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Posts Tagged ‘Tax evasion’

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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In a recent interview with the BBC, I basically accused UK Prime Minister David Cameron of being a feckless and clueless demagogue who is engaged in a desperate effort to resuscitate his political future.

Two peas in a pod

I shouldn’t have been so kind. Cameron manages to combine bad policy and bad morality in a way that is embarrassing even for a politician.

Writing for the Daily Telegraph, Janet Daley eviscerates Cameron’s puerile approach to fiscal policy, beginning with some mockery of his class-warfare approach to tax enforcement.

David Cameron said something last week that was the precise opposite of the truth…the Prime Minister said was: “If you want a low-tax economy, you have to collect the taxes that are owed.” When what he should have said, of course, was: “If you want to collect the taxes that are owed, you have to have a low-tax economy.” Mr Cameron’s statement was one of the more subtle threats contained in the declaration by the G8 – which was pretty much all they could agree on – that they are now the rightful owners of all the wealth produced by anyone except for certain exemptions that they will, subject to minimal notice, decide upon. His remark, presumably designed to provide moral justification for the unprecedented levels of shared surveillance and breaches of data protection that governments are preparing to launch, actually stood on its head the truth about effective tax collection. Which is that the lower rates of taxation are, the less likely it is that payment of them will be avoided or evaded.

She also makes some very astute points about other issues, including the Laffer Curve.

The introduction of the 50p rate of income tax caused two-thirds of those earning a million pounds per year simply to disappear from the reach of HM Revenue & Customs. Whereas under the previous highest tax level of 40p, 16,000 people were prepared to declare earnings of one million pounds, that number shrank to only 6,000 after Gordon Brown, bless him, raised it to 50p. Result: the Treasury lost £7 billion in revenue.

Ms. Daley also comments on tax compliance and the risks of letting governments destroy financial privacy as part of their efforts to undermine tax competition.

If people regard levels of tax as fair (in the true sense of the word, not the Left-wing sense, which actually means “vindictive”), they will not go to expensive and dangerous lengths to escape from paying. The more punitive and discouraging of wealth-creation taxes are, the more they are avoided by stealth or geographical relocation – or by the even more economically disastrous measure of people being disinclined to increase their own productivity. Ah yes, but isn’t this the problem that those heads of government are determined to address? Rather than lowering taxes to levels that those who are taxed find acceptable, they will simply close off all the avenues of escape. There is to be no more possibility, by international agreement (which is to say, the coercion of smaller, less rich countries), of geographical movement for tax advantage.

She closes by opining on why this is really a debate about the burden of government spending and whether taxpayers exist to feed the spending appetites of politicians.

If you eliminate tax competition – if you create a uniform, universally policed tax standard – it is the poorer countries that suffer because they are deprived of the capacity to attract foreign capital. …What is at the heart of all this is the growth of governments: the treasuries of the world are becoming needier and greedier. …Underlying almost all political debate on this matter now is the unspoken assumption that privately owned wealth is inherently evil, and that its only moral justification is to provide revenue that governments can redistribute. …let me remind you of what you may actually believe, shocking as it may sound in the context of prevailing public discourse. Are you ready? It is not the primary function of business to provide funds for politicians to spend.

Amen. The statists and collectivists that dominate the political elite treat us like a herd of cattle to be milked and slaughtered.

We need tax havens in order to impose at least a tiny bit of restraint on the greed of the political class. These low-tax jurisdictions aren’t a sufficient condition to save us from statism, but they sure as heck are a necessary condition.

P.S. Who moved farther in the wrong direction, U.S. Republicans who went from Reagan to Bush or U.K. Tories who went from Thatcher to Cameron?

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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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I could only use 428 words, but I highlighted the main arguments for tax havens and tax competition in a “Room for Debate” piece for the New York Times.

NYT Tax Haven Room for DebateI hope that my contribution is a good addition to the powerful analysis of experts such as Allister Heath and Pierre Bessard.

I started with the economic argument.

…tax havens are very valuable because they discourage anti-growth tax policy. Simply stated, it is very difficult for governments to impose and enforce confiscatory tax rates when investors and entrepreneurs can shift their economic activity to jurisdictions with better tax policy. Particularly if those nations have strong policies on financial privacy, thus making it difficult for uncompetitive high-tax nations to track and tax flight capital. Thanks to this process of tax competition, with havens playing a key role, top personal income tax rates have dropped from an average of more than 67 percent in 1980 to about 42 percent today. Corporate tax rates also have plummeted, falling from an average of 48 percent to 24 percent. …Lawmakers also were pressured to lower or eliminate death taxes and wealth taxes, as well as to reduce the double taxation of interest, dividends and capital gains. Once again, tax havens deserve much of the credit because politicians presumably would not have implemented these pro-growth reforms if they didn’t have to worry that the geese with the golden eggs might fly away to a confidential account in a well-run nation like Luxembourg or Singapore.

Since I didn’t have much space, here’s a video that elaborates on the economic benefits of tax havens, including an explanation of why fiscal sovereignty is a big part of the debate.

My favorite part of the video is when I quote OECD economists admitting the beneficial impact of tax havens.

I also explain for readers of the New York Times that there’s a critical ethical reason to defend low-tax jurisdictions.

Tax havens also play a very valuable moral role by providing high-quality rule of law in an uncertain world, offering a financial refuge for people who live in nations where governments are incompetent and corrupt. …There are also billions of people living in nations with venal and oppressive governments. 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.

To elaborate, here’s my video making the moral case for tax havens.

By the way, many of the issues in this video may not resonate for those of us in “first world” nations, but please remember that the majority of people in the world live in countries where basic human rights are at risk or simply don’t exist.

But that doesn’t mean we shouldn’t worry about the stability of our nations. I close my contribution to the New York Times by warning that the welfare state may collapse.

With more and more nations careening toward fiscal collapse, raising the risk of social chaos and economic calamity, it is more important than ever that there are places where people can protect themselves from bad government. Tax havens should be celebrated, not persecuted.

I didn’t have space to cite the BIS and OECD data showing that most of the world’s big nations – including Germany, the United States, and the United Kingdom – face fiscal problems more significant that Greece is dealing with today. Assuming these nations don’t implement desperately needed entitlement reform, the you-know-what is going to hit the fan at some point. Folks with funds in a tax haven will be in much better shape if, or when, that happens.

For more background information on tax competition, here’s a video explaining the ABCs of the issue.

It’s galling, by the way, that the bureaucrats at the OECD pushing for a global tax cartel get tax-free salaries.

And here’s my video debunking some of the common myths about tax havens.

My favorite part of this video is the revelation that a former John Kerry staffer fabricated a number that is still being used by anti-tax haven demagogues.

And speaking of demagogues misusing numbers, you’ll notice the current resident of 1600 Pennsylvania Avenue has a starring role in this video.

I’ve probably exhausted your interest in videos, but if you’re game for one more, click here to learn more about the Paris-based Organization for Economic Cooperation and Development, a statist international bureaucracy that is active in trying to undermine tax havens as part of it’s efforts to create a global tax cartel to prop up Europe’s welfare states.

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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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I’ve been very critical of the Organization for Economic Cooperation and Development. Most recently, I criticized the Paris-based bureaucracy for making the rather remarkable assertion that a value-added tax would boost growth and employment.

But that’s just the tip of the iceberg.

Now the bureaucrats have concocted another scheme to increase the size and scape of government. The OECD just published a study on “Addressing Base Erosion and Profit Shifting” that seemingly is designed to lay the groundwork for a radical rewrite of business taxation.

In a new Tax & Budget Bulletin for Cato, I outline some of my concerns with this new “BEPS” initiative.

…the BEPS report…calls for dramatic changes in corporate tax policy based on the presumption that governments are not seizing enough revenue from multinational companies. The OECD essentially argues that it is illegitimate for businesses to shift economic activity to jurisdictions that have more favorable tax laws. …The core accusation in the OECD report is that firms systematically—but legally—reduce their tax burdens by taking advantage of differences in national tax policies.

Ironically, the OECD admits in the report that revenues have been trending upwards.

