would be coming under scrutiny. However, like small children who wish to shift the blame, the EU is focusing its attention on International Financial Centres (IFCs).

Well said, though I would make one small correction. These nations have “huge debts” in part because of – not “despite” – “high levels of taxation.” More Taxes More Spending EU DataThat’s because of the Laffer Curve causing revenues to be lower than expected when taxes are raised and also because politicians can’t resist spending any revenue that is generated.

Returning to the article, Booth and Wellings make the important observation that these so-called tax havens largely exist because of bad policy in other nations.

Just as offshore centres came into being as a result of incompetent regulatory and tax policy from the US government in the 1960s and 1970s, these centres are just as important today in ensuring the free flow of international capital. The nature of our corporation tax systems is such that investors can be taxed several times over on the same profits. Companies can be taxed when they make profits; investment funds can be taxed on their returns; and investors in funds can be taxed by their home tax authorities. In addition, capital gains tax systems often end up taxing companies when their share price rises as a result of the retention of profits or the anticipation of future profits even though extra tax is levied on those profits when they accrue. If governments reformed their corporation tax systems so that they were coherent and focused on the shareholder rather than on the activities of companies themselves, there would be much less need for IFCs.

Amen. If politicians in high-tax nations really want to hurt tax havens, they should lower tax rates and reform their tax systems.

But I’m not holding my breath waiting for that to happen, so we need some external pressure to encourage good policy.

Booth and Wellings explain how tax competition leads to better policy, which leads to better economic performance.

…competition brings major economic benefits. There are very strong incentives for politicians to increase public spending (and hence taxes) in order to gain the support of powerful special interest groups and raise their chances of re-election. Partly as a result, most Western governments now confiscate around two-fifths of people’s earnings. Such high tax rates mean many wealth-creating economic activities are no longer viable. Indeed, long-term studies suggest that every one per cent added to the level of taxation (as a share of GDP) tends to reduce economic growth by about 0.15 per cent a year. Accordingly, a 10 percentage point increase would decrease average growth rates by around 1.5 per cent a year. High rates of taxation therefore have a very significant and negative long-term impact on living standards.

But I think this passage is the most important part of the article. Tax competition is necessary to protect people from greedy and short-sighted politicians.

This is one reason why IFCs are so important. They act as a deterrent to predatory politicians who wish to raise tax rates to highly damaging levels. Policymakers know that, if they set tax rates too high, business activity will shift to lower tax jurisdictions. The point at which tax increases no longer result in additional revenue to governments is therefore shifted downwards by competition from IFCs. This means tax rates will tend to be closer to the optimal rate for economic growth.

The authors also explain that slower growth has a big impact on government finances.

Lower levels of overall economic output mean fewer resources are available to spend on areas such as health and education. Arguments that high tax rates are necessary to fund essential public services are therefore deeply flawed. High-tax, high-spend policies are entirely counter-productive since their negative effect on economic output inevitably results in lower public spending in the long term. While state spending may absorb a larger share of the economy under the high-tax approach, the overall size of the economy will be very much smaller, limiting the resources available to government.

In other words, if the statists want both prosperity and ample tax revenue, they’re better off supporting modest-sized government and reasonable tax rates.

But this may be the fundamental divide between proponents of economic liberty and supporters of statism. Advocates of big government act as if they are more interested in punishing success than they are in enabling upward mobility for the less fortunate.

That seems perverse, but it’s the explanation that matches their behavior.

But it’s not my job to psychoanalyze statists. Let’s close by sharing my video primer on tax competition.

By the way, Professor Greg Mankiw at Harvard has made very similar points.

P.S. Leftists love to criticize “tax havens,” perhaps because they feel guilty about using them.

P.P.S. While the U.K. government is very misguided on fiscal policy issues (with the exception of Mark Field), there are a couple of Brits in the European Parliament. You’ll enjoy these short speeches by Dan Hannan and Godfrey Bloom.

Costco resultsP.P.P.S. I’m happy to share the news that late-reporting precincts have pushed me into a tie in the Costco poll on whether governments should try to tax outside their borders and persecute low-tax jurisdictions. As I noted last month, I was trailing by a 51-49 margin (though even that was somewhat surprising since I thought the poll used misleading language). Anyhow, here’s the debate and you can still cast a vote by clicking here.

P.P.P.P.S. Perhaps the most persuasive evidence is that the New York Times inadvertently admitted that tax competition is one of the few effective ways of fighting excessive government.

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I like tax havens for the simple reason that we need some ways of restraining the greed of the political class.

Simply stated, if profligate politicians think that we are “captive customers,” they are much more likely to impose (even) higher tax rates (as we’ve seen in the past couple of years in Europe). But if they think that we have escape options, they’ll probably exercise some self control.

That’s why I defend nations such as Switzerland, which often are persecuted by politicians from high-tax nations.

It’s also why I defend the tax system of the United States.

Huh?!? What do I mean by that?

Well, while there are many bad things about the American tax system (including pervasive double taxation and a very uncompetitive corporate tax system), one of few redeeming features of our tax system is that we are a tax haven.

Not for Americans, of course, but it turns out we have some good rules for foreigners.

Here’s some of what was recently published by the Heartland Institute.

Some international tax experts note a big irony…in continued U.S. government pressure to compel overseas banks to give up information on Americans with bank accounts in the belief those people may be hiding money from the taxman. The irony: Much of the world considers the United States to be one of the world’s biggest tax havens. …”it’s very easy for anybody in the world today to set up, let’s say, a Delaware Corporation. You can do it online. You have to give very little information to get it up and running. And Delaware’s not alone. There are other states where you can do it as well,” said Jim Duggan, a tax, wealth and estate planning attorney with the Duggan Bertsch LLC law firm in Chicago.

Other experts agree.

He’d get no argument from Kevin Packman, chairman of the Offshore Tax Compliance Team at the Holland & Knight international law firm. “There are a number of countries that have said the U.S. is the biggest tax haven in the world,” Packman said. “There’s something to be said for that view.” He noted there are many countries where people are rightly concerned about government moves to impose confiscatory taxes or seize assets. They view the United States as more respectful of property rights and therefore look for ways to move investments into the U.S., including by setting up Delaware or other corporations, and parking money in U.S. banks.

I’ve already noted that Delaware is one of the world’s best tax havens because of its attractive incorporation policies, but we also have very attractive federal tax rules.

Dennis Kleinfeld adds his analysis in an article for Money News.

Tax havens serve two vitally important purposes to everyone lucky enough to have private investment capital. First, they are a source by which foreign capital can be routed into the United States or other countries with tax efficiency.  Second, they represent a safe haven where investors’ private capital can flee from overbearing governments of all kinds — democratic, republic, dictatorship, monarchy and just plain thugs and despots — and with a comfortable level of privacy, confidentiality and secrecy. What is the world’s largest tax haven? …the United States can lay claim to that title.  …the United States would not be able to maintain its economy without large inflows of foreign capital. Foreign investors can invest in the United States virtually tax free — in structures that are legally protected from risks and, currently, with secrecy. With fairly simple planning, a foreign investor can avoid tax on interest as well as gains from sale of securities — all protected by the legal system… As for secrecy, Delaware or Nevada are quite accommodating. In these states, a foreign company or individuals can form a limited liability company and open a bank account, but if the investor does its or his business outside the United States, there is no U.S. tax or reporting.

Just as important, Dennis explains that tax havens are not only good for the American economy, but also for individuals seeking to protect themselves from rapacious government.

There are no investors — the people who actually create investment capital — who have any complaint against offshore tax-haven financial centers. …To politicians, your capital is their means to advance their political goals. Notwithstanding their propaganda of serving the American people, the needs of the people are always subservient to the voracious needs of political advancement.  How can private investors protect themselves from becoming the spoils of war from the marauding armies of politicians fighting for power? For that, investors need tax havens.

By the way, leftists also agree that the United States is a tax haven for non-Americans, so that’s not in dispute.

But there is a big argument about whether it’s good for America to have these policies. I’ve argued over and over again in favor of tax havens as a general principle (I recommend my New York Times piece if you want a good short summary), but it’s also worth noting that America’s tax haven policies have helped to attract trillions of dollars to the U.S. economy.

Costco Poll ResultsBy the way, I suppose it’s time to confess that I lost my recent debate on tax havens for the Costco Connection. Though I argued last month that the magazine phrased the question in a very misleading way, so the fact that the margin was only 51-49 could be an indication that I was actually somewhat persuasive.

And maybe some late-reporting precincts could still turn the tide, so feel free to add your opinion if you still haven’t voted.

But I’m digressing. Let’s conclude by assessing where we stand. Tax experts on the right and left agree that the United States is a tax haven for foreigners who need a safe place to invest their money.

There’s also no doubt that foreigners take advantage of these policies in ways that attract huge amounts of money to the American economy – more than $25 trillion according to the Commerce Department!

P.S. You won’t be surprised to learn that hypocritical leftists love using tax havens to protect their money even though they want to deny that freedom to the rest of us.

P.P.S. I’m such an avid defender of tax havens that I almost wound up in a Mexican jail. That’s dedication!

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What’s the biggest fiscal problem facing the developed world?

To an objective observer, the answer is a rising burden of government spending, caused by poorly designed entitlement programs, growing levels of dependency, and unfavorable demographics. The combination of these factors helps to explain why almost all industrialized nations – as confirmed by BIS, OECD, and IMF data – face a very grim fiscal future.

If lawmakers want to avert widespread Greek-style fiscal chaos and economic suffering, this suggests genuine entitlement reform and other steps to control the growth of the public sector.

But you probably won’t be surprised to learn that politicians instead are concocting new ways of extracting more money from the economy’s productive sector.

They’ve already been busy raising personal income tax rates and increasing value-added tax burdens, but that’s apparently not sufficient for our greedy overlords.

Now they want higher taxes on business. The Organization for Economic Cooperation and Development, for instance, put together a “base erosion and profit shifting” plan at the behest of the high-tax governments that dominate and control the Paris-based bureaucracy.

What is this BEPS plan? The Wall Street Journal explains that it’s a scheme to raise tax burdens on the business community.

After five years of failing to spur a robust economic recovery through spending and tax hikes, the world’s richest countries have hit upon a new idea that looks a lot like the old: International coordination to raise taxes on business. The Organization for Economic Cooperation and Development on Friday presented its action plan to combat what it calls “base erosion and profit shifting,” or BEPS. This is bureaucratese for not paying as much tax as government wishes you did. The plan bemoans the danger of “double non-taxation,” whatever that is, and even raises the specter of “global tax chaos” if this bogeyman called BEPS isn’t tamed. Don’t be fooled, because this is an attempt to limit corporate global tax competition and take more cash out of the private economy.

The WSJ is spot on. This is merely the latest chapter in the OECD’s anti-tax competition crusade. The bureaucracy represents the interests of WSJ Global Tax Grab Editorialhigh-tax governments that are seeking to impose higher tax burdens – a goal that will be easier to achieve if they can restrict the ability of taxpayers to benefit from better tax policy in other jurisdictions.

More specifically, the OECD basically wants a radical shift in international tax rules so that multinational companies are forced to declare more income in high-tax nations even though those firms have wisely structured their operations so that much of their income is earned in low-tax jurisdictions.

So does this mean that governments are being starved of revenue? Not surprisingly, there’s no truth to the argument that corporate tax revenue is disappearing.

Across the OECD, corporate-tax revenue has fluctuated between 2% and 3% of GDP and was 2.7% in 2011, the most recent year for published OECD data. In other words, for all the huffing and puffing, there is no crisis of corporate tax collection. The deficits across the developed world are the product of slow economic growth and overspending, not tax evasion. But none of this has stopped the OECD from offering its 15-point plan to increase the cost and complexity of complying with corporate-tax rules. …this will be another full employment opportunity for lawyers and accountants.

I made similar points, incidentally, when debunking Jeffrey Sachs’ assertion that tax competition has caused a “race to the bottom.”

The WSJ editorial makes the logical argument that governments with uncompetitive tax regimes should lower tax rates and reform punitive tax systems.