…the report acknowledges that “… revenues from corporate income taxes as a share of gross domestic product have increased over time. …Other than offering anecdotes, the OECD provides no evidence that a revenue problem exists. In this sense, the BEPS report is very similar to the OECD’s 1998 “Harmful Tax Competition” report, which asserted that so-called tax havens were causing damage but did not offer any hard evidence of any actual damage.

To elaborate, the BEPS scheme should be considered Part II of the OECD’s anti-tax competition project. Part I was the attack on so-called tax havens, which began back in the mid- to late-1990s.

The OECD justified that campaign by asserting there was a need to fight illegal tax evasion (conveniently overlooking, of course, the fact that nations should not have the right to impose their laws on what happens in other countries).

The BEPS initiative is remarkable because it is going after legal tax avoidance. Even though governments already have carte blanche to change business tax policy.

…governments already have immense powers to restrict corporate tax planning through “transfer pricing” rules and other regulations. Moreover, there is barely any mention of the huge number of tax treaties between nations that further regulate multinational taxation.

So what does the OECD want?

…the OECD hints at its intended outcome when it says that the effort “will require some ‘out of the box’ thinking” and that business activity could be “identified through elements such as sales, workforce, payroll, and fixed assets.” That language suggests that the OECD intends to push global formula apportionment, which means that governments would have the power to reallocate corporate income regardless of where it is actually earned.

And what does this mean? Nothing good, unless you think governments should have more money and investment should be further penalized.

Formula apportionment is attractive to governments that have punitive tax regimes, and it would be a blow to nations with more sensible low-tax systems. …business income currently earned in tax-friendly countries, such as Ireland and the Netherlands, would be reclassified as French-source income or German-source income based on arbitrary calculations of company sales and other factors. …nations with high tax rates would likely gain revenue, while jurisdictions with pro-growth systems would be losers, including Ireland, Hong Kong, Switzerland, Estonia, Luxembourg, Singapore, and the Netherlands.

Since the United States is a high-tax nation for corporations, why should Americans care?

For several reasons, including the fact that it wouldn’t be a good idea to give politicians more revenue that will be used to increase the burden of government spending.

But most important, tax policy will get worse everywhere if tax competition is undermined.

…formula apportionment would be worse than a zero-sum game because it would create a web of regulations that would undermine tax competition and become increasingly onerous over time. Consider that tax competition has spurred OECD governments to cut their corporate tax rates from an average of 48 percent in the early 1980s to 24 percent today. If a formula apportionment system had been in place, the world would have been left with much higher tax rates, and thus less investment and economic growth. …If governments gain the power to define global taxable income, they will have incentives to rig the rules to unfairly gain more revenue. For example, governments could move toward less favorable, anti-investment depreciation schedules, which would harm global growth.

You don’t have to believe me that the BEPS project is designed to further increase the tax burden. The OECD admits that higher taxes are the intended outcome.

The OECD complains that “… governments are often under pressure to offer a competitive tax environment,” and that “failure to collaborate … could be damaging in terms of … a race to the bottom with respect to corporate income taxes.” In other words, the OECD is admitting that the BEPS project seeks higher tax burdens and the curtailment of tax competition.

Writing for Forbes, Andy Quinlan of the Center for Freedom and Prosperity highlights how the BEPS scheme will undermine tax competition and enable higher taxes.

…the OECD wants to undo taxpayer gains made in recent decades thanks to tax competition. Since the 1980′s, average global income taxes on both individuals and corporations have dropped significantly, improving incentives in the productive sector of the economy to generate economic growth. These pro-growth reforms are the result of tax competition, or the pressure to adopt competitive economic policies that is put on governments by an increasingly globalized society where both labor and capital are mobile. Tax competition is the only force working on the side of taxpayers, which explains the organized campaign by global elite to defeat it. …If taxpayers want to preserve gains made thanks to tax competition, they must be weary of the threat posed by global tax cartels though organizations such as the OECD.

Speaking of the OECD, this video tells you everything you need to know.

The final kicker is that the bureaucrats at the OECD get tax-free salaries, so they’re insulated from the negative impact of the bad policies they want to impose on everyone else.

That’s even more outrageous than the fact that the OECD tried to have me thrown in a Mexican jail for the supposed crime of standing in the public lobby of a public hotel.

Anguilla 2013P.S. I just gave a speech to the Anguilla branch of the Society for Trust and Estate Professionals, and much of my remarks focused on the dangers of the BEPS scheme.

I took this picture from my balcony. As you can see, there are some fringe benefits to being a policy wonk.

And I travel to Nevis on Sunday to give another speech.

Tough work, but somebody has to do it. Needless to say, withe possibility of late-season snow forecast for Monday in the DC area, I’m utterly bereft I won’t be there to enjoy the experience.

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Cigarette butt, to be more specific.

All over the world, governments impose draconian taxes on tobacco, and then they wind up surprised that projected revenues don’t materialize. We’ve seen this in Bulgaria and Romania, and we’ve seen this Laffer Curve effect in Washington, DC, and Michigan.

Even the Government Accountability Office has found big Laffer Curve effects from tobacco taxation.

And now we’re seeing the same result in Ireland.

Here are some details from an Irish newspaper.

…new Department of Finance figures showing that tobacco excise tax receipts are falling dramatically short of targets, even though taxes have increased and the number of people smoking has remained constant…the latest upsurge in smuggling…is costing the state hundreds of millions in lost revenue. Criminal gangs are openly selling smuggled cigarettes on the streets of central Dublin and other cities, door to door and at fairs and markets. Counterfeit cigarettes can be brought to the Irish market at a cost of just 20 cents a pack and sold on the black market at €4.50. The average selling price of legitimate cigarettes is €9.20 a pack. …Ireland has the most expensive cigarettes in the European Union, meaning that smugglers can make big profits by offering them at cheaper prices.

I have to laugh at the part of the article that says, “receipts are falling dramatically short of targets, even though taxes have increased.”

This is what’s called the Fox Butterfield effect, when a leftist expresses puzzlement about something that’s actually common sense. Named after a former New York Times reporter, Irish Tax Kisswho was baffled that more people were in prison at the same time that crime rates were falling, it also shows up in tax policy when statists are surprised that tax revenues don’t automatically rise when tax rates become oppressive.

Ireland, by the way, should know better. About the only good policy left in the Emerald Isle is the low corporate tax rate. And as you can see in this video, that policy has yielded very good results.

My favorite example from that video, needless to say, is what happened during the Reagan years, when the rich paid much more to the IRS after their tax rates were slashed.

P.S. You won’t be surprised to learn that a branch of the United Nations is pushing for global taxation of tobacco. To paraphrase Douglas McArthur, “Bad ideas never die, they become global.”

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More than two years ago, while writing about the Laffer Curve, I described the “Butterfield Effect.”

A former reporter for the New York Times, Fox Butterfield, became a bit of a laughingstock in the 1990s for publishing a series of articles addressing the supposed quandary of how crime rates could be falling during periods when prison populations were expanding. A number of critics sarcastically explained that crimes rates were falling because bad guys were behind bars and invented the term “Butterfield Effect” to describe the failure of leftists to put 2 + 2 together.

Last year, I was amused to see a New York Times columnist complain that Republicans were being stubborn in their opposition to tax hikes, but she inadvertently provided evidence against her own position.

She obviously wants readers to conclude that bad, mean, wicked Republicans are being too dogmatic because they won’t agree to big tax hikes. But the chart she prepared tells a completely different story. The only budget agreement that actually produced a balanced budget was the 1997 deal, and that deal contained tax cuts rather than tax increases!

I’m thinking this habit of accidentally helping the other side should be called the “Own-Goal Effect,” even though I generally don’t like anything associated with soccer (with one very important exception).

Given the track record of the New York Times in these matters, you won’t be surprised that the self-styled newspaper of record just published a story that combines the Butterfield Effect and the Own-Goal Effect.

Here are a couple of sentences from the recent NYT story, noting that taxpayers in many parts of the world face a tsunami of tax increases.

Taxes on earnings, investment income, sales and a few other things have gone up already in many countries, and further increases are possible, including a huge one in the United States. …“Quite a few countries are trying to increase tax revenue,” said Kevin Cornelius, a partner in Geneva for the Human Capital Practice at Ernst & Young. “The question is who’s raising taxes the slowest. I can’t remember as much tax legislation going through as we’ve seen in the last 24 months.”