…the OECD plan also envisions a possible multinational treaty to combat the fictional plague of tax avoidance. This would merely be an opportunity for big countries with uncompetitive tax rates (the U.S., France and Japan) to squeeze smaller countries that use low rates to attract investment and jobs. Here’s an alternative: What if everyone moved toward lower rates and simpler tax codes, with fewer opportunities for gamesmanship and smaller rate disparities among countries?

The column also makes the obvious – but often overlooked – point that any taxes imposed on companies are actually paid by workers, consumers, and shareholders.

…corporations don’t pay taxes anyway. They merely collect taxes—from customers via higher prices, shareholders in lower returns, or employees in lower wages and benefits.

Last but not least, the WSJ correctly frets that politicians will now try to implement this misguided blueprint.

The G-20 finance ministers endorsed the OECD scheme on the weekend, and heads of government are due to take it up in St. Petersburg in early September. But if growth is their priority, as they keep saying it is, they’ll toss out this complex global revenue grab in favor of low rates, territorial taxes and simplicity. Every page of the OECD’s plan points in the opposite direction.

The folks at the Wall Street Journal are correct to worry, but they’re actually understating the problem. Yes, the BEPS plan is bad, but it’s actually much less onerous that what the OECD was contemplating earlier this year when the bureaucracy published a report suggesting a “global apportionment” system for business taxation.

Fortunately, the bureaucrats had to scale back their ambitions. Multinational companies objected to the OECD plan, as did the governments of nations with better (or at least less onerous) business tax structures.

It makes no sense, after all, for places such as the Netherlands, Ireland, Singapore, Estonia, Hong Kong, Bermuda, Switzerland, and the Cayman Islands to go along with a scheme that would enable high-tax governments to tax corporate income that is earned in these lower-tax jurisdictions.

But the fact that high-tax governments (and their lackeys at the OECD) scaled back their demands is hardly reassuring when one realizes that the current set of demands will be the stepping stone for the next set of demands.

That’s why it’s important to resist this misguided BEPS plan. It’s not just that it’s a bad idea. It’s also the precursor to even worse policy.

As I often say when speaking to audiences in low-tax jurisdictions, an appeasement strategy doesn’t make sense when dealing with politicians and bureaucrats from high-tax nations.

Simply stated, you don’t feed your arm to an alligator and expect him to become a vegetarian. It’s far more likely that he’ll show up the next day looking for another meal.

P.S. The OECD also is involved in a new “multilateral convention” that would give it the power to dictate national tax laws, and it has the support of the Obama Administration even though this new scheme would undermine America’s fiscal sovereignty!

P.P.S. Maybe the OECD wouldn’t be so quick to endorse higher taxes if the bureaucrats – who receive tax-free salaries – had to live under the rules they want to impose on others.

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I never thought I would wind up in Costco’s 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 won’t be surprised to learn that I jumped at the opportunity.

After all, if I’m 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 they’ll tax and spend until we suffer a catastrophic Greek-style fiscal collapse unless there’s 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.  That’s not what any of us want, but how can we restrain politicians? There’s 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?

Costco MitchellI 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.

Costco HuangShe also didn’t 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 she’s wildly wrong to think that tax havens lead to higher taxes for ordinary citizens. Heck, even the New York Times inadvertently admitted that’s 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.

That’s the good news.

The bad news is that I don’t think I’m going to prevail in Costco’s online poll. It’s 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?”

Costco Debate QuestionSo 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 isn’t 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 don’t think any of our bank accounts should be taxable (whether they’re in Geneva, Switzerland or Geneva, Illinois) for the simple reason that there shouldn’t 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 can’t un-ring a bell, I can’t change Costco’s question, so I’m not holding my breath expecting to win this debate.

P.S. I’m 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 haven’t looked hard enough, but I don’t have any tax haven-oriented cartoons to share other than one that compares where Romney put his money to where Obama puts our money.

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Because we live in an upside-down world, Switzerland is being persecuted for being a productive, peaceful nation that has a strong human rights policy with regards to privacy.

More specifically, politicians from high-tax nations resent the fact that investors flock to Switzerland to benefit from good policies, and they are pressuring the Swiss government to weaken that nation’s human rights laws so that governments with bad fiscal systems have an easier time of tracking and taxing flight capital.

I’ve resigned myself to this happening for the simple reason that it is well nigh impossible for a small nation (even one as well-armed as Switzerland) to withstand the coercion when all the world’s big nations are trying to impose one-size-fits-all policies designed to make it easier to raise tax rates and expand the size and power of government.

Switzerland v IRSBut, as the Wall Street Journal reports, the Swiss aren’t going down without a fight.

Switzerland’s lower house of Parliament voted 123-63 against the measure, which would have enabled many of the Alpine nation’s banks to sidestep the Swiss banking secrecy laws and start handing information to the U.S. Department of Justice about any past help they may have given to Americans hiding undeclared wealth in Swiss accounts. Earlier Wednesday, the smaller, upper house of Switzerland’s Parliament voted 26-18 in favor of the proposed plan. But in the lower house, lawmakers had raised concerns about the heavy-handedness of the U.S. effort to have them sign off on legislation that might have exposed the country’s banks and bank employees to legal hazards. Lawmakers had also raised concerns about the lack of detail in the plan regarding potential fines for banks that would have opted to participate.

I heartily applaud the lawmakers who rejected the fiscal imperialism of the United States government.

As I stated in my recent BBC interview on tax havens, I believe in sovereignty, and the IRS should have no right to impose bad American tax law on economic activity inside Swiss borders (just as, say, China should have no right to demand that the United States help track down Tiananmen Square protestors that escaped to America).

But I’m not opening champagne just yet, in part because I don’t like the stuff and in part because I fear that this will be a temporary victory.

The Swiss have resisted American demands before, and on more than one occasion, only to eventually back down. And it’s hard to blame them when they’re threatened by odious forms of financial protectionism.

That being said, I’m going to enjoy this moment while it lasts and hope that somehow David can continue to withstand Goliath.

P.S. If you want to understand more about the underlying economic and philosophical implications of this issue, I heartily recommend this New York Times column by Pierre Bessard of Switzerland’s Insitut Liberal.

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It goes without saying that I’m always ready to defend tax havens when statists are seeking to undermine tax competition, financial privacy, and fiscal sovereignty.

So when the BBC asked if I would debate the topic, I said yes even though I’m in Paris (where supporting liberty is probably a capital crime).

I think the debate went well. Or, to be more precise, I was happy that I got to make my points.

I’ve been in debates on tax havens when I’m outnumbered 3-1, so a fair fight almost seems like a treat.

P.S. If you have a burning desire to watch me debate tax havens, you can see me cross swords with a bunch of different statists by clicking here.

P.P.S. Or if you like watching when I’m outnumbered, here’s my debate against three leftists on state-run TV.

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Since I just left Monaco and am now in Geneva, this is an appropriate time to extol the virtues of so-called tax havens.

Monaco Casino

The name’s Bond….James Bond

But I don’t merely say nice things about low-tax jurisdictions when I’m in friendly environments.

I believe in swinging my sword in the belly of the beast.

That’s why I recently defended tax havens and tax competition for the fiscal heathens who read the New York Times.

In an even bigger display of futile optimism, I also just explained the benefits of tax competition, fiscal sovereignty, and financial privacy for the kleptocrats in Congress.

Here’s some of what I wrote for The Hill, starting with the obvious point that it is preposterous to blame tax havens for the financial crisis.

When the financial crisis hit, politicians from high-tax nations didn’t let the crisis go to waste. Acting through the G-20, they launched an attack on so-called tax havens, asserting that “hot money” from the offshore world somehow had caused the banking system to become unstable.  This campaign against low-tax jurisdictions made no sense. Nobody in the Cayman Islands or Monaco was responsible for the Federal Reserve’s easy money. Nobody in Panama or Singapore had anything to do with the corrupt system of Fannie Mae/Freddie Mac subsidies.

I then explained that tax havens once again are being attacked, though in this case multinational corporations are the main victims of a new scheme by the parasitical bureaucrats at the OECD.

So-called tax havens will suffer collateral damage, though, since big firms use them as very desirable platforms for a significant chunk of cross-border economic activity.

Tax havens are being attacked again… Funded with American tax dollars, the Organization for Economic Cooperation and Development (OECD) published a report on “Addressing Base Erosion and Profit Shifting,” (BEPS) and will follow up in a few months with specific recommendations.  This new OECD scheme is targeting multinational companies for a big tax hike, probably by requiring global tax returns, but that means tax havens are in the cross hairs because their pro-growth tax policies make them attractive locations for cross-border economic activity. Indeed, the OECD specifically has complained that “small jurisdictions act as conduits, receiving disproportionately large amounts of Foreign Direct Investment compared to large industrialised countries and investing disproportionately large amounts in major developed and emerging economies.” …its new campaign isn’t just targeting small tax havens, but will also undermine the relatively attractive fiscal systems in nations such as Ireland, Hong Kong, Switzerland, Slovakia, Singapore, Estonia, and the Netherlands. The burden of this will fall not on companies, but on workers, consumers, and shareholders.

I close with a warning that tax havens and tax competition are one of the few restraints on the greed of the political class. We need to preserve these liberalizing forces if we want to protect ourselves from even worse fiscal policy.

Tax Haven Article - The Hill…anti-tax haven demagoguery is perfectly acceptable in political circles since it is seen as expanding the power of government over taxpayers.  The real issue we should be addressing is whether we need some sort of external constraint to protect us from fiscal crises that are triggered by the overspending and overtaxing of the political class.  For a couple of decades following the Reagan and Thatcher tax cuts, governments around the world have been forced by tax competition to lower tax rates, reduce double taxation of saving and investment and reform their tax system.  Defenders of the welfare state and proponents of class-warfare tax policy have resented this liberalizing process and grab any opportunity to demonize tax havens, particularly since these jurisdictions have strong human rights laws that protect the financial privacy of investors.

For further information, I highly recommend the writings of Allister Heath and Pierre Bessard.

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Art Laffer has a guaranteed spot in the liberty hall of fame because he popularized the common-sense notion that you can’t make any assumptions about tax rates and tax revenue without also figuring out what happens to taxable income.

Lot’s of people on the left try to denigrate the “Laffer Curve,” but it’s worth noting that even left-wing economists now admit that you don’t maximize revenue with a 100 percent tax rate.*

Indeed, I think the only people who now cling to that absurd view are the bureaucrats at the Joint Committee on Taxation.

But this post isn’t about the Laffer Curve. It’s about a disappointing column that Art Laffer wrote for today’s Wall Street Journal.

The issue is whether states should have the power to impose taxes on sales that take place outside their borders. Art starts the column with a very good point about the link between growth and living standards.

After enjoying an average growth rate above 3.5% per year between 1960 and 1999, Americans have had to make do with less than one-half that pace since 2000. The consequences are already dramatic and will become even more so over time. Overall we are 20% poorer today than we would be had the pre-2000 growth rate persisted.

That’s a great point. I’ve also tried to get people to focus on the importance of long-run growth.

Heck, just look at what’s happened in Hong Kong and Singapore and you’ll agree.

In his column, Art also correctly defines good tax policy.

The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems.

But he then asserts that an Internet sales tax cartel somehow will result in better policy.

…there are reforms that can alleviate the problems associated with declining sales-tax bases and, at the same time, allow the states to move closer to a pro-growth tax system. One such reform would be to have Internet sellers collect the sales taxes that are owed by in-state consumers when they purchase goods over the Web. So-called e-fairness legislation addresses the inequitable treatment of retailers based on whether they are located in-state (either a traditional brick-and-mortar store or an Internet retailer with a physical presence in the state) or out of state (again as a brick-and-mortar establishment or on the Internet). …The exemption of Internet and out-of-state retailers from collecting state sales taxes reduced state revenues by $23.3 billion in 2012 alone, according to an estimate by the National Conference of State Legislatures. The absence of these revenues has not served to put a lid on state-government spending. Instead, it has led to higher marginal rates in the 43 states that levy income taxes.

This is a very disappointing collection of sentences. Let’s review.

1. States have declining sales-tax bases because state lawmakers treat that levy the same way that politicians in Washington treat the income tax – they put in loopholes in exchange for campaign cash and political support. For them to complain about declining sales-tax bases is sort of like the old joke about the guy who murders  his parents and then asks the court for mercy because he’s an orphan.

2. Art offers zero evidence that state governments would use the additional revenue from a state sales tax cartel to reduce income tax rates. What’s next, a column saying we should have a value-added tax because the politicians may use the revenue to get rid of the income tax? Yeah, good luck with that approach.

3. Why is it “inequitable” for there to be different tax policies in different states? That’s another way of describing federalism, and it’s something we should be celebrating and promoting. Particularly since it promotes tax competition, which is one of the most effective ways of restraining the greed of the political class.

4. The Internet sales tax cartel being promoted by Art and various politicians requires that governments have the ability to tax sales that tax place outside their borders. That’s an assault of sovereignty, particularly since out-of-state merchants will be coerced into being tax collectors for a distant government. This is the same dangerous ideology that is used by high-tax governments to promote global anti-tax competition policies.

5. Art offers zero evidence that the absences of a state sales tax cartel has led to higher income tax rates. Yes, some states have raised tax rates in recent years, but others have lowered tax rates.

For more information on why a sales tax cartel among the states would be a bad idea, here’s my short speech to an audience on Capitol Hill.

*This should be an obvious point, but I can’t resist emphasizing that maximizing revenue should not be the goal of fiscal policy.

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Using data stolen from service providers in the Cook Islands and the British Virgin Islands, the Washington Post published a supposed exposé of Americans who do business in so-called tax havens.

Cayman April 2013

Another Research Trip to Cayman – One of the Sacrifices I Make in the Fight for Freedom

Since I’m the self-appointed defender of low-tax jurisdictions in Washington, this caught my attention. Thomas Jefferson wasn’t joking when he warned that “eternal vigilance is the price of liberty.” I’m constantly fighting against anti-tax haven schemes that would undermine tax competition, financial privacy, and fiscal sovereignty.

Even if it means a bunch of international bureaucrats threaten to toss me in a Mexican jail or a Treasury Department official says I’m being disloyal to America. Or, in this case, if it simply means I’m debunking demagoguery.

The supposedly earth-shattering highlight of the article is that some Americans linked to offshore companies and trusts have run afoul of the legal system.

Among the 4,000 U.S. individuals listed in the records, at least 30 are American citizens accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct.

But the real revelation is that people in the offshore world must be unusually honest. Fewer than 1 percent of them have been named in a lawsuit, much less been involved with a criminal case.

This is just a wild guess, but I’m quite confident that you would find far more evidence of misbehavior if you took a random sample of 4,000 Americans from just about any cross-section of the population.

We know we would find a greater propensity for bad behavior if we examined 4,000 politicians. And I assume that would be true for journalists as well. And folks on Wall Street. And realtors. And plumbers. Perhaps even think tank employees. Anyhow, you get the point.

Citing a couple of anecdotes, the reporter then tries to imply that low-tax jurisdictions somehow lend themselves to criminal activity.

 Fraud experts say offshore bank accounts and companies are vital to the operation of complex financial crimes. Allen Stanford, who ran a $7 billion Ponzi scheme, used a bank he controlled in Antigua. Bernard Madoff, who ran the largest Ponzi scheme in U.S. history, used a series of offshore “feeder funds” to fuel the growth of his multibillion-dollar house of cards.

The Allen Stanford case was a genuine black eye for the offshore world, but it’s absurd to link Madoff’s criminality to tax havens. The offshore funds that invested with Madoff were victimized in the same way that many onshore funds lost money.

Moreover, there’s no evidence in this article – or from any other source to my knowledge – suggesting that financial impropriety is more likely in low-tax jurisdictions.

We then get some “hard” numbers.

Today, there are between 50 and 60 offshore financial centers around the world holding untold billions of dollars at a time of historic U.S. deficits and forced budget cuts. Groups that monitor tax issues estimate that between $8 trillion and $32 trillion in private global wealth is parked offshore.

So we have offshore wealth of somewhere “between $8 trillion and $32 trillion”? With that level of precision, or lack thereof, perhaps you now understand why the make-believe numbers about alleged tax evasion are about as credible as a revenue estimate from the Joint Committee on Taxation.

Speaking of make-believe numbers, the article mentions one of Washington’s worst lawmakers, a Senator who pushed through a law that has united the world against the United States.

Sen. Carl M. Levin (D-Mich.) has been holding hearings and conducting investigations into the offshore world for nearly three decades. In 2010, Congress passed the Foreign Account Tax Compliance Act requiring that U.S. taxpayers report foreign assets to the government and foreign institutions alert the IRS when Americans open accounts.

He justifies bad policy by claiming that there’s a pot of gold at the end of the tax haven rainbow.

“We can’t afford to lose tens of billions of dollars a year to tax-avoidance schemes,” Levin said. “And many of these schemes involve the shift of U.S. corporate tax revenues earned here in the U.S. to offshore tax havens.”

But FATCA is predicted to collected less than $1 billion per year, and it probably will lose revenue once you include Laffer Curve effects such as lower investment in the American economy from overseas.

The most interesting part of the article, as least from a personal perspective, is that the Center for Freedom and Prosperity is listed as one of the “powerful lobbying interests” fighting to preserve tax competition.

The efforts by Levin and other lawmakers have been opposed by powerful lobbying interests, including the banking and accounting industries and a little-known nonprofit group called the Center for Freedom and Prosperity. CF&P was founded by Daniel J. Mitchell, a former Senate Finance Committee staffer who works as a tax expert for the Cato Institute, and Andrew Quinlan, who was a senior economic analyst for the Republican National Committee before helping start the center. …The center argues that unfettered access to offshore havens leads to lower taxes and more prosperity.

Having helped to start the organization, I wish CF&P was powerful. The Center has never had a budget of more than $250,000 per year, so it truly is a David vs. Goliath battle when we go up against bloated and over-funded bureaucracies such as the IRS and the Paris-based Organization for Economic Cooperation and Development.

The reporter somehow thinks it is big news that the Center has tried to raise money from the business community in low-tax jurisdictions.

According to records reviewed by The Post and ICIJ, the organization’s fundraising pleas have been circulated to offshore entities that make millions by providing anonymity for wealthy clients, many of them U.S. citizens.

Unfortunately, even though these offshore entities supposedly “make millions,” I’m embarrassed to say that CF&P has not been able to convince them that it makes sense to support an organization dedicated to protecting tax competition, financial privacy, and fiscal sovereignty.

But maybe that will change now that the OECD has launched a new attack on tax planning by multinational firms.

Let’s close by returning to the policy issue. The article quotes me defending the right of jurisdictions to determine their own fiscal affairs.

Mitchell, the co-founder of CF&P, added that nations shouldn’t be telling other countries how to conduct their affairs and noted that the United States is one of the worst offenders in the world when it comes to corporate secrecy.

My only gripe is that the reporter mischaracterizes my position. Yes, there are several states that are “tax havens” because of their efficient and confidential incorporation laws, but that means America is “one of the best providers,” not “one of the worst offenders.”

This is something to celebrate. I’m glad the United States is a safe haven for the oppressed people of the world. That’s great news for our economy. I just wish we also were a tax haven for American citizens.

“The United States is one of the biggest tax havens in the world,” Mitchell said. “In general, the United States is impervious to fishing expeditions here, and then the United States turns around and says, ‘Allow us to do fishing expeditions in your country.’”

But I’m not a hypocrite. Other nations should have the sovereign right to maintain pro-growth tax and privacy laws as well.

Other nations shouldn’t feel obliged to enforce bad American tax law, any more than we should feel obliged to enforce any of their bad laws.

P.S. You probably won’t be surprised to learn that “onshore” nations are much more susceptible to dirty money than “offshore” jurisdictions. Which is why you have a hard time finding any tax havens on this map showing the nations with the most money laundering.

P.P.S. On the topic of tax havens, you won’t be surprised to learn that Senator Levin is not the only dishonest demagogue in Washington. If you pay close attention around 1:25 and 2:25 of this video, you’ll see that the current resident of 1600 Pennsylvania Avenue also has an unfortunate tendency to play fast and loose with the truth.

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One of the new Tea Party senators, Ted Cruz, gained a lot of support when he was Solicitor General of Texas Texas Sovereigntyand successfully defended his state’s ability to execute a murderer over the objections of the International Court of Justice.

At the time, this fight even led me to confess one of my lurid fantasies.

Now we have another battle involving American states and an international bureaucracy.

Here are a couple of passages from a report in the Seattle Times.

A United Nations-based drug agency urged the United States government on Tuesday to challenge the legalization of marijuana for recreational use in Colorado and Washington, saying the state laws violate international drug treaties. …U.S. Attorney General Eric Holder said last week that he was in the last stages of reviewing the Colorado and Washington state laws. Holder said he was examining policy options and international implications of the issue.

Here’s a news flash for the bureaucrats at this branch of the United Nations in Vienna: American states are sovereign and don’t need to kowtow to a bunch of mandarins who get bloated (and tax free!) salaries in exchange for…well, I’m not sure what they do other than pontificate, gorge themselves at receptions, and enjoy first class travel at our expense while jetting from one conference to another.

If the people of Washington and Colorado want to legalize certain drugs, that’s their right. They haven’t signed any treaties with the United Nations.

By the way, this has nothing to do with whether drugs should be legalized.

Like John Stossel, Mona Charen, Gary Johnson, Pat Robertson, Cory Booker, and Richard Branson, I’m skeptical of the drug war.

But since I’m an abstainer, I confess I don’t really lose any sleep about the issue.

I generally do get agitated, by contrast, when international bureaucracies seek to impose one-size-fits-all policies on the world. Much of my ire is directed at the Paris-based Organization for Economic Cooperation and Development, which seeks to penalize jurisdictions that commit the horrible crime of having attractive tax regimes (or, to be more accurate, having tax regimes that are more attractive than those in places such as France and Germany).

But I also get upset with bad policies from the IMF, the World Bank, the EU mega-bureaucracy, and even the World Health Organization.

P.S. Have you ever noticed that U.N. offices are in swanky places such as New York City, Geneva, and Vienna? If these bureaucrats really want to help the world, why aren’t their offices in Havana, Lagos, and Chisinau.  That would be quite appropriate, after all, since Cuba, Nigeria, and Moldova are all members of the U.N. Human Rights Council.

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Several months ago, I wrote a rather wonky post explaining that the western world became rich in large part because of jurisdictional competition. Citing historians, philosophers, economists, and other great thinkers, I explained that the rivalry made possible by decentralization and diversity played a big role in both economic and political liberalization.

In other words, it’s not just a matter of tax competition and tax havens (though you know how I feel about those topics).

Now I want to provide another argument in favor of the jurisdictional differences that are encouraged by national sovereignty. Simply stated, it’s the idea of diversification. Reduce risk by making sure one or two mistakes won’t cause a catastrophe.

This isn’t my insight. The author of The Black Swan understands that this simple principle of financial investment also applies to government. He recently explained his thinking in a short interview with Foreign Policy. The magazine began with a few sentences of introduction.

Nassim Nicholas Taleb has made a career of going against the grain, and he has been successful enough that the title of his book The Black Swan is a catchphrase for global unpredictability far beyond its Wall Street origins. …His newest project is helping governments get smarter about risks.

The rest of the article is Taleb in his own words. Here are some of my favorite passages, beginning with some praise for Switzerland’s genuine federalism and strong criticism of the EU bureaucracy in Brussels.

The most stable country in the history of mankind, and probably the most boring, by the way, is Switzerland. It’s not even a city-state environment; it’s a municipal state. Most decisions are made at the local level, which allows for distributed errors that don’t adversely affect the wider system. Meanwhile, people want a united Europe, more alignment, and look at the problems. The solution is right in the middle of Europe — Switzerland. It’s not united! It doesn’t have a Brussels! It doesn’t need one.