Nothing remarkable in that excerpt. My blog is filled with stories about greedy governments seeking to extract more revenue from the economy’s productive sector.

New York Times Tax Competition HeadlineBut notice the headline that the NYT assigned to the article. Channeling the wisdom of Fox Butterfield, it fails to make an obvious causal link. As I have repeatedly noted in my writings about tax competition and tax havens, taxpayers need places to hide their money in order to curtail the ability and incentive of politicians to impose higher tax rates.

Heck, don’t believe me. Greg Mankiw has written the same thing.

In other words, the headline actually should read: “Taxes Trend Higher Worldwide Because there are Few Places to Hide.”

The article includes some discussion of how politicians are trying to shut down escape routes.

A rise in rates is not the only unpleasant matter that taxpayers must contend with. Tax lawyers, accountants and bankers highlight a global game of gotcha being played by revenue authorities. Taxpayers are being asked to provide more detailed information about financial accounts. Americans living or doing business abroad are conspicuous targets in this effort, and on the off chance that they will be less than forthcoming, the Internal Revenue Service is asking foreign financial institutions and tax agencies to join the cause. Elsewhere, vehicles that individuals and families use to shelter income and assets from tax, like trusts, corporations and foundations, are being examined more closely and critically. In certain cases, laws are amended to neutralize the effectiveness of tax-avoidance methods soon after they are devised. Also, foreign visitors’ claims of nonresidence for tax purposes are being treated more skeptically. “We’ve seen a huge amount of tax scrutiny,” said Mr. Cornelius at Ernst & Young. “Authorities are more aggressive in pursuing individuals. There’s more sharing of information across borders. That’s going to continue.”

What a depressing excerpt. And it doesn’t even touch on some of the worst ideas being advanced by the political elite, such as a potential international tax organization. Governments clearly are doing everything they can to pave the way for higher tax rates and a bigger burden of government spending.

To be fair to the author, I don’t detect ideological bias in the story. He inadvertently provides evidence confirming that tax competition is needed to restrain greedy politicians, so he scores a goal against the statists. But, unlike our President and some others who are even more radical, I don’t think he was trying to advance the left-wing narrative that tax competition is bad and that tax havens are evil.

So perhaps he’s only guilty of the “Butterfield Effect” and not the “Own-Goal Effect.”

But he does work at the New York Times, which is tediously left wing (see here, here, here, here, here, here, and here), so we’ll give the newspaper an award for the “Own-Goal Effect.”

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If there was a prize for fighting back against tax authorities, the Italians would probably deserve first place. I’m not aware of any other country where tax offices get firebombed. The Italians also believe in passive forms of resistance, with tens of thousands of boat owners sailing away to protect themselves from the government.

But the Spanish are beginning to get into the swing of things, perhaps because they are increasingly upset by the plethora of tax hikes imposed by the supposedly right-of-center government in Madrid.

Here’s part of a report from NPR about a new tax revolt on the Iberian Peninsula.

When the Spanish government hiked sales tax on theater tickets this past summer, Quim Marcé thought his theater was doomed. With one in four local residents unemployed, Marcé knew that even a modest hike in ticket prices might leave the 300-seat Bescanó municipal theater empty.

So what did he do to protect the theater from fiscal destruction?

Taxes are revolting, so why aren’t you?

“We said, ‘This is the end of our theater, and many others.’ But then the next morning, I thought, we’ve got to do something, so that we don’t pay this 21 percent, and we pay something more fair,” says Marcé in Spanish. …He…suddenly had an idea: Instead of selling tickets to his shows, he’d sell carrots. “We sell one carrot, which costs 13 euros [$16] -– very expensive for a carrot. But then we give away admission to our shows for free,” he explains in Spanish. “So we end up paying 4 percent tax on the carrot, rather than 21 percent, which is the government’s new tax rate for theater tickets.” Classified as a staple, carrots are taxed at a much lower rate and were spared new tax hikes that went into effect here on September 1.

Very clever. Senor Marcé is getting lots of praise for his novel approach, though it’s unclear whether the ravenous tax bureaucrats will come up with some sort of ruling to squash the tax revolt.

Spanish media have dubbed this the “Carrot Rebellion,” and the Bescanó theater has won kudos from arts advocates nationwide. Shows are sold out. …Marcé, the theater director, says he consulted a lawyer before launching his carrot sales. He’s got backing from the local mayor too. And no one has stopped him so far. …He says he’s a little worried the government might declare it illegal to sell carrots at theaters. But dozens of foods are considered “staples” and taxed at only 4 percent. So if that happens, Marcé says he might switch to selling tomatoes instead.

And if he has some leftover tomatoes that are rotten, perhaps they can be used – along with spoiled eggs and moldy cabbage – to express appreciation for any tax collectors that happen to visit (I won’t say what the carrots can be used for).

So why doesn’t the title of this post award “three cheers” for this Spanish tax revolt?

Well, as much as I admire non-compliance when tax systems are too onerous, I suspect that these Spaniards are protesting against the idea that they should pay for big government, but I wouldn’t be surprised to learn that they very much support a bloated welfare state if someone else is picking up the tab.

In other words, they’re probably hypocrites, and I wouldn’t be shocked to learn that their Irish and Greek compatriots also are protesting for the wrong reason.

Moreover, it’s not specified in the article, but I’m quite certain that the Spaniards actually are protesting in favor of tax distortions. The 4 percent tax on carrots and other “staples” presumably is a special exception to the normal value-added tax of 21 percent.

If they were protesting the VAT, I would give them three cheers, but if they’re simply protesting the fact that theater tickets are now treated the same as most other forms of consumption, then I’m tempted to give this tax revolt only one cheer.

But I’ll still give them two cheers because I’m in favor of just about anything that will reduce the amount of money diverted to finance government.

That’s because the real fiscal problem, in Spain and the United States, is that government is far too big. And trying to curb the rapacious appetites of politicians with a tax hike is akin to trying to cure a group of alcoholics by giving them the keys to a liquor store.

P.S. The greedy Spanish government may have jacked up some tax rates so high that they could be beyond the revenue-maximizing point, though I doubt the politicians care. Heck, even international bureaucracies such as the IMF have figured out that it’s self-destructive to push tax rates so high that governments lose revenue.

P.P.S. Just to cover my you-know-what, allow me to take this opportunity to stress that maximizing revenue should not be the goal of tax policy. I’m a big fan of the Laffer Curve, to be sure, but policy makers should target the growth-maximizing point.

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I’ve shared evidence from around the world (England, Italy, the United States, and France) and from various states (IllinoisOregonFlorida,Maryland, and New York) to argue that it is foolish to ignore the Laffer Curve.

Not that it makes any difference. I’m slowly coming the conclusion that my friends on the left will never learn – in large part because they’re more interested in punishing success with class warfare tax policy than they are in collecting extra revenue for government.

But surely there are some statists who are motivated by emotions other than spite, so I refuse to give up. Let’s look at some evidence from Spain to further confirm that high tax rates aren’t necessarily the way to maximize tax revenue (this also is a story showing that tax competition between nations is a good way of disciplining governments that are too greedy, but that’s another issue).

Here are some details from a CNBC report.

Spain’s corporate tax take has tumbled by almost two thirds from pre-crisis levels as small businesses fail and a growing number of big corporations seek profits abroad to compensate for the prolonged downturn at home. …Spain has a headline corporate tax rate of 30 percent, broadly in line with other large European economies. Switzerland, however, has a headline rate of 8.5 percent, and lawyers say deductions can be made to reduce this further. “A fundamental right of EU law is the freedom of establishment. All companies and taxpayers look after their tax affairs, and if they can pay a lower rate somewhere else, it’s better for their business and natural that they would do so,” a global tax lawyer based in Spain said. …Rajoy did eliminate some corporate tax breaks in 2012, a policy he will continue in 2013, and has also brought forward some tax payments, though that could be storing up problems.

Much of the decline in corporate tax revenue can be attributed to Spain’s dismal economy, of course, which has been exacerbated by a bunch of tax hikes imposed by a supposedly right-of-center government.

The one tax rate that hasn’t been increased, though, is the top rate of corporate tax. So how can this be a story about the Laffer Curve?