But it’s important to understand why he likes Switzerland and dislikes the European Union: Small is beautiful. More specifically, decentralized decision making means less systemic risk.

We need smaller, more decentralized government. On paper, it might appear much more efficient to be large — to have economies of scale. But in reality, it’s much more efficient to be small. …an elephant can break a leg very easily, whereas you can toss a mouse out of a window and it’ll be fine. Size makes you fragile.

Taleb elaborates on this theme, echoing many of the thinkers I cited in my wonky September post.

The European Union is a horrible, stupid project. The idea that unification would create an economy that could compete with China and be more like the United States is pure garbage. What ruined China, throughout history, is the top-down state. What made Europe great was the diversity: political and economic. Having the same currency, the euro, was a terrible idea. It encouraged everyone to borrow to the hilt.

Because it’s a short article, he doesn’t cite many specific examples, so let me elaborate. One of the reasons for the financial crisis is that the world’s financial regulators thought it would be a good idea if everybody agreed to abide the same rules for weighing risks. This resulted in the Basel rules that tilted the playing field in favor of mortgage-backed securities, thus helping to create and pump up the housing bubble. And we know how that turned out.

But that’s just part of the story. The regulatory cartel also decided to provide a one-size-fits-all endorsement of government debt. Now we’re in the middle of a sovereign debt crisis, so we see how that’s turning out.

Unfortunately, governments seem drawn to harmonization like moths to a flame. To make matters worse, the corporate community often has the same instinct. Their motive often is somewhat benign. They like the idea of one rulebook rather than having to comply with different policies in every nations.

But mistakes made for benign reasons can be just as bad as mistakes made for malignant reasons.

P.S. Last but not least, it’s worth noting that Taleb is not a big fan of democracy.

I have a negative approach to democracy. I think it should be primarily a mechanism by which people can remove a bad leader

I don’t know if this is because he recognizes the danger of untrammeled majoritarianism, much like Thomas Sowell, George Will, and Walter Williams. But if you want more information on why 51 percent of the people shouldn’t be allowed to oppress 49 percent of the people, here’s a very good video.

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Since one of my main priorities is to defend tax competition and tax havens, I’m always delighted to see others jump in the fight to defend fiscal sovereignty.

Especially when those people clearly understand that so-called tax havens are necessary to restrain the compulsive tendency of “onshore” politicians to over-tax and over-spend.

Pierre Bessard of Switzerland and Allister Heath of the United Kingdom are among the world’s best analysts on global tax issues. But Philip Booth of the UK’s Institute for Economic Affairs can be added to the list. Here are some key excerpts from his new Business Insider column.

Tax havens are in fact essential, especially international financial centres. Tax rules are often unjust… nobody should be taxed twice on investment returns. …it would be to the detriment of us all if there were no tax havens. Most predatory activity is actually undertaken by governments and not by companies. Governments are trying to spend more and more with the UK government now spending 50 per cent of national income – in common with other European Union countries. This is deeply damaging to general welfare and business in particular and it is very difficult to hold the elites who con­tinually expand the size of the state to account. Elections are very imperfect mechanisms. One effective method by which we can keep the size of government in check is if labour and capital can exercise its freedom to move to lower-tax jurisdictions. Capital is much more mobile than labour and so tax havens do us all a favour by ensuring that governments have to keep tax rates lower – thus creating a better environment for business.

This hits the nail on the head.

For all intents and purposes, the existence of tax havens makes tax competition more robust. And we need vigorous tax competition because politicians – with some sort of external constraint – will drive their nations into Greek-style fiscal chaos.

But there’s also a moral case for tax havens, as explained in this video.

One final thought. The real outrage in this issue is that American taxpayers are subsidizing the international bureaucracy that is trying to kill tax competition.

So if Republicans on Capitol Hill are looking for some much-needed budget cuts, that’s a good place to start.

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I’m not talking about secession in the United States, where the issue is linked to the ugliness of slavery (though at least Walter Williams can write about the issue without the risk of being accused of closet racism).

But what about Europe? I have a hard time understanding why nations on the other side of the Atlantic should not be allowed to split up if there are fundamental differences between regions. Who can be against the concept of self-determination?

Heck, tiny Liechtenstein explicitly gives villages the right to secede if two-thirds of voters agree. Shouldn’t people in other nations have the same freedom?

This is not just a hypothetical issue. Secession has become hot in several countries, with Catalonia threatening to leave Spain and Scotland threatening to leave the United Kingdom.

But because of recent election results, Belgium may be the country where an internal divorce is most likely. Here are some excerpts from a report in the UK-based Financial Times.

Flemish nationalists made sweeping gains across northern Belgium in local elections on Sunday, a success that will bolster separatists’ hopes for a break-up of the country. Bart De Wever, leader of the New Flemish Alliance (NVA), is set to become mayor of the northern city of Antwerp, Belgium’s economic heartland, after his party emerged as the largest one, ending about 90 years of socialist rule. …The strong result recorded by the Flemish nationalist is likely to have an impact across Europe, where the sovereign debt crisis, which has seen rich countries bail out poor ones, has revived separatist sentiment throughout the continent. Flanders, which is the most economically prosperous region of Belgium, has long resented financing the ailing economy of French-speaking Wallonia, and Sunday’s victory will strengthen its demand for self-rule. Lieven De Winter, a political scientist at Université Catholique de Louvain, said that Mr De Wever’s victory was a clear step forward for separatists who had long been campaigning for secession from the southern part of the country.

Purely as a matter of political drama, this is an interesting development. We saw the peaceful split of Czechoslovakia into the Czech Republic and Slovakia about 20 years ago. But we also saw a very painful breakup of Yugoslavia shortly thereafter.

Belgium’s divorce, if it happened, would be tranquil. But it would still be remarkable, particularly since it might encourage peaceful separatist movements in other regions of other nations.

I think this would be a welcome development for reasons I wrote about last month. Simply stated, the cause of liberty is best advanced by having a a large number of competing jurisdictions.

I’ve opined about this issue many times, usually from a fiscal policy perspective, explaining that governments are less likely to be oppressive when they know that people (or their money) can cross national borders.

Belgium definitely could use a big dose of economic liberalization. The burden of government spending is enormous, consuming 53.5 percent of economic output – worse than all other European nations besides Denmark, France, and Finland. The top tax rate on personal income is a crippling 53.7 percent, second only the Sweden. And with a 34 percent rate, the corporate tax rate is very uncompetitive, behind only France.

Sadly, there’s little chance of reform under the status quo since the people in Wallonia view high tax rates as a tool for extracting money from their neighbors in Flanders. But if Belgium split up, it’s quite likely that both new nations would adopt better policy as a signal to international investors and entrepreneurs. Or maybe the new nations would implement better policy as part of a friendly rivalry with each other.

So three cheers for peaceful secession and divorce in Belgium. At least we know things can’t get worse.

P.S. Brussels is the capital of Belgium, but it is also the capital of the European Union. Don’t be surprised if it becomes some sort of independent federal city if Flanders and Wallonia become independent. Sort of like Washington, but worse. Why worse? Because even though Washington is akin to a city of parasites feasting off the productive energy of the rest of America, Brussels and the European Union are an even more odious cesspool of harmonization, bureaucratization, and centralization, richly deserving of attacks from right, left, and center.

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I spoke at the United Nations back in May, explaining that more government was the wrong way to help the global economy.

But I guess I’m not very persuasive. The bureaucrats have just released a new report entitled, “In Search of New Development Finance.”

As you can probably guess, what they’re really searching for is more money for global redistribution.

But here’s the most worrisome part of their proposal. They want the U.N. to be in charge of collecting the taxes, sort of a permanent international bureaucracy entitlement.

I’ve written before about the U.N.’s desire for tax authority (on more than one occasion), but this new report is noteworthy for the size and scope of taxes that have been proposed.

Here’s the wish list of potential global taxes, pulled from page vi of the preface.

Here’s some of what the report had to say about a few of the various tax options. We’ll start with the carbon tax, which I recently explained was a bad idea if imposed inside the U.S. by politicians in Washington. It’s a horrible idea if imposed globally by the kleptocrats at the United Nations.

…a tax of $25 per ton of CO2 emitted by developed countries is expected to raise $250 billion per year in global tax revenues. Such a tax would be in addition to taxes already imposed at the national level, as many Governments (of developing as well as developed countries) already tax carbon emissions, in some cases explicitly, and in other cases, indirectly through taxes on specific fuels.

Notice that the tax would apply only to “developed countries,” so this scheme is best characterized as discriminatory taxation. If Obama is genuinely worried about jobs being “outsourced” to nations such as China (as he implies in his recent attack on Romney), then he should announce his strong opposition to this potential tax.

But don’t hold your breath waiting for that to happen.

Next, here’s what the U.N. says about a financial transactions tax.

A small tax of half a “basis point” (0.005 per cent) on all trading in the four major currencies (the dollar, euro, yen and pound sterling) might yield an estimated $40 billion per year. …even a low tax rate would limit high-frequency trading to some extent. It would thus result in the earning of a “double dividend” by helping reduce currency volatility and raising revenue for development. While a higher rate would limit trading to a greater extent, this might be at the expense of revenue.

This is an issue that already has attracted my attention, and I also mentioned that it was a topic in my meeting with the E.U.’s Tax Commissioner.

But rather than reiterate some of my concerns about taxing financial consumers, I want to give a back-handed compliment the United Nations. The bureaucrats, by writing that “a higher rate…might be at the expense of revenue,” deserve credit for openly acknowledging the Laffer Curve.

By the way, this is an issue where both the United States and Canada have basically been on the right side, though the Obama Administration blows hot and cold on the topic.

Now let’s turn to the worst idea in the U.N. report. The clowns want to steal wealth from rich people. But even more remarkable, they want us to think this won’t have any negative economic impact.

…the least distorting, most fair and most efficient tax is a “lump sum” payment, such as a levy on the accumulated wealth of the world’s richest individuals (assuming the wealthy could not evade the tax). In particular, it is estimated that in early 2012, there were 1,226 individuals in the world worth $1 billion or more, 425 of whom lived in the United States, 90 in other countries of the Americas, 315 in the Asia-Pacific region, 310 in Europe and 86 in Africa and the Middle East. Together, they owned $4.6 trillion in assets, for an average of $3.75 billion in wealth per person.21 A 1 per cent tax on the wealth of these individuals would raise $46 billion in 2012.

I’ll be the first to admit that you can’t change people’s incentives to produce in the past. So if you steal wealth accumulated as the result of a lifetime of work, that kind of “lump sum” tax isn’t very “distorting.”

But here’s a news flash for the nitwits at the United Nations. Rich people aren’t stupid (or at least their financial advisers aren’t stupid). So you might be able to engage in a one-time act of plunder, but it is deliberate naiveté to think that this would be a successful long-run source of revenue.

For more information, I addressed wealth taxes in this post, and the argument I was making applies to a global wealth tax just as much as it applies to a national wealth tax.

Now let’s conclude with a very important warning. Some people doubtlessly will dismiss the U.N. report as a preposterous wish list. In part, they’re right. There is virtually no likelihood of these bad policies getting implemented at any point in the near future.

But the statists have been relentless in their push for global taxation, and I’m worried they eventually will find a way to impose the first global tax. And if you’ll forgive me for going overboard on metaphors, once the camel’s nose is under the tent, it’s just a matter of time before the floodgates open.

The greatest threat is the World Health Organization’s scheme for a global tobacco tax. I wrote about this issue back in May, and it seems my concerns were very warranted. The bureaucrats recently unveiled a proposal – to be discussed at a conference in South Korea in November – that would look at schemes to harmonize tobacco taxes and/or impose global taxes.

Here’s some of what the Washington Free Beacon wrote.

The World Health Organization (WHO) is considering a global excise tax of up to 70 percent on cigarettes at an upcoming November conference, raising concerns among free market tax policy analysts about fiscal sovereignty and bureaucratic mission creep. In draft guidelines published this September, the WHO Framework Convention on Tobacco Control indicated it may put a cigarette tax on the table at its November conference in Seoul, Korea. …it is considering two proposals on cigarette taxes to present to member countries. The first would be an excise tax of up to 70 percent. …The second proposal is a tiered earmark on packs of cigarettes: 5 cents for high-income countries, 3 cents for middle-income countries, and 1 cent for low-income countries. WHO has estimated that such a tax in 43 selected high-/middle-/low-income countries would generate $5.46 billion in tax revenue. …Whichever option the WHO ends up backing, “they’re both two big, bad ideas,” said Daniel Mitchell, a senior tax policy fellow at the Cato Institute. …Critics also argue such a tax increase will not generate more revenue, but push more sales to the black market and counterfeit cigarette producers. “It’s already huge problem,” Mitchell said. “In many countries, a substantial share of cigarettes are black market or counterfeit. They put it in a Marlboro packet, but it’s not a Marlboro cigarette. Obviously it’s a big thing for organized crime.” …The other concern is mission creep. Tobacco, Mitchell says, is easy to vilify, making it an attractive beachhead from which to launch future vice tax initiatives.

It’s my final comment that has me most worried. The politicians and bureaucrats are going after tobacco because it’s low-hanging fruit. They may not even care that their schemes will boost organized crime and may not raise much revenue.

They’re more concerned about establishing a precedent that international bureaucracies can impose global taxes.

I wrote the other day about whether Americans should escape to Canada, Australia, Chile, or some other nation when the entitlement crisis causes a Greek-style fiscal collapse.

But if the statists get the power to impose global taxes, then what choice will we have?

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Since I’m probably the foremost defender of tax havens in the United States, I tend to get a lot of press inquiries whenever something happens that brings attention to these low-tax jurisdictions.

In recent months, almost all of the media calls have been because (gasp!) Mitt Romney engaged in sound business practices and used tax havens to boost earnings while also legally minimizing the amount of money siphoned off by the buffoons in Washington.

I’ve explained that prominent Democrats routinely utilize tax havens for business and investment purposes, including as Bill Clinton, John Kerry, John Edwards, Robert Rubin, Peter Orszag, and Richard Blumenthal. I’ve also discussed the issue for the Wall Street Journal’s online interview program, and I slammed ABC News for empty and biased reporting on the issue.

Most recently, I got interviewed by NBC’s big station in New York City. They inexplicably seemed to think it was a big scoop that they were able to form a company in Nevis, though at least they gave me an opportunity to explain that taxpayers benefited from tax havens and tax competition.

But I don’t want to focus on my rather generic comments. Instead, I want to address the explicit assumption in the story that it is bad for Nevis (or any other jurisdiction) to have a simple and efficient process for forming companies.

Notwithstanding the news report, this is a good thing, a practice that should be applauded rather than condemned. Indeed, the World Bank highlights the importance of easy company formation in their important “Doing Business” project.

Moreover, there’s an implicit assumption in the story that not only is company formation somehow a sketchy thing, but that it’s only an issue for small Caribbean islands in the “offshore” world.

That’s completely inaccurate. Indeed, even leftists have acknowledged that Delaware is one of the premiere jurisdictions in the world for company formation, and I’ve explained that the U.S. has very attractive laws for international investors that have attracted trillions of dollars to the American economy.

Interestingly, we now have some very good evidence from three academics that the “offshore” world is much stricter about enforcing laws than the “onshore” world. Here’s what they did.

This paper reports the results of an experiment soliciting offers for these prohibited anonymous shell corporations. Our research team impersonated a variety of low- and high-risk customers, including would-be money launderers, corrupt officials, and terrorist financiers when requesting the anonymous companies. Evidence is drawn from more than 7,400 email solicitations to more than 3,700 Corporate Service Providers that make and sell shell companies in 182 countries. The experiment allows us to test whether international rules are actually effective when they mandate that those selling shell companies must collect identity documents from their customers.

And here’s what they found about so-called tax havens compared to high-tax nations. As you can see, the rules are much more likely to be obeyed in the low-tax jurisdictions that are always getting smeared.

A finding that runs directly counter to the conventional wisdom is that rich countries in the Organization of Economic Cooperation and Development (OECD) are worse at enforcing the rules on corporate transparency than are poor countries (see Figure 2). For developing countries the Dodgy Shopping Count is 12, while for developed countries it is 7.8 (and tax havens are much higher at 25.2, as discussed below). The significance of this finding is that it does not seem to be particularly expensive to enforce the rules on shell companies, given that poor nations do better than rich countries. This suggests that the relatively lackluster performance in rich countries reflects a simple unwillingness to enforce the rules, rather than any incapacity. One of the biggest surprises of the project was the relative performance of rich, developed states compared with poorer, developing countries and tax havens (see Figure 3). The overwhelming policy consensus, strongly articulated in G20 communiqués and by many NGOs, is that tax havens provide strict secrecy and lax regulation, especially when it comes to shell companies. This consensus is wrong. The Dodgy Shopping Count for tax havens is 25.2, which is in fact much higher than the score for rich, developed countries at 7.8 – meaning it is more than three times harder to obtain an untraceable shell company in tax havens than in developed countries. Some of the top-ranked countries in the world are tax havens such as Jersey, the Cayman Islands and the Bahamas, while some developed countries like the United Kingdom, Australia, Canada and the United States rank near the bottom of the list. It is easier to obtain an untraceable shell company from incorporation services (though not law firms) in the United States than in any other country save Kenya.

These are remarkable findings, but now let me take a moment to explain the correct interpretation of these results. Some people will argue that this data shows that there should be harsher rules imposed on the “onshore”  company formation business.

Au contraire. The goal should be to ease the regulatory burden everywhere. Simply stated, it is foolish to fight terrorism, corruption, and money laundering with costly rules that require the monitoring of countless legal actions.

Indeed, I’ve already explained how anti-money laundering rules are ineffective – or perhaps even counterproductive – in the fight against crime, largely because they generate a haystack of information, thus putting law enforcement in the unenviable position of searching for needles.

From a cost-benefit perspective, law enforcement should focus on actual criminal behavior. It wouldn’t make sense, after all, to have the government spy on everyone who buys a car merely because some people use autos when committing crime.

But that’s pretty much a good description of the mentality behind rules and regulations that target the company formation business.

P.S. For more information on the beneficial impact of so-called tax havens, Pierre Bessard wrote a great column about the topic for the New York Times.

P.P.S. I don’t want to overlook my statist friends. Here are a couple of short anti-tax haven videos from left wingers. The first one is tedious and amateurish, but I found the second one reasonably entertaining.

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Back in April, responding to an article written by Ann Hollingshead for the Task Force on Financial Integrity and Economic Development, I wrote a long post defending so-called tax havens.

I went through the trouble of a point-by-point response because her article was quite reasonable and focused on some key moral and philosophical issues (rather than the demagoguery I normally have to deal with when people on the left reflexively condemn low-tax jurisdictions).

She responded to my response, and she raised additional points that deserve to be answered.

So here we go again. Let’s go through Ann’s article and see where we agree and disagree.

A couple of weeks ago, I wrote a blog post criticizing the philosophies of Dan Mitchell, a libertarian scholar from the Cato Institute. I asked for a “thoughtful discussion” and I got it—both from the comments section of our blog and from Dan himself.  On his own blog, Dan replied with a thought-provoking point-by-point critique of my piece.

It has been a polite discussion, which is good because readers get to see that we don’t really disagree on facts. Our differences are a matter of philosophy, as Ann also acknowledges.

Dan made several interesting points in his rebuttal. As much as I’d like to take on the whole post right now, my reply would be far too long and I don’t think our readers would appreciate a blog post that approaches a novella. Rather I’ll focus on a couple of his comments that I find interesting on a philosophical level (there were many) and which demand a continued conversation because, I believe, they are the basis of our differences. We’ll start with a rather offhand remark in which Dan indirectly refers to financial privacy as a human right. This is an argument we’ve heard before. And it is worth some exploration.Unless I am very much mistaken, Dan’s belief that financial privacy is a human right arises out of his fundamental value of freedom. My disagreement with Dan, therefore, does not arise from a difference in the desire to promote human rights (I believe we both do), but rather in the different relative weights we each place on the value of privacy, which Dan (I’m supposing) would call an extension of freedom.

I wouldn’t argue with her outline, though I think it is incomplete. I’m a big fan of privacy as a principle of a civil and just society, but I also specifically support financial privacy as a means to an end of encouraging better tax policy. Simply stated, politicians are much more likely to reduce or eliminate double taxation if they feel such taxes can’t be enforced and simply put a country in a much less competitive position.

Okay, so on to [my] answer of the subject of this post. Privacy—and financial privacy by extension—is important. But is it a human right? That’s a big phrase; one which humanity has no business throwing around, lest it go the way of “[fill in blank]-gate” or “war on [whatever].” And as Dan himself points out, governments have a way of fabricating human rights—apparently some European courts have ruled that free soccer broadcasts and owning a satellite dish are a human rights—so it’s important that we get back to [philosophical] basics and define the term properly. The nearly universally accepted definition of “human rights” was established by the Universal Declaration of Human Rights, which the United Nations adopted in 1948. According to the UN, “human rights” are those “rights inherent to all human beings,” regardless of “nationality, place of residence, sex, national or ethnic origin, colour, religion, language, or any other status.” The Declaration includes 30 Articles which describe each of those rights in detail. “Financial privacy” per se is not explicitly a human right in this document, but “privacy” is, and I think it’s reasonable to include financial privacy by extension. But privacy is defined as a fundamental, not an absolute, human right. Absolute rights are those that there is never any justification for violating. Fundamental freedoms, including privacy and freedom from detention, can be ethically breached by the government, as long as they authorized by law and not arbitrary in practice. The government therefore has the right to regulate fundamental freedoms when necessary.

I’m not sure how to react. There are plenty of admirable provisions in the U.N.’s Universal Declaration of Human Rights, but there are also some nonsensical passages – some of which completely contradict others.

Everyone hopefully agrees with the provisions against slavery and in favor of equality under law, but Article 25 of the U.N. Declaration also includes “the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services.”

That sounds like a blank check for redistributionism, similar to the statism that I experienced when I spoke at the U.N. last month, and it definitely seems inconsistent with the right of property in Article 17.

I guess what I’m trying to say is that I don’t care that the U.N. Universal Declaration of Human Rights includes a “right to privacy” because I don’t view that document as having any legal or moral validity. I don’t know whether it’s as bad as the European Union’s pseudo-constitution, but I do know that my support for privacy is not based on or dependent on a document from the United Nations.

As an aside, I can’t help noting that Articles 13 and 15 of the U.N. Declaration guarantee the right to emigrate and the right to change nationality, somethings leftists should keep in mind when they demonize successful people who want to move to nations with better tax law.

Getting back to Ann’s column, she confirms my point that you can’t protect property rights for some people while simultaneously giving other people a claim on their output.

That’s important because it means, that when it comes to freedom and privacy, we need to make choices. We can’t always have them all at once. To use a hideously crude example that gets back to the issue of tax evasion, in a developing country, a rich person’s right to financial privacy might be at odds with a poor person’s right to “a standard of living adequate for the health and well-being of himself and of his family.”

For those who are not familiar with the type of discussion, it is the difference between “negative rights” promoted by classical liberals, which are designed to protect life, liberty, and property from aggression, and the “positive rights” promoted by the left, which are designed to legitimize the redistributionist state.

Tom Palmer has a good discussion of the topic here, and he notes that “positive rights” create conflict, writing that, “…classical liberal ‘negative’ rights do not conflict with each other, whereas ‘positive’ rights to be provided with things produce many conflicts. If my ‘right to health care’ conflicts with a doctor’s ‘right to liberty,’ which one wins out?”

Continuing with Ann’s article, she says values conflict with one another, though that’s only if true if one believes in positive rights.

I started this post with a discussion of values, because at the core that’s what we’re talking about. Values are relative, individual, and often in conflict with one another. And they define how we rank our choices between human rights. Dan values freedom, perhaps above most else. He might argue that economic freedom would lead to an enrichment of human rights at all levels, but he probably wouldn’t disagree that that thesis remains untested. My views are a little more complicated because I don’t get to enjoy the (albeit appealing and consistent) simplicity of libertarianism.