Well, sometimes standing still is a recipe for defeat. And sometimes moving in the right direction isn’t enough when everybody else is going in the right direction at a faster rate.

Here’s a chart showing changes in the average EU corporate tax rate compared to Spain’s corporate tax rate.

Spain’s corporate tax rate has dropped by five percentage points. That’s progress, but other nations have moved more rapidly in the right direction. Back in 1995, the Spanish corporate rate was slightly lower than the EU average. Now it’s noticeably higher.

And as the excerpt above notes, there are nations such as Switzerland that have far lower tax rates and much better fiscal policy.

To be sure, Spain’s main challenge is the need to dramatically reduce the burden of government spending. That will help long-run growth because more resources will be allocated by private markets.

But Spain also should seek an immediate boost to growth by reducing tax rates on productive behavior. A lower corporate tax rate should be part of the answer.

It also would be a good idea for the United States.

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Very few people are willing to admit that they favor protectionism. After all, who wants to embrace a policy associated with the Great Depression?

But people sometimes say “I want free trade so long as it’s fair trade.” In most cases, they’re simply protectionists who are too clever to admit their true agenda

In the Belly of the Beast at the European Commission

There’s a similar bit of wordplay that happens in the world of international taxation, and a good example of this phenomenon took place on my recent swing through Brussels.

While in town, I met with Algirdas Šemeta, the European Union’s Tax Commissioner, as part of a meeting arranged by some of his countrymen from the Lithuanian Free Market Institute.

Mr. Šemeta was a gracious host and very knowledgeable about all the issues we discussed, but when I was pontificating about the benefits of tax competition (are you surprised?), he assured me that he felt the same way, only he wanted to make sure it was “fair tax competition.”

But his idea of “fair tax competition” is that people should not be allowed to benefit from better policy in low-tax jurisdictions.

Allow me to explain. Let’s say that a Frenchman, having earned some income in France and having paid a first layer of tax to the French government, decides he wants to save and invest some of his post-tax income in Luxembourg.

In an ideal world, there would be no double taxation and no government would try to tax any interest, dividends, or capital gains that our hypothetical Frenchman might earn. But if a government wants to impose a second layer of tax on earnings in Luxembourg, it should be the government of Luxembourg. It’s a simple matter of sovereignty that nations get to determine the laws that apply inside their borders.

But if the French government wants to track – and tax – that flight capital, it has to coerce the Luxembourg government into acting as a deputy tax collector, and this generally is why high-tax governments (and their puppets at the OECD) are so anxious to bully so-called tax havens into emasculating their human rights laws on financial privacy.

Now let’s see the practical impact of “fair tax competition.” In the ideal world of Mr. Šemeta and his friends, a Frenchman will have the right to invest after-tax income in Luxembourg, but the French government will tax any Luxembourg-source earnings at French tax rates. In other words, there is no escape from France’s oppressive tax laws. The French government might allow a credit for any taxes paid to Luxembourg, but even in the best-case scenario, the total tax burden on our hypothetical Frenchman will still be equal to the French tax rate.

Imagine if gas stations operated by the same rules. If you decided you no longer wanted to patronize your local gas station because of high prices, you would be allowed to buy gas at another station. But your old gas station would have the right – at the very least – to charge you the difference between its price and the price at your new station.

Simply stated, you would not be allowed to benefit from lower prices at other gas stations.

So take a wild guess how much real competition there would be in such a system? Assuming your IQ is above room temperature, you’ve figured out that such a system subjects the consumer to monopoly abuse.

Which is exactly why the “fair tax competition” agenda of Europe’s welfare states (with active support from the Obama Administration) is nothing more than an indirect form of tax harmonization. Nations would be allowed to have different tax rates, but people wouldn’t be allowed to benefit.

For more information, here’s my video on tax competition.

And if you want information about the beneficial impact of “tax havens,” read this excellent column by Pierre Bessard and watch my three-part video series on the topic.

P.S. The Financial Transaction Tax also was discussed at the meeting, and it appears that the European actually intend on shooting themselves in the foot with this foolish scheme. Interestingly, when presented by other participants with some studies showing how the tax was damaging, Mr. Šemeta asked why we he should take those studies seriously since they were produced by people opposed to the tax. Since I’ve recently stated that healthy skepticism is warranted when dealing with anybody in the political/policy world (even me!), I wasn’t offended by the insinuation. But my response was to ask why we should act like the European Commission studies are credible since they were financed by governments that want a new source of revenue.

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If we want to avoid the kind of Greek-style fiscal collapse implied by this BIS and OECD data, we need some external force to limit the tendency of politicians to over-tax and over-spend.

That’s why I’m a big advocate of tax competition, fiscal sovereignty, and financial privacy (read Pierre Bessard and Allister Heath to understand why these issues are critical).

Simply stated, I want people to have the freedom to benefit from better tax policy in other jurisdictions, especially since that penalizes governments that get too greedy.

I’m currently surrounded by hundreds of people who share my views since I’m in Prague at a meeting of the Mont Pelerin Society. And I’m particularly happy since Professor Lars Feld of the University of Freiburg presented a paper yesterday on “Redistribution through public budgets: Who pays, who receives, and what effects do political institutions have?”.

His research produced all sorts of interesting results, but I was drawn to his estimates on how tax competition and fiscal decentralization are an effective means of restraining bad fiscal policy.

Here are some findings from the study, which was co-authored with Jan Schnellenbach of the University of Heidelberg.

In line with the previous subsections, we find that countries with a higher GDP per employee, i.e. a higher overall labor productivity, have a more unequal primary income distribution. …fiscal competition within a country or trade openness as an indicator of globalization do not exacerbate, but reduce the gap between income classes. …expenditure and revenue decentralization restrict the government’s ability to redistribute income when fiscal decentralization also involves fiscal competition. …fiscal decentralization, when accompanied by high fiscal autonomy, involves significantly less fiscal redistribution. Please also note that fiscal competition induces a more equal distribution of primary income and, even though the distribution of disposable income is more unequal, it is open how the effect of fiscal competition on income distribution should be evaluated. Because measures of income redistribution usu-ally have adverse incentive effects which consequently affect economic growth negatively, fiscal competition might be favorable for countries which have strong egalitarian preferences. A rising tide lifts all boats and might in the long-run outperform countries with more moderate income redistribution even in distributional terms.

The paper includes a bunch of empirical results that are too arcane to reproduce here, but they basically show that the welfare state is difficult to maintain if taxpayers have the ability to vote with their feet.

Or perhaps the better way to interpret the data is that fiscal competition makes it difficult for governments to expand the welfare state to dangerous levels. In other words, it is a way of protecting governments from the worst impulses of their politicians.

I can’t resist sharing one additional bit of information from the Feld-Schnellenbach paper. They compare redistribution in several nations. As you can see in the table reproduced below, the United States and Switzerland benefit from having the lowest levels of overall redistribution (circled in red).

It’s no coincidence that the U.S. and Switzerland are also the two nations with the most decentralization (some argue that Canada may be more decentralized that the U.S., but Canada also scores very well in this measure, so the point is strong regardless).

Interestingly, Switzerland definitely has significantly more genuine federalism than any other nation, so you won’t be surprised to see that Switzerland is far and away the nation with the lowest level of tax redistribution (circled in blue).

One clear example of Switzerland’s sensible approach is that voters overwhelmingly rejected a 2010 referendum that would have imposed a minimum federal tax rate of 22 percent on incomes above 250,000 Swiss Francs (about $262,000 U.S. dollars). And the Swiss also have a spending cap that has reduced the burden of government spending while most other nations have moved in the wrong direction.

While there are some things about Switzerland I don’t like, its political institutions are a good role model. And since good institutions promote good policy (one of the hypotheses in the Feld-Schnellenbach paper) and good policy leads to more prosperity, you won’t be surprised to learn that Swiss living standards now exceed those in the United States. And they’re the highest-ranked nation in the World Economic Forum’s Global Competitiveness Report.

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A left-wing group recently put out a report criticizing low-tax jurisdictions for attracting capital and investment from high-tax nations.

Since I’m a big defender of tax havens and tax competition, I noted that the assumptions in the report were very dodgy. As the Wall Street Journal noted, “Dan Mitchell, a senior fellow at the libertarian Cato Institute, compared the report’s findings to some estimates of climate change.”

And here’s some of what CNBC reported.

The problem, says Dan Mitchell, a senior fellow at the Cato Institute, is that the estimate is based on a series of assumptions aimed at making people “believe that much of cross-border investing is all about tax evasion and that all this money should go to government, and that this would be a good thing.” The real problem facing governments, Mitchell says, is spending not revenues.

I also was part of this CNN report.

A few things about this interview are worth highlighting.

1. First, it’s a bit disappointing that CNN even bothered to cover this non-story. This is akin to me pulling numbers out of the air, claiming that tax reform cures cancer, and then having Fox News report my make-believe nonsense simply because some of the programming is conservative.

It’s also rather revealing that they referred to the Tax Justice Network merely as an “advocacy group” rather than revealing that they have a hard-left orientation. I don’t object to Cato being identified as “libertarian-leaning,” but why not also let viewers know that the cranks at TJN also have a point of view?

2. Now let’s shift to policy. The second thing worth noting is that Mr. Henry says (around the 2:23 mark) that it would be good for politicians to get their grubby hands on cross-border investment capital so it can be “put to use.”

This is a remarkably radical and misguided assertion, as you can see from this chart. Henry is basically saying that money should be diverted from private capital markets, where it funds wage-boosting investment, in order to facilitate higher spending by politicians who already have spent their nations into fiscal crisis.

3. Even though I wasn’t given credit for the comment, I’m glad that the reporter (at the 2:38 mark) noted my argument that the real problem is that many nations have class-warfare tax systems that penalize work, saving, and investment.

This is why, when I give speeches in the so-called tax havens, I frequently say that they should be worried about “onshore” nations adopting the flat tax. Sadly, there’s no short-run possibility of replacing the corrupt tax system in America, so places like Singapore, Switzerland, and the Cayman Islands don’t have to worry about competitive pressure from the United States.

The main thing to understand about this “tax haven” debate is that groups like the Tax Justice Network are closely allied with governments in left-wing nations such as France, and they share the same goals as statist international bureaucracies such as the Paris-based Organization for Economic Cooperation and Development.

If they succeed in crippling tax competition and setting up some sort of global network of tax police, more politicians will raise tax rates, causing more misery, and bringing more nations one step closer to Greek-style fiscal collapse.

P.S. The TJN report isn’t total nonsense. The author correctly recognizes, for instance, that the United States is a so-called tax haven. Where we disagree is that Mr. Henry wants American lawmakers to deliberately make the United States less attractive to international investors and I think it is a gross mistake to enact policies that will hurt American workers by driving capital out of the economy.

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The United Kingdom has a magnificent history and has produced great leaders.

I get inspired, for instance, when I watch these Margaret Thatcher speeches about “public money” and “the poor poorer.” Sort of the same feeling I get when I watch the Gipper talking about Washington being a “company town” and the “unnecessary and excessive growth of government.”

But just as the United States has devolved by moving over time from Reagan to Obama, the United Kingdom has degenerated by going from Thatcher to David Cameron.

Cameron is supposedly a conservative, but it’s more accurate to say he’s an English version of George W. Bush. Some of the lowlights of his tenure include:

And his statist mentality infects other Tory politicians.

Here is a report on the intellectually bankrupt ramblings of another enemy of freedom, as reported by the Telegraph.

David Gauke, a Treasury minister, told The Daily Telegraph that home owners who allow workmen to evade VAT or income tax were forcing others to pay more. …critics accused the Government of being “unnecessarily moralistic” about ordinary people trying to keep their household bills down. …According to a report by the Public Accounts Committee, more than two million people make cash-in-hand payments costing the Treasury an estimated £2  billion. There is no law against paying someone in cash… In a speech to the Policy Exchange think tank, he said that while using Isas and claiming gift aid on charitable donations was acceptable, buying homes through companies to avoid stamp duty and using service companies to reduce income tax was “morally repugnant”. Mr Gauke said: “These schemes damage our ability to fund public services and provide support to those who need it. They harm businesses by distorting competition. They damage public confidence. And they undermine the actions of the vast majority of taxpayers, who pay more in tax as a consequence of others enjoying a free ride.”

Can anyone imagine Margaret Thatcher saying something this offensive?

Particularly since it is Gauke’s views that are “morally repugnant,” not the actions of people who are trying to protect their property from a rapacious and greedy government.

Keep in mind that the burden of government spending in the United Kingdom consumes nearly 49 percent of economic output according to OECD data. That’s more than Greece, Portugal, Ireland, or Spain!

Sort of makes you wonder how long it will take before investors decide that it’s no longer a good idea to lend money to such a profligate government.

The good news is that the English people aren’t as bad as their politicians. As part of the story, the Telegraph is conducting an online poll, which you can see to your left.

Notwithstanding the statolatry of UK politicians, the voting so far is overwhelmingly on the side of taxpayers rather than the government.

But public opinion doesn’t really matter if government policy continues to drift in the wrong direction.

And, as you can see from this data, the long-term outlook for the United Kingdom is very grim. And we know Cameron isn’t doing anything to address this looming crisis.

Not that this makes the UK special. Thanks to reckless entitlement programs, the same data shows that the United States also is headed for Greek-style fiscal chaos.

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Thanks largely to the Laffer Curve, there are some impressive examples of failed tax increases in countries such as the United States, France, and the United Kingdom. But if there was a prize for the people who most vociferously resist turning over more of their income to government, the Italians would be the odds-on favorite to win.

When they’re not firebombing tax offices to show their displeasure, they’re taking to the high seas to escape.

Here are some excerpts from a report in the UK-based Telegraph about runaway yachts.

Thousands are weighing anchor and fleeing with their gin palaces to quiet corners of the Mediterranean to escape a tax evasion crackdown – part of efforts by the government of Mario Monti, the prime minister, to tackle Italy’s €1.9 trillion public debt. …in the ports and marinas they are going after the owners of luxury yachts. Uniformed officers of the Guardia di Finanza, or tax police, are performing on-the-spot checks, boarding boats and checking owners’ details against their tax records. …The unwelcome attention has led many yacht owners to flee Italy’s marinas for friendlier foreign ports, from Corsica and the Cote d’Azur in the west to Croatia, Slovenia, Montenegro and Greece in the east. Others are heading southwards, to Malta and Tunisia – where they can access their boats on low-cost budget flights from Italy for a fraction of the tax bill they might otherwise face.

Not surprisingly, a lot of middle-class people are suffering because of lost business.

Arriverderci, Polizia Fiscale!

Around 30,000 yachts have fled Italy this year, costing €200 million in lost revenue from mooring fees, port services and fuel sales, according to Assomarinas, the Italian Association of Marinas. “We’ve lost 10 to 15 per cent of our regular customers,” said Roberto Perocchio, the president of Assomarinas. “This is the worst crisis in Italian boating history. The authorities are using scare tactics and creating a climate of fear.” …Plans for a further 30,000 new berths have been put on hold. Business is down by more than a third in many marinas, with some half empty compared to last summer. “We’ve lost 40 boats in the last few months, all between 20 and 25 metres long,” said Giovanni Sorci, director of a marina at Rimini, on the Adriatic coast. “Most went to Slovenia – in fact it is so popular that there’s now barely a berth to be had there. …At Porto Rotondo in Sardinia, Giacomo Pileri, the general manager of a 700-berth marina, said at least 150 boats had fled to nearby Corsica. …A steep new tax of up to €700 per day on the largest yachts mooring in Italian ports, introduced by the Monti government in December, was watered down in March to exclude foreign-owned boats. But it has further fuelled the exodus of Italian boats abroad.

And it’s not just yachts that are being targeted by a revenue-hungry government. Here’s a remarkable report from Reuters on what’s happened to the luxury car market (h/t: suyts space).

Italians spooked by rising car taxes and highly publicized tax fraud spot checks cut back their purchases of Fiat’s high-end sports car brands Ferrari and Maserati in the first quarter of 2012, an industry body said on Tuesday. Ferrari sales slumped 51.5 percent, in Italy, and Maserati sales plummeted by 70 percent, said Italian car dealers group Federauto in a statement. Prime Minister Mario Monti’s government has stepped up its fight on tax evasion with spot checks on supercar drivers, as well as higher taxes on large cars. “These figures show how the choices made by the government are literally terrorizing potential clients,” said Federauto chairman Filippo Pavan Bernacchi.