I’m tempted to say, “C’mon in, Ann, the water’s fine. Libertarianism is lots of fun.” To be a bit more serious, libertarianism is simple, but it’s not simplistic. You get to promote freedom and there’s no pressure to harass, oppress, or pester other people.

As my colleague David Boaz has stated, “You could say that you learn the essence of libertarianism — which is also the essence of civilization –  in kindergarten: don’t hit other people, don’t take their stuff, keep your promises.”

The world would be a lot better if more people rallied to this non-coercive system.

One more point. Dan mentioned he does “fully comply” with the “onerous demands imposed on [him] by the government.” But as Dan insinuates, irrespective of an individual’s personal values, those demands are not optional. In the United States, we have the luxury of electing a group of individuals to represent our collective values. Together those people make a vision for the country that reflects our ideals. And then, we all accept it. If our country got together and decided to value freedom above all else, we would live in a world that looks a lot like Dan’s utopia. But, frankly, it hasn’t. So we respect our tax code out of a respect for the vision of our country. Dan has the right to try to shape that vision, as do I. Neither of us has the right to violate it.

What Ann writes is true, but not persuasive. Libertarians don’t like untrammeled majoritarianism. We don’t think two wolves and a sheep should vote on what’s for lunch.

We like what our Founding Fathers devised, a constitutional republic where certain rights were inalienable and protected by the judicial system, regardless of whether 90 percent of voters want to curtail our freedoms.

Ann, as you can see from her final passage, does not agree.

That, at is heart, is my problem with both tax evasion and tax avoidance. Neither lines up with the spirit of our collective compact; although the latter is not necessarily reflected in the official laws on the books. I’m not saying tax avoiders should be thrown in jail; they’ve done nothing illegal. I’m saying the regulations that confine us should line up with the vision we’ve created and the values we’ve agreed upon. If that vision is Dan’s, I’ll accept it. But I’m glad he’ll (begrudgingly) accept ours too.

I’m not automatically against having a “collective compact.” After all, that’s one way of describing the American Constitution. But I will return to my point about America’s founders setting up that system precisely because they rejected majoritarianism.

So what does all this mean? Probably nothing, other than the less-than-remarkable revelation that Ann and I have different views on the legitimate role(s) of the federal government.

Since I want to restrain the size and scope of government (not only in America, but elsewhere in the world) and avert future Greek-style fiscal nightmares, that means I want tax competition. And, to be truly effective, that means tax havens.

If that appeals to you (or at least seems like a reasonably hypothesis), I invite you to read some writings by Allister Heath of the United Kingdom and Pierre Bessard of Switzerland.

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I sometimes make fun of the English, for reasons ranging from asinine laws to milquetoast politicians to horrid healthcare policy.

But at least some U.K. elected officials are willing to stand up for tax competition and fiscal sovereignty by defending low-tax jurisdictions. In previous posts, I’ve applauded Dan Hannan and Godfrey Bloom for great speeches at the European Parliament.

There are also some sensible people in the U.K. Parliament, most notably Mark Field.

Here are some excerpts from an article in the U.K.-based Telegraph.

A conservative MP has spoken out in defence of tax havens and against what he called “a one-sided debate that demonstrates a fundamental lack of understanding of their role in the global financial market”. …In an attempt to balance the “one-sided” debate on international finance centres (IFCs), Mr Field…advised the UK government to think twice before imposing more regulation on these jurisdictions. …In a bid to dismiss the age-old belief that tax havens attract investors purely because of their tax regimes, Mr Field argued that it is a combination of their political stability, familiar legal systems, quality of service, lack of foreign exchange controls, and tax and legal neutrality that make them ideal locations to deposit money.The current financial crisis, he continued, had more to do with poor regulation and mistakes made onshore rather than offshore, and if the EU pressed ahead with its intention to harmonise tax systems across international borders “it could potentially represent the end for healthy tax competition… Tax harmonisation and cooperation, added Mr Field, was simply Brussels-speak for exporting high tax models on continental Europe to low tax jurisdictions.

These issues are just as relevant for the United States, but how many American politicians stand up and defend free markets and jurisdictional competition as a means of restraining the political predators in Washington?

I’m re-posting my video on The Economic Case for Tax Havens below, for those who haven’t seen it. But I also want to call your attention to this chart from the Treasury Department.

You’ll have to click and enlarge it. You’ll see that it shows the amount of capital invested in America from various parts of the world. The “C” category shows that more money is invested in America via Caribbean banking centers such as the Cayman Islands than from any other source.

And this is just one type of foreign investment. As I’ve explained elsewhere, foreigners have more than $10 trillion invested in the U.S. economy, in part because the United States is a tax haven for foreign investors.

So when Obama climbs into bed with the Europeans to push a global network of tax police, he’s pushing policies that ultimately will do great damage to American competitiveness.

Let’s close by returning to the original theme of wise and astute Englishmen. If you want a good defense of tax competition and tax havens, read what Allister Heath wrote last year.

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I’m not a fan of international bureaucracies.

I’ve criticized the United Nations for wanting global taxes. I’ve condemned the International Monetary Fund for promoting bigger government. I’ve even excoriated the largely unknown Basel Committee on Banking Supervision for misguided regulations that contributed to the financial crisis.

But the worse international bureaucracy, at least when measured on a per-dollar-spent basis, has to be the Paris-based Organization for Economic Cooperation and Development.

OECD Headquarters: Living the good life at US expense

American taxpayers finance nearly one-fourth of the OECD’s budget, at a cost of more than $100 million per year, and in exchange we get a never-ending stream of bad policy recommendations.

This Center for Freedom and Prosperity study has all the gory details. The OECD bureaucrats (who get tax-free salaries, by the way) endorsed Obamacare, supported the failed stimulus, and are big advocates of a value-added tax for America.

What’s especially frustrating is that the OECD initially was designed to be a relatively innocuous bureaucracy that focused on statistics. Indeed, it was even viewed as a free-market counterpart to the Soviet Bloc’s Council for Mutual Economic Assistance.

My, how things change.

Perhaps the most odious example of bad OECD policy is the campaign against tax competition. Beginning during the 1990s, the OECD has attacked low-tax jurisdiction for the supposed crime of having good tax laws that attract jobs and capital from high-tax nations such as France and Greece.

So why did the OECD launch this project to prop up Europe’s welfare states?  The answer can be found in an excellent new study from Professor Andrew Morriss at the University of Alabama Law School and Lotta Moberg, a Ph.D student in economics at George Mason University.

It’s a publication designed for academic journals, but it avoids jargon and gibberish, so a regular person can read and understand how the OECD has morphed from a harmless (though presumably still wasteful) bureaucracy into a force for global statism. Here are some of the key findings in the study.

…this transition was in part the result of entrepreneurship by a group of OECD staff, who spotted an opportunity to expand their mission, bringing with it a concomitant increase in resources and prestige. They accomplished this by providing a framework for interests within a group of high tax states to create a cartel that would channel competition in tax policy away from areas where those states had a competitive disadvantage and toward areas in which they had a competitive advantage. …These states then sought to restrict tax competition, which in turn required them to create a means of delegitimizing such competition and by preventing each other from defecting from the cartel by lowering tax rates unilaterally. …The French…realized that single-country financial controls were unworkable within a global financial system.

In other words, the bureaucrats at the OECD and governments from decrepit welfare states like France both saw a benefit in creating a tax cartel.

This “OPEC for politicians” is grossly contrary to good tax policy, international comity, and national sovereignty. But those factors didn’t matter.

Unfortunately, it’s quite likely that we will see further schemes from the OECD and other international bureaucracies. The politicians have learned that transnational cartels increase their power.

…the evolution of the OECD from a facilitator of economic competition to a cartel enforcer represents something new in international organization behavior. …The cartelization of tax policy is an important effort to hold off the impact of the forces unleashed by competition on a more level playing field, but it is certainly not the only one. …If the opportunity is provided, it may be better from a politician’s point of view to form a cartel on taxation as a protection. With a cartel, there are fewer constraints on domestic policy, improving the politicians’ welfare by increasing the degrees of freedom available to satisfy domestic constituents and win re-election.

This video has more information on why the OECD is contrary to the interests of American taxpayers.

Needless to say, it is outrageous that the politicians in Washington are sending more than $100 million to Paris every year to subsidize this bureaucracy. For all intents and purposes, we are being coerced into paying for a bunch of European bureaucrats so they can then advocate even bigger government in the United States.

And those bureaucrats get tax-free salaries why pushing for higher taxes for the rest of us!

Can anyone think of a more destructive item in the federal budget, at least when measured on a per-dollar-spent basis? I can’t. That’s why I’ve been fighting the OECD for years, even to the point that the bureaucrats threatened to put me in a Mexican jail for the “crime” of standing in the public lobby of a public hotel.

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I don’t often have reason to praise the White House. But the Administration occasionally winds up fighting on the right side when dealing with the statists on the other side of the Atlantic Ocean.

I lauded the Obama Administration two years ago when the Treasury Department was fighting against a scheme from the Europeans to impose a tax on financial transactions.

And now it’s time to praise the White House again. In this case, they are fighting against a proposal by the European Union to impose an emissions tax on airliners. And even though the proposed tax is similar to the cap-and-trade scheme supported by Obama, the Administration is on the right side, as noted in this AP story.

The House voted Monday to exclude U.S. airlines from an emissions cap-and-trade program that the European Union plans to impose on all airlines flying to and from the continent beginning next year. With the legislation, which passed by voice vote, lawmakers joined the airline industry and the Obama administration in opposing the EU Emissions Trading Scheme scheduled to go into effect on Jan. 1. The bill now goes to the Senate, where there is currently no companion legislation. The measure directs the transportation secretary to prohibit U.S. carriers from participating in the program if it is unilaterally imposed. It also tells other federal agencies to take steps necessary to ensure that U.S. carriers are not penalized by the emissions control scheme. …The U.S. aviation industry says the cost between 2012 and 2020 could hit $3.1 billion. It says it is unfair that a flight from the United States, for example from Los Angeles, would have to pay for emissions for all parts of flights to Europe, including time spent over the United States and the Atlantic. “It’s a tax grab by the European Union,” Transportation Committee Chairman John Mica, R-Fla., said. “The meter starts running the minute the plane departs from any point in the U.S. until it reaches Europe.” …That drew fire from Krishna R. Urs, the U.S. deputy assistant secretary of State for transportation affairs, who repeated the U.S.’s “strong legal and policy objections to the inclusion of flights by non-EU carriers” in the EU program.

Individual nations have the right, of course, to impose tax on activities that take place inside national borders. And a group of nations, such as the European Union, has the right to impose taxes on things that take place within their combined borders.

In this case, however, the EU wants to levy the tax based on miles flown inside the United Stats and over international waters. This type of extraterritorial tax grab should be strongly resisted.

Fiscal sovereignty is a very important principle, one that is necessary to preserve tax competition and constrain the greed of the political class.

As such, even though the Obama Administration often is guilty of supporting schemes to impose bad US tax law on a worldwide basis, I’m glad they are fighting this European Union tax grab.

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Earlier this year, President Obama’s IRS proposed a regulation that would force banks in America to report any interest they pay to accounts owned by non-resident aliens (that’s the technical term for foreigners who don’t live in the U.S.).

What made this regulation so bizarre, however, is that Congress specifically has exempted these account from taxation for the rather obvious reason that they want to attract this mobile capital to the American economy. Indeed, Congress repeatedly has ratified this policy ever since it was first implemented 90 years ago.

So why, you may be asking, would the IRS propose such a regulation? After all, why impose a regulatory burden on a weakened banking sector when it has nothing to do with enforcing American tax law?

The answer, if you can believe it, is that they want American banks to help enforce foreign tax law. And the bureaucrats at the IRS want to impose this burden even though the regulation is completely contrary to existing U.S. law.

Not surprisingly, this rogue behavior by the IRS already has generated considerable opposition. Senator Rubio has been a leader on the issue, being the first to condemn the proposed regulation.