I assume those awful sales numbers are partly because the economy is weak, but well-to-do Italians obviously don’t want to attract attention from the tax police.

The moral of the story is that Italy’s government should try a new strategy. The politicians need to understand that taxpayers don’t meekly acquiesce, like lambs in a slaughterhouse.

Heck, even the folks at the International Monetary Fund (a crowd not known for rabid free-market sympathies) have acknowledged that excessive taxation is the leading cause of the shadow economy.

So rather than trying to squeeze more blood from an unwilling stone, maybe the Italian government should junk the current tax code and adopt a simple and fair flat tax.

To conclude, here’s Part II of the three-part video series on the Laffer Curve, which focuses on historical evidence (including what happened to the yacht market in the U.S. when politicians went after the “rich”).

Sort of makes you wonder why politicians never seem to learn from their mistakes – especially when thoughtful people like me give them free lessons about the relationship between tax rates, tax revenue, and taxable income.

P.S. While I’m very happy to defend tax evasion in cases where government is excessive, venal, and/or corrupt, I suspect that Italians would evade even if they lived under a Hong Kong-style fiscal regime. If that ever happened (don’t hold your breath), even I wouldn’t get upset about crackdowns on yacht owners and Maserati drivers who aren’t declaring any income.

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I have a confession to make. I’m enjoying the Greece debacle and I like the Greek people.

Sure, there are lots of moochers in Greece. And yes, the government is insanely wasteful, even to the point of subsidizing pedophiles and requiring stool samples from folks applying to set up online companies.

But at least there’s high entertainment value, such as the altercation in this video between one of the national socialists in the Golden Dawn party and a regular socialist from the Syriza party and one of the international socialists from the Communist party.

Of course, I hope that all of these strains of socialism lose at the polls, just as I hope that the Keynesians and tax-increasers fight each other to the death in the rest of Europe.

Until that point, though, I want more entertainment.

I also have a certain fondness for the Greeks because of their disdain for the tax authorities. These people have an amazing expertise when it comes to not paying taxes (their Italian and Irish counterparts also seem less than enthused about giving more money to government).

To be sure, I suspect most of them are motivated by getting something for nothing rather than libertarian principles. But even if they’re dodging taxes for the wrong reasons, these anecdotes from the New York Times are quite amusing.

An essential element of Greece’s recovery plan has been to collect more taxes from a population that has long engaged in tax avoidance. The government is owed 45 billion euros in back taxes, tax officials in Athens said, only a fraction of which will ever be recovered. To understand the difficulty, just talk to Nikos Maitos, a longtime official in Greece’s financial crimes investigation unit. When he and a team of inspectors recently prowled the recession-hit island of Naxos for tax evaders, a local radio station broadcast his license plate number to warn residents. …“After two and a half years of austerity, it’s really a difficult time to bring in revenue,” said Harry Theoharis, a senior official in the Greek Finance Ministry who helps oversee the country’s tax payment system. “You can’t keep flogging a dead horse.” …Income expected from a higher, 23 percent value-added tax required by the bailout agreement has fallen short by around 800 million euros in the first four months of 2012. That is partly because cash-short businesses that were once law-abiding have started hiding money to stay afloat, tax officials said. …the government started enforcing a 1995 law that gives them access to bank accounts of suspected tax evaders. But Nikos Lekkas, a top official at the financial crimes agency where Mr. Maitos works, said Greek banks had obstructed nearly 5,000 requests for account data since 2010. “The banks delay sending the information for 8 to 12 months,” he said. “And when they do, they send huge stacks of documents to make it confusing. By the time we can follow up, much of the money has already fled.” …During a surveillance trip on the resort island of Santorini, Mr. Maitos said he and two colleagues observed a gas station owner insisting on cash-only transactions to avoid declaring taxes. When confronted, the man lashed at them with a bullwhip while cursing the state for taking his money.

Pretty impressive. Not only are taxpayers getting help from radio stations and banks, but they even use bullwhips to defend themselves.

It’s also worth noting that the “flogging a dead horse” comment and the shortfall in VAT receipts are further evidence for the Laffer Curve.

But I don’t want to focus too much on policy in this post. I just want to enjoy the spectacle. In later posts, we’ll look to see whether American statists have learned any lessons about reforming entitlements so we avoid a future Greek-style fiscal crisis in America.

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It seems that there’s nothing but bad news coming from Europe. Whether we’re talking about fake austerity in the United Kingdom, confiscatory tax schemes in France, or bailouts in Greece, the continent seems to be a case study of failed statism.

But that’s not completely accurate. Every so often I highlight good news, such as Switzerland’s successful spending cap, Sweden’s shift to the right on spending, Germany’s wise decision not to be Keynesian, and Portugal’s admission that “stimulus” doesn’t work.

Admittedly, the good news from Europe is oftentimes merely the failure to do something bad. But I’ll take victories in any form.

And that’s why I’m happy that Austria and Luxembourg are blocking a misguided European Commission plan to undermine financial privacy in order to increase double taxation of income that is saved and invested.

Here are some cheerful passages from a story in the EU Observer.

“Completely unjustifiable … grossly unfair … a mystery” – the European Commission and the Danish EU presidency have given Austria and Luxembourg a tongue-lashing for protecting tax evaders. The harsh words came after the two countries on Tuesday (15 May) blocked the commission from holding talks with Switzerland on a new savings tax law designed to recoup some of the estimated €1 trillion a year lost to EU exchequers in tax fraud and evasion. Tax commissioner Algirdas Semeta in a press conference in Brussels said: “The position that Austria and Luxembourg have taken on this issue is grossly unfair. They are hindering 25 willing member states from improving tax compliance and finding additional sources of income.” …Danish economic affairs minister Margrethe Vestager took his side. “It is a mystery why we shouldn’t move on making people pay the taxes that they should pay,” she noted. She described Austria and Luxembourg’s decision as “unfortunate.” For their part, Luxembourg and Austria have declined to publicly explain why they are against the move. Semeta on Tuesday indicated they object to “automatic transfer” of tax data between EU countries and Switzerland, even though the alternative is trusting Switzerland to decide which data it gives and which it withholds. He added that automatic exchange is becoming the international gold standard in the field, with “the US moving in the same direction.”

The quote from the Danish economic affairs minister is especially nauseating. It’s not the “taxes that they should pay.” It’s the “taxes that greedy politicians demand.”

Good tax policy is predicated on the notion that there should not be a bias against income that is saved and invested. This is because double taxation undermines capital formation and thus reduces long-run growth.

Yet European politicians, like many of their American counterparts, are drawn to class warfare tax policy and can’t resist trying to penalize the “evil rich.”

So let’s tip our proverbial hats to Austria and Luxembourg. This is probably just a short-term victory over the unrelenting forces of statism, but let’s enjoy it while it lasts.

P.S. This European kerfuffle is a fight over tax competition vs. tax harmonization. To understand why financial privacy and fiscal sovereignty are desirable, watch the four-part video series at this post.

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I wrote last year about a tax protest in Ireland, and I wrote earlier this year about a tax revolt in Greece.

But Irish and Greek taxpayers are wimps compared to their Italian compatriots. When Italians decide to have a tax revolt, they don’t kid around. Here are some remarkable details from the UK-based Telegraph.

In the last six months there has been a wave of countrywide attacks on offices of Equitalia, the agency which handles tax collection, with the most recent on Saturday night when a branch was hit with two petrol bombs.Staff have also expressed fears over their personal safety with increasing numbers calling in sick and with one unidentified employee telling Italian TV: “I have told my son not to say where I work or tell anyone what I do for a living.”

As much as I despise high taxes, I don’t think petrol bombs are the answer. But I am glad that at least some of the bureaucrats feels shame about their jobs.

Not surprisingly, the political elite wants people to be deferential to predatory government.

Annamaria Cancellieri, the interior minister, said she was considering calling in the army in a bid to quell the rising social tensions.“There have been several attacks on the offices of Equitalia in recent weeks. I want to remind people that attacking Equitalia is the equivalent of attacking the State,” she said in an interview with La Repubblica newspaper.

Here’s some advice for Ms. Cancellieri: Maybe people will be less likely to attack “the State” if “the State” stops attacking the people.

But don’t expect that to happen. The Prime Minister also demands obedience to “the State” and there’s rhetoric about “paying taxes is a duty” from other high-level government officials.

Saturday night’s attack took place on the Equitalia office in Livorno and the front of the building was left severely damaged by fire after the bombs exploded. The phrases “Thieves” and “Death to Equitalia” were sprayed onto outside walls. It came just 24 hours after more than 200 people had been involved in running battles with police outside a branch in Naples which left a dozen protesters and officers hurt. …There has also been a striking increase in suicides with people leaving notes directly blaming Equitalia and tax demands. Paola Severino, the Justice minister, said: “The economic situation has produced unease but paying taxes is a duty. On one side there is anger and the problem of paying when the resources are scare but on the other side is the fact that they must be paid.” …Mr Monti has vowed to press on even harder this year to recover the lost money. He is due to have a meeting with Equitalia chief Attilio Befera to discuss the situation and he has already said: “We are not going to take a step back, there will be no giving in to those who have declared was against the revenue and therefore the State. We will not be intimidated.”

Keep in mind, by the way, that this is the government that supposedly is being run by brilliant technocrats, yet they are so incompetent that they appoint the wrong people to posts. But the real problem is that government is far too big, consuming one-half of Italy’s economic output.

If Italy’s political class wants to improve tax compliance, they should listen to the IMF and academic economists, both of whom point out that lower tax rates reduce incentives for evasion and avoidance.

It also would help to shrink the burden of the public sector. Unfortunately, as is the case with most other European nations, “austerity” in Italy mostly means higher taxes, not less spending.

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I wrote last year about a backlash from long-suffering Greek taxpayers. These people – the ones pulling the wagon rather than riding in the wagon – are being raped and pillaged by a political class that is trying to protect the greedy interest groups that benefit from Greece’s bloated public sector.

We now have another group of taxpayers who are fighting back against greedy government. My ancestors in Ireland have decided that enough is enough and there is widespread civil disobedience against a new property tax.

Here are the key details from an AP report.

The Serfs Fight Back

Ireland is facing a revolt over its new property tax. The government said less than half of the country’s 1.6 million households paid the charge by Saturday’s deadline to avoid penalties. And about 5,000 marched in protest against the annual conference of Prime Minister Enda Kenny’s Fine Gael party. Emotions ran raw as police backed by officers on horseback stopped demonstrators from entering the Dublin Convention Centre. …One man mistakenly identified as the government minister responsible for collecting the tax had to be rescued by police from an angry scrum. Kenny said his government had no choice, but to impose the new charge as part of the nation’s efforts to emerge from an international bailout. …The charge this year is a flat-fee €100 ($130) per dwelling, but is expected to rise dramatically next year once Ireland starts to vary the charge based on a property’s estimated value. Anti-tax campaigners have urged the public to ignore the tax demand, arguing that the government doesn’t have the power to collect it.

What makes this new tax so outrageous is that Irish taxpayers already have been victimized with higher income tax rates and a more onerous value-added tax. Yet they weren’t the ones to cause the nation’s fiscal crisis. Ireland is in trouble for two reasons, and both deal with the spending side of the fiscal equation.

1. The burden of government spending exploded last decade, more than doubling in less than 10 years. This wiped out all the gains from fiscal restraint in the 1980s and 1990s.

2. Irish politicians decided to give a bailout not only to depositors of the nation’s failed banks, but also to bondholders. This is a grotesque transfer of wealth from ordinary people to those with higher incomes – and therefore a violation of Mitchell’s Guide to an Ethical Bleeding Heart.

It’s worth noting that academic studies find that tax evasion is driven largely by high tax rates. This makes sense since there is more incentive to hide money when the government is being very greedy. But there is also evidence that tax evasion rises when people perceive that government is wasting money and being corrupt.

Heck, no wonder the Irish people are up in arms. They’re being asked to cough up more money to finance a bailout that was both corrupt and wasteful.

Let’s close by looking at American attitudes about tax evasion. Here’s part of a column from Forbes, which expresses surprise that Americans view tax evasion more favorably than behaviors such as shoplifting and littering.

A new survey suggests Americans consider cheating on their taxes more socially acceptable than shoplifting, drunk driving or even throwing trash out the window of a moving car. …only 66% of  the participants said they “completely agree” that “everyone who cheats on their taxes should be held accountable”  and only 72% completely agreed that “it’s every American’s civic duty to pay their fair share of taxes”–suggesting, as the Shelton study does, that perhaps disapproval of tax evasion is not as strong as, say, disapproval of stealing from private businesses.

I’m not sure, though, why anybody would be shocked by these results. We have a government in Washington that is pervasively corrupt, funneling money to corrupt scams like Solyndra.

These same people want higher tax rates, which will further encourage people to protect their income.

If we really want to promote better tax compliance, whether in the U.S., Ireland, or anywhere in the world, there are two simple answers. First, enact a simple and fair flat tax to keep rates low. Second, shrink government to its proper size, which will automatically reduce waste and limit opportunities for corruption.

But none of this is in the interests of the political class, so don’t hold your breath waiting for these reforms.

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Leftists want higher tax rates and they want greater tax compliance. But they have a hard time understanding that those goals are inconsistent.

Simply stated, people respond to incentives. When tax rates are punitive, folks earn and report less taxable income, and vice-versa.

In a previous post, I quoted an article from the International Monetary Fund, which unambiguously concluded that high tax burdens are the main reason people don’t fully comply with tax regimes.

Macroeconomic and microeconomic modeling studies based on data for several countries suggest that the major driving forces behind the size and growth of the shadow economy are an increasing burden of tax and social security payments… The bigger the difference between the total cost of labor in the official economy and the after-tax earnings from work, the greater the incentive for employers and employees to avoid this difference and participate in the shadow economy. …Several studies have found strong evidence that the tax regime influences the shadow economy.

Indeed, it’s worth noting that international studies find that the jurisdictions with the highest rates of tax compliance are the ones with reasonable tax systems, such as Hong Kong, Switzerland, and Singapore.

Now there’s a new study confirming these findings. Authored by two economists, one from the University of Wisconsin and the other from Jacksonville University, the new research cites the impact of tax burdens as well as other key variables.

Here are some key findings from the study.

According to the results provided in Table 2, the coefficient on the average effective federal income tax variable (AET) is positive in all three estimates and statistically significant for the overall study periods (1960-2008) at beyond the five percent level and statistically significant at the one percent level for the two sub-periods (1970-2007 and 1980-2008). Thus, as expected, the higher the average effective federal income tax rate, the greater the expected benefits of tax evasion may be and hence the greater the extent of that income tax evasion. This finding is consistent with most previous studies of income tax evasion using official data… In all three estimates, [the audit variable] exhibits the expected negative sign; however, in all three estimates it fails to be statistically significant at the five percent level. Indeed, these three coefficients are statistically significant at barely the 10 percent level. Thus it appears the audit rate (AUDIT) variable, of an in itself, may not be viewed as a strong deterrent to federal personal income taxation [evasion].

Translating from economic jargon, the study concludes that higher tax burdens lead to more evasion. Statists usually claim that this can be addressed by giving the IRS more power, but the researchers found that audit rates have a very weak effect.

The obvious conclusion, as I’ve noted before, is that lower tax rates and tax reform are the best way to improve tax compliance – not more power for the IRS.

Incidentally, this new study also finds that evasion increases when the unemployment rate increases. Given his proposals for higher tax rates and his poor track record on jobs, it almost makes one think Obama is trying to set a record for tax evasion.

The study also finds that dissatisfaction with government is correlated with tax evasion. And since Obama’s White House has been wasting money on corrupt green energy programs and a failed stimulus, that also suggests that the Administration wants more tax evasion.

Indeed, this last finding is consistent with some research from the Bank of Italy that I cited in 2010.

…the coefficient of public spending inefficiency remains negative and highly significant. …We find that tax morale is higher when the taxpayer perceives and observes that the government is efficient; that is, it provides a fair output with respect to the revenues.