Both Senators from Texas also have announced their opposition, and the entire Florida congressional delegation came out against the IRS’s regulatory overreach.

And now we have two more important voices against the IRS’s rogue regulation.

The Chairman of the Oversight Subcommittee in charge of the IRS, Congressman Charles Boustany of Louisiana, just sent a very critical letter to Treasury Secretary Geithner, and these are some of his chief concerns.

If the regulation were to take effect, it would not only run counter to the will of the Congress, but would potentially drive foreign investments out of our economy, hurting individuals and small businesses by reducing access to capital.  I write to request that IRS suspend the proposed regulation. …As the Internal Revenue Code imposes no taxation or reporting requirements on this deposit interest, the proposed regulation serves no compelling tax collection purpose.  Instead, it is my understanding that the IRS seeks this new authority to help foreign governments collect their own taxes abroad.  …It is disappointing to see the IRS once again try to impose unnecessary regulations and costs on U.S. banks. To attract investment of foreign dollars into the U.S. economy, the Internal Revenue Code generally exempts these deposits from taxation and reporting requirements.  These foreign investments in turn help to finance a variety of products essential to economic growth, such as small business loans and home mortgages.  Imposing reporting requirements on these deposits through regulatory fiat threatens to drive significant investments out of our economy by undermining the rules Congress has set in place specifically to attract it, and at exactly the time when our economy can least afford it.

But criticism is not limited to Capitol Hill. The Center for Freedom and Prosperity has spearheaded opposition from think tanks, taxpayer organizations, and public policy groups.

And now the business community has become involved. Here’s some of what the Chamber of Commerce recently said, and you can click this PDF file (USCC S1506) to read the entire letter.

Given the fragile state of America’s economic recovery, it is disturbing to see actions by the Treasury that could jeopardize deposits at U.S. banks and credit unions held by nonresident aliens. These deposits, which are not subject to U.S. taxes, are at risk of being abruptly withdrawn and future deposits deterred, which could lead to a reallocation of deposits out of the U.S. banking system and, thus, reduce lending to businesses. Furthermore, complying with the proposed regulation places additional reporting requirements and expenses upon financial firms. Without any real benefit stemming from the collection of this information, imposition of this reporting requirement seems to be a solution in search of a problem.

This may seem like an arcane issue and international tax matters often are not terribly exciting, but a couple of minutes of watching this video will make you realize there are some very important principles at stake.

Only the IRS could manage to combine bad tax policy, bad regulatory policy, bad human rights policy, and bad sovereignty policy into one regulation.

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I’ve already confessed that I have very abnormal fantasies. And I have admitted on TV that my fantasies are rarely fulfilled.

But that doesn’t stop me from my dreams. And since I’m in a sharing mood today, here’s my latest fantasy.

You may have followed on the news that the state of Texas just executed a child rapist/murderer. This caused some consternation on the left, and not just from those who are against the death penalty (which is a very defensible position, as I have acknowledged).

Many people, including officials from the Obama Administration and the Mexican government, wanted the execution halted because on an international agreement giving governments certain rights to intervene on behalf of citizens who get in legal trouble in other nations. I’m not a lawyer, so I’m not competent to address those issues, but suffice to say that the U.S. Supreme Court was not impressed by the specific argument in this case and turned down a request to block the execution.

My fantasy, however, has nothing to do with the legal argument. I just figured it was important to provide some background information before I divulge my innermost dreams and desires.

What sparked my fantasy was this article, featuring some bureaucrat from the United Nations who is very agitated that Texas officials didn’t acquiesce to “international law.” Here are the important passages.

The United States broke international law when it executed a Mexican citizen, the United Nations’ top human rights official said Friday. The Texas execution of Humberto Leal “raises particular legal concerns,” including whether he had access to consular services and a fair trial, said U.N. High Commissioner for Human Rights Navi Pillay. …Texas Gov. Rick Perry also declined to block the execution. Texas, the nation’s most active death penalty state, has executed other condemned foreign nationals who raised similar challenges, most recently in 2008. “Texas is not bound by a foreign court’s ruling. The U.S. Supreme Court ruled in 2008 that the treaty was not binding on the states and that the president does not have the authority to order states to review cases of the then 51 foreign nationals on death row in the U.S,” said Katherine Cesinger, a spokeswoman for Perry. But what Texas did also “places the U.S. in breach of international law,” said Pillay, who visited Mexico this week. “What the state of Texas has done in this case is imputable in law to the U.S. and engages the United States’ international responsibility.” …Pillay also cited a 2004 International Court of Justice ruling saying the U.S. must review and reconsider the cases of 51 Mexican nationals — including Leal — who were sentenced to death. She said those reviews never happened. She said the execution undermined “the role of the International Court of Justice, and its ramifications are likely to spread far beyond Texas.”

Because of my disdain for international bureaucracies and my belief in sovereignty, you won’t be too surprised to learn that Ms. Pillay’s comments rubbed me the wrong way.

So I started thinking about the good people of Texas and how they would react if some pampered, overpaid U.N. bureaucrat started hectoring them about their supposed failure to kowtow to “international law.” And then the fantasy began…

I envisioned a press conference, featuring Texas Governor Rick Perry. He’s answering an important question from the Amarillo Globe-News about the state trap shooting competition, when he is interrupted by a sunken-chested dweeb from the New York Times, who shouts out, “Governor, how do you respond to Ms. Pillay, the U.N. official who says you broke international law by executing the poor, misunderstood child rapist/murderer?”

In this fantasy, the Governor’s expression darkens (sort of akin to the look Clint Eastwood would get in the Dirty Harry movies). He gives the reporter a withering stare, ponders whether to even answer, and then gives an answer that earns Dan Mitchell’s heartfelt admiration.

Boy, why don’t you tell Ms. Pillay to round up a bunch of those blue-helmeted pansies and try to come arrest me. If they can make it past the JV football team from Permian High School, she can have me.

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I’ve been battling the Organization for Economic Cooperation for years, ever since the Paris-based bureaucracy unveiled its “harmful tax competition” project in the late 1990s. Controlled by Europe’s high-tax welfare states, the OECD wants to prop up the fiscal systems of nations such as Greece and France by hindering the flow of jobs and capital to low-tax jurisdictions.

Guided by a radical theory known as Capital Export Neutrality, the OECD wants to impose global tax rules that would prevent taxpayers from ever having the ability to benefit from better tax law in other jurisdictions. This is why, for instance, the international bureaucrats are anxious to undermine national tax laws – such as America’s favorable treatment of bank deposits from overseas – that enable foreigners to escape onerous tax regimes.

Bolstered by support from the Obama Administration, the OECD now is taking its campaign to the next level. At its Global Tax Forum in Bermuda, which ends later today, the bureaucrats unveiled a new scheme that effectively would result in the creation of something akin to a World Tax Organization.

The vehicle for this effort is a Multilateral Convention on Mutual Administrative Assistance in Tax Matters. This may sound dry and technical, but the OECD wants all nations to participate in this pact, which has existed for a couple of decades but was radically expanded last year to give high-tax governments sweeping new powers to impose bad tax law on income generated in low-tax jurisdictions.

But the real smoking gun is that the OECD has put itself in charge of a “co-ordinating body” that will have enormous powers to interpret the agreement, modify the pact, and resolve disputes – thus giving itself the ability to serve as judge, jury, and executioner.

This is a profoundly dangerous development with all sorts of very troubling implications. Since I’m in Bermuda trying to destabilize this effort, I don’t have time for extensive analysis, but here’s a press release from the Center for Freedom and Prosperity and here are some of my immediate concerns.

    1. Higher tax burdens. If high-tax governments succeed is imposing this Multilateral Convention (insert “World Tax Organization” whenever you see that term), tax competition will be undermined and politicians will respond by increasing tax burdens. This is why nations such as France have been pushing this scheme, of course, and why left-wing academics have long dreamed of this type of arrangement.

    2. Risk to human rights. Amazingly, the Multilateral Convention is open to repressive regimes, which then would have access to all sorts of sensitive and confidential taxpayer information. Already, the thuggish dictatorship of Azerbaijan has signed up, as well as the unstable nation of Moldova and the corrupt government of Mexico. The implications are grim, including the sale of private data to criminal gangs, the loss of sensitive information to hackers, and the direct misuse of American tax returns.

    3. Loss of sovereignty. For all intents and purposes, the Multilateral Convention outlaws certain pro-growth tax policies and discourages others. Equally worrisome, it creates a system allowing foreign tax collectors to cross borders. The Obama Administration has specifically acquiesced to this provision, so perhaps we will soon see corrupt Mexican tax authorities harassing businesses and individuals on American soil.

    4. Outlawing tax avoidance. The OECD historically has tried to portray its efforts as a fight against tax evasion, but the Multilateral Convention explicitly talks about “combating tax avoidance.” This should not be a surprise since the Capital Export Neutrality ideology is based on the notion that taxpayers should have zero ability to lower their tax burdens. This means we can fully expect an assault on all forms of tax planning, with American companies almost sure to be among the first to be in the OECD’s crosshairs.

The final insult to injury is that American taxpayers are the biggest funders of the OECD, providing nearly one-fourth of the bureaucracy’s bloated budget. So our tax dollars are being used by OECD bureaucrats (who receive tax-free salaries!) to dream up new ways of increasing our tax burdens. In case you need any additional reasons to despise this bureaucracy, here’s a video detailing its anti-free market activities.

And since I’m recycling some videos, here’s one explaining why tax competition is so important.

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One of the biggest threats against global prosperity is the anti-tax competition project of a Paris-based international bureaucracy known as the Organization for Economic Cooperation and Development. The OECD, acting at the behest of the European welfare states that dominate its membership, wants the power to tell nations (including the United States!) what is acceptable tax policy.

I’ve previously explained why the OECD is a problematic institution – especially since American taxpayers are forced to squander about $100 million per year to support the parasitic bureaucracy.

For all intents and purposes, high-tax nations want to create a global tax cartel, sort of an “OPEC for politicians.” This issue is increasingly important since politicians from those countries realize that all their overspending has created a fiscal crisis and they are desperate to figure out new ways of imposing higher tax rates. I don’t exaggerate when I say that stopping this sinister scheme is absolutely necessary for the future of liberty.

Along with Brian Garst of the Center for Freedom and Prosperity, I just wrote a paper about these issues. The timing is especially important because of an upcoming “Global Forum” where the OECD will try to advance its mission to prop up uncompetitive welfare states. Here’s the executive summary, but I encourage you to peruse the entire paper for lots of additional important info.

The Paris-based Organization for Economic Cooperation and Development has an ongoing anti-tax competition project. This effort is designed to prop up inefficient welfare states in the industrialized world, thus enabling those governments to impose heavier tax burdens without having to fear that labor and capital will migrate to jurisdictions with better tax law. This project received a boost a few years ago when the Obama Administration joined forces with countries such as France and Germany, which resulted in all low-tax jurisdictions agreeing to erode their human rights policies regarding financial privacy. The tide is now turning against high-tax nations – particularly as more people understand that ever-increasing fiscal burdens inevitably lead to Greek-style fiscal collapse. Political changes in the United States further complicate the OECD’s ability to impose bad policy. Because of these developments, low-tax jurisdictions should be especially resistant to new anti-tax competition initiatives at the Bermuda Global Forum.

To understand why this issue is so important, here’s a video I narrated for the Center for Freedom and Prosperity.

And here’s a shorter video on the same subject, narrated by Natasha Montague from Americans for Tax Reform.

Last but not least, here’s a video where I explain why the OECD is a big waste of money for American taxpayers.

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Regular readers know that I’m a big fan of tax competition because politicians are less likely to misbehave if the potential victims of plunder have the ability to escape across borders.

Here is an excerpt from a superb article by Allister Heath, one of the U.K.’s best writers on economic and business issues.

In a modern, global and open world, states have to compete for people. Weirdly, that is something that a large number of commentators have failed to recognise… They assume implicitly that governments remain quasi-monopolies, as was the case throughout most of human history, with citizens mere subjects forced to put up with poor public services, high taxes, crime, misgovernment and a poor quality of life. Yet the reality is that there is now more competition than ever between governments for human capital, with people – especially the highly skilled and the successful – more footloose and mobile than ever before. This is true both within the EU, where freedom of movement reins, and globally. …competition between governments is as good for individuals as competition between firms is for consumers. It keeps down tax rates, especially on labour and capital, which is good for growth and job creation; states need to produce better services at the cheapest possible cost. And if governments become too irritating or incompetent, it allows an exit strategy. It is strange how pundits who claim to want greater competition in the domestic economy – for example, in banking – are so afraid of competition for people between states, decrying it as a race to the bottom. Yet monopolies are always bad, in every sphere of human endeavour, breeding complacency, curtailing innovation and throttling progress. …Globalisation is not just about buying cheap Chinese goods: it also limits the state’s powers to over-tax or over-control its citizens.

For those who haven’t seen them before, here are a couple of my videos that elaborate on these critical issues.

First, here’s a video on tax competition, which includes some well-deserved criticism of international bureaucracies and high-tax nations that are seeking to create global tax cartels.

Here’s a video that makes a powerful economic case for tax havens.

But this is not just an economic issue. Here’s a video that addresses the moral issues and explains why tax havens play a critical role in protecting people subject to persecution by venal governments – as well as people living in nations plagued by crime and instability.

And last but not least, this video punctures some of the myths promoted by the anti-tax haven advocates of global tax cartels.

By the way, since the main purpose of this post is to draw your attention to the superb analysis of a British writer, I may as well close by drawing your attention to a couple of speeches by Dan Hannan, a British member of the European Parliament. In a remarkably limited time, he explains what this battle is all about.

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I’m not a foreign policy expert, so perhaps I’m missing something, but a quick glance at the Constitution reveals that Congress has the power to declare war, as specified in Article I, Section VIII. Nobody else has that power, not even the President.

Notwithstanding this clear language, the United States may (or may not, depending on Obama’s mood) participate in military action against Libya merely because of a resolution at the United Nations.

This is rather troubling in the short run because it risks another messy entanglement in the Middle East – and it blatantly disregards the procedure created by our Founding Fathers for making such choices.

But it is equally troubling in the long run because it implicitly restricts the ability of the United States to unilaterally act if there is a time when America’s national security is genuinely threatened.

If we attack Libya because of a resolution from the U.N. Security Council, does that mean we can’t attack some terrorist stronghold in the future if we don’t get a resolution from the U.N.? Don’t kid yourself, the international bureaucrats and their multilateralist sympathizers all around the world think the answer to that question is yes, and they are delighted that the United States is acting in ways that strengthen their position.

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There’s a supposed expose in the U.K.-based Daily Mail about how major British companies have subsidiaries in low-tax jurisdictions. It even includes this table with the ostensibly shocking numbers.

This is quite akin to the propaganda issued by American statists. Here’s a table from a report issued by a left-wing group that calls itself “Business and Investors Against Tax Haven Abuse.”

At the risk of being impolite, I’ll ask the appropriate rhetorical question: What do these tables mean?

Are the leftists upset that multinational companies exist? If so, there’s really no point in having a discussion.

Are they angry that these firms are legally trying to minimize tax? If so, they must not understand that management has a fiduciary obligation to maximize after-tax returns for shareholders.

Are they implying that these businesses are cheating on their tax returns? If so, they clearly do not understand the difference between tax avoidance and tax evasion.

Are they agitating for governments to impose worldwide taxation so that companies are double-taxed on any income earned (and already subject to tax) in other jurisdictions? If so, they should forthrightly admit this is their goal, notwithstanding the destructive, anti-competitive impact of such a policy.

Or, perhaps, could it be the case that leftists on both sides of the Atlantic don’t like tax competition? But rather than openly argue for tax harmonization and other policies that would lead to higher taxes and a loss of fiscal sovereignty, they think they will have more luck expanding the power of government by employing demagoguery against the big, bad, multinational companies and small, low-tax jurisdictions.

To give these statists credit, they are being smart. Tax competition almost certainly is the biggest impediment that now exists to restrain big government. Greedy politicians understand that high taxes may simply lead the geese with the golden eggs to fly across the border. Indeed, competition between governments is surely the main reason that tax rates have dropped so dramatically in the past 30 years. This video explains.

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Regular readers know that I am a tireless advocate for tax competition, which exists when governments are encouraged to adopt better tax policy in order to attract/retain jobs and investment. In other words, I want governments to compete with each other because that leads to better policy, just as we get better results as consumers when banks, pet stores, hairdressers, and grocery stores compete with each other.

There is powerful evidence that tax competition has generated very good results in the past 30 years. Top personal income tax rates averaged more than 67 percent back in 1980, but thanks in large part to tax competition, the average top tax rate on individuals has fallen to about 41 percent. Corporate tax rates also have dropped dramatically, from an average of around 48 percent (this data is not as easy to pin down) in 1980 to 25 percent today. And we now have more than 30 flat tax nations today, compared to just 3 in 1980.

That’s the good news. The bad news is that greedy politicians don’t like being constrained by tax competition. Politicians didn’t lower tax rates because they wanted to. They only made their tax systems better because they were afraid that jobs and investment would escape to lower-tax jurisdictions. They resent the fact that tax competition makes it hard to engage in class-warfare tax policy.

That’s why many of these politicians are seeking to replace tax competition with some sort of tax cartel. They want to impose rules on the entire world that will make it hard for taxpayers to benefit from better tax policy in another jurisdiction. In effect, they want some form of tax harmonization, which would create an “OPEC for politicians.” And just as the real OPEC extracts more money from energy consumers, a tax cartel would grab more money from taxpayers.

One aspect of this battle is the way proponents of higher taxes try to demonize so-called tax havens. Many of these jurisdictions are very small, but the smart ones nonetheless defend themselves against the attacks coming from the world’s major welfare states. Here’s a good example. Tony Travers of Cayman Finance, the association representing the financial services industry in the Cayman Islands, recently spoke about the left’s campaign against low-tax jurisdictions.

Travers said he believed the widespread negativity was part of well organised and powerful public relations campaigns driven by onshore Treasury, and supranational and domestic regulatory bodies. British politicians such as Emma Reynolds and former Prime Minister Gordon Brown and even US President Barack Obama were, he said, examples of politicians that were “blame deflecting … and anxious to obfuscate the failures of their domestic regulatory systems … by suggesting that in some way it is the tax or regulatory system of the offshore financial centre that is at fault.” He claimed the problems they were trying to conceal by their demonisation of offshore centres had their source onshore. He described various socialist activist movements, such as the trade unions, major charities such as Oxfam, and Travers arch nemesis, Richard Murphy of the Tax Justice Network as the “Tax Taliban” .

This fight is occurring at all levels. A new scholarly study from the Instituto Bruno Leoni in Italy digs into the academic debate about tax competition. Written by Dalibor Rohác of London’s Legatum Institute, the report debunks the argument that tax competition somehow is economically inefficient.

The first common argument is that tax competition distorts the allocation of mobile factors of production across countries. The second argument recurrent in the literature says that tax competition can reduce tax revenue and endanger the stability of public finances. The troublesome feature of both of these arguments is that they start from the assumption of government benevolence and omniscience. For instance, the first argument presupposes that the initial allocation of capital between the two countries was optimal and that tax competition is driving it away from the optimum. Likewise, the second argument implicitly assumes that the initial amount raised in taxes corresponded to some well-defined social optimum and therefore that tax competition drives revenue below that optimal level. Hence neither of these arguments holds in the light of basic public choice theory which convincingly demonstrates that governments do have a tendency to overspend and overtax.

Rohác cleverly exposes the other side’s statist agenda. He explains that their main argument is based on the idea that different tax rates in different nations will lead to an inefficient allocation of investment. He then points out that there is a pro-growth way and an anti-growth way of dealing with this supposed problem.

…if the problem of capital misallocation is caused by differences in tax rates among countries, than introducing a maximal rate is a solution that would be equally appropriate. …tax competition might well offer a solution to the alleged problem of misallocation of capital caused by tax differentials. If tax competition was a “race to the bottom,” then the final outcome would actually be a tax rate harmonized across countries and harmonized at a rate of zero per cent, thus eliminating capital tax distortions altogether.

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I’m in Singapore for two days to help fight the Organization for Economic Cooperation and Development, a statist international bureaucracy based in Paris. The OECD has something called a global tax forum, the purpose of which is to harass so-called tax haven in hopes of coercing them into acting as tax collectors for Europe’s decrepit welfare states. Here’s the executive summary from the memo I wrote, which warns low-tax jurisdictions that the OECD may push even harder to undermine fiscal sovereignty because of fears that a GOP takeover of Congress will make it more difficult to push for tax harmonization policies in the future.

The Paris-based Organization for Economic Cooperation and Development has an ongoing project to prop up Europe’s inefficient welfare states by attacking tax competition in hopes of enabling governments to impose heavier tax burdens. This project received a boost when the Obama Administration joined forces with countries such as France and Germany, but the tide is now turning against high-tax nations – particularly as more people understand that such an approach inevitably leads to Greek-style fiscal collapse. Looming political changes in the United States will further complicate the OECD’s ability to impose bad policy. Because of these developments, low-tax jurisdictions should be especially wary of schemes to rush through new anti-tax competition initiatives at the Singapore Global Forum.

The good news is that nothing dramatic took place on the first day of the two-day conference. the OECD continued to bully low-tax jurisdictions to sign information-sharing agreements and the low-tax jurisdictions kept asking for double-taxation agreements so they could get some benefit in exchange for weakening their human rights/financial privacy laws. The OECD and high-tax nations have been ignoring these requests for a two-way street, thus continuing their bad-faith behavior.

For more information on this issue, here’s a link to my video on tax competition, and here are a handful of TV appearances where I discuss the issue. This is a challenging issue to debate, so I’d welcome feedback on which arguments you think are most effective.

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I wish the title of this blog post referred to the President of the United States, but instead our praise is directed across the Atlantic, to the President of the Czech Republic, who wisely has warned against giving “global governance” powers to the international bureaucrats at the United Nations. President Vaclav Klaus is a great man, who has battled against immense odds to preserve national sovereignty, resisting statist initiatives such as the new EU Constitution (aka, the Lisbon Treaty) and global warming schemes. Klaus understands that international bureaucracies are staffed by leftist ideologues who reflexively distrust markets. Equally important, he recognizes that governments will use “global governance” as a scheme to create tax and regulatory cartels that inevitably expand the burden of government and reduce competition among nations. Here’s a Reuters report on the strong speech Klaus gave to the kleptocrats at the United Nations.

Czech President Vaclav Klaus on Saturday criticized U.N. calls for increased “global governance” of the world’s economy, saying the world body should leave that role to national governments. The solution to dealing with the global economic crisis, Klaus told the U.N. General Assembly, did not lie in “creating new governmental and supranational agencies, or in aiming at global governance of the world economy.” “On the contrary, this is the time for international organizations, including the United Nations, to reduce their expenditures, make their administrations thinner, and leave the solutions to the governments of member states,” he said. …Klaus, a free-market economist who oversaw a wave of privatization in the 1990s after communism collapsed in his homeland, also said the world was “moving in the wrong direction” in combating the economic crisis. “The anti-crisis measures that have been proposed and already partly implemented follow from the assumption that the crisis was a failure of markets and that the right way out is more regulation of markets,” he said. Klaus said that was a “mistaken assumption” and it was impossible to prevent future crises through regulatory interventions and similar actions by governments. That will only “destroy the markets and together with them the chances for economic growth and prosperity in both developed and developing countries,” he said.

A couple of years ago, I had the honor of introducing Klaus at a conference in France. Very rarely do I meet a politician that exudes philosophical integrity. Klaus was one of those unusual cases. And if you want to know why it is important to preserve jurisdictional competition, here is a video on the specific issue of tax competition. This is rather timely since I leave tomorrow for Singapore, where I will be doing everything I can to undermine the pampered bureaucrats at the OECD and their sinister plans to create a global tax cartel to prop up Europe’s inefficient welfare states.

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