And I imagine that “tax morale” in the United States is further undermined by an internal revenue code that has metastasized into a 72,000-page monstrosity of corruption and sleaze.

On the other hand, tax evasion apparently is correlated with real per-capita gross domestic product. And since the economy has suffered from anemic performance over the past three years, that blows a hole in the conspiratorial theory that Obama wants more evasion.

All joking aside, I’m sure the President wants more tax compliance and more prosperity. And since I’m a nice guy, I’m going to help him out. Mr. President, this video outlines a plan that would achieve both of those goals.

Given his class-warfare rhetoric, I’m not holding my breath in anticipation that he will follow my sage advice.

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I’m perfectly willing to give my opponents credit when they do something clever and/or effective.

I posted this video making fun of libertarians, for instance, because it is genuinely funny. People like me, I will confess, sometimes are so allergic to government that we do things that make us easy targets for satire.

Well, here’s a video parody of Mitt Romney and the Cayman Islands, obviously designed to resemble the Corona beer commercials. I’m not impressed.

My tepid reaction is not because I recently defended Romney’s use of Cayman-based investment vehicles.

Indeed, here’s an old video attacking tax havens, and I think it’s sufficiently amusing that I just uploaded it onto my Youtube channel because it’s worth sharing and I couldn’t find it online.

Both of these leftist videos make silly and inaccurate points, but the anti-Romney video is simplistic and the entire premise is false. He’s not hiding anything. Intelligent satire uses the truth as a starting point. This video doesn’t.

The anti-Cheney video, by contrast, has some big mistakes, but at least it is based on the accurate premise that companies legally try to reduce their taxes. Moreover, the Jimmy Buffett music is a nice touch.

Since I’ve share a couple of anti-tax haven videos, I feel compelled to post one of mine for some balance. And since I recently posted my video on the economic case for tax havens, here’s my video on the moral case for tax havens.

And if you want to really understand these issues, I humbly suggest you look at the paper I wrote for the UK-based Adam Smith Institute.

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Exactly 10 days ago, I predicted that the press would attack Mitt Romney for using tax havens. In that post, I wrote that, “…based on the questions, it appears that the establishment media wants to hit Romney for utilizing tax havens… As far as I can tell, none of these reporters have come out with a story. …But I think it’s just a matter of time.”

Sure enough, like the swallows returning to Capistrano, it’s happened. Two hacks at ABC News, Brian Ross and Megan Chuchmach, revealed (brace yourself for a real scoop) that Mitt Romney is a rich guy and some of his investments are based in funds domiciled in the Cayman Islands (gasp!).

Wow, what a revelation! This must be Pulitzer Prize material. Pray tell, what wrongdoing did the story uncover? Well, let’s excerpt the key passages from the article.

Mitt Romney has millions of dollars of his personal wealth in investment funds set up in the Cayman Islands, a notorious Caribbean tax haven. A spokesperson for the Romney campaign says Romney follows all tax laws and he would pay the same in taxes regardless of where the funds are based.  …Romney has as much as $8 million invested in at least 12 funds listed on a Cayman Islands registry. Another investment, which Romney reports as being worth between $5 million and $25 million, shows up on securities records as having been domiciled in the Caymans.  …Romney campaign officials and those at Bain Capital tell ABC News that the purpose of setting up those accounts in the Cayman Islands is to help attract money from foreign investors, and that the accounts provide no tax advantage to American investors like Romney. Romney, the campaign said, has paid all U.S. taxes on income derived from those investments. …Bain officials called the decision to locate some funds offshore routine, and a benefit only to foreign investors who do not want to be subjected to U.S. taxes.

You’re probably thinking you missed something, because there’s nothing to the story. But that’s because the reporters don’t have anything. And if you think I excerpted unfairly, feel free to read the whole article.

The only thing you’ll discover is that Ross and Chuchmach are biased hacks. Because not only did they write a story about nothing, they also quoted two left-wingers, Jack Blum and Rebecca Wilson, and failed to give the other side even an inch of column space.

Blum is a former John Kerry staffer who is most famous for making unsubstantiated claims (which he later admitted were fabricated) that tax havens resulted in $100 billion of lost revenue to the Treasury each year.

And Rebecca Wilson works for Citizens for Tax Justice, a union-funded group so radical that even congressional Democrats usually are reluctant to work with them.

But what about the other side of the story?

  1. Did the article quote me, since I’ve been working on these issues for more than a decade? No.
  2. Did the article quote anybody from the Center for Freedom and Prosperity, the organization most active in the fight to defend low-tax jurisdictions? No.
  3. Did the article quote Richard Rahn, the Cato Institute Fellow who was a Board Member of the Cayman Islands Monetary Authority? No.
  4. Did the article quote any of the academic scholars who have written about so-called tax havens, such as Jim Hines of the University of Michigan or Andrew Morriss of the University of Alabama? No.
  5. Did the article quote Bob Bauman, the former Congressman and offshore expert who serves as Legal Counsel of the Sovereign Society? No.

Fair and competent journalists would have done those things, but not the dynamic duo from ABC News.

Instead, they quote two hard-core lefts. And in a gross display of editorializing, they also referred to the Cayman Islands as a “notorious tax haven.”

Yet what is “notorious” about being a prosperous multiracial society with living standards considerably above American levels?

Moreover, Cayman has a tax treaty with the United States and an overwhelming share of the investment in the jurisdiction is completely legal institutional money – just like the Romney investment funds.

But I guess a place like the Cayman Islands must be bad, at least to biased people from the press. After all, a place with no income taxes, no capital gains taxes, no payroll taxes, and no death taxes must be condemned.

I’m not a Romney fan, as you can see by reading this post, but I believe in honest and intelligent debate. Too bad ABC doesn’t.

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I’ve written several times about a proposed IRS regulation that would force American banks to put foreign law above U.S. law. I’ve repeatedly warned that the scheme, which would force financial institutions to report the deposit interest they pay to foreigners, is bad economic policy, bad regulatory policy, and bad banking policy.

My arguments have included:

But these points don’t seem to matter to the Obama Administration, which is ideologically committed to the anti-tax competition agenda of Europe’s welfare states. This is why the White House supports all sorts of destructive policies, including not only this misguided regulation, but also the creation of something akin to a world tax organization that will have power to block free-market tax policy.

A new article in the Weekly Standard explains what’s at stake.

Early last year the Treasury Department published its “Guidance on Reporting Interest Paid to Nonresident Aliens,” which would require banks to report to the Internal Revenue Service the interest paid to foreign depositors with a U.S. bank account. While the Treasury and the regulatory apparatus insist that the cost and inconvenience of adhering to this regulation is next to nothing, the rule may cost the U.S. banking system hundreds of billions of dollars in lost deposits, in turn costing our economy billions of dollars, while providing no discernible benefit to banks, depositors, taxpayers, or the U.S. economy. …a much bigger problem—for banks and the economy—than the compliance costs is the threat of a massive capital flight. The United States is a very popular place for foreigners to park their savings, for a variety of reasons. For starters, we offer a stable government that can be trusted to keep its hands off deposits—something that appeals greatly to residents of Venezuela, Argentina, Ecuador, and any number of other unstable countries. …As a result, a staggeringly large amount of savings from abroad is currently held in U.S banks. While the Treasury asserts that “deposits held by nonresident alien individuals are a very small percentage of the [total] deposits held by U.S. financial institutions,” that very small percentage amounts to more than $3.7 trillion, according to a 2011 Bureau of Economic Analysis report, hardly a pittance. The massive amount of foreign savings here is a boon to the U.S. economy. Banks lend against these deposits, mainly to companies here in the United States. Jay Cochran, an economist at George Mason University, studied the impact that the more limited 2002 reporting requirements would have had on the banking system, estimating that it would have resulted in nearly $100 billion in deposits leaving the U.S. banking system. A reporting regulation that covers all foreign accounts would likely result in two to three times more capital flight. The impact would be harmful not just for the banks but for the broader economy. The decline in profits in the banking sector alone from a roughly quarter-trillion-dollar capital flight would be in the range of $5-10 billion—which makes a mockery of the notion that the costs of the regulation are under $100,000.

For more information about this wretched proposal, here’s a video I narrated on the topic.

To put it bluntly, the Obama Administration is pushing this regulation because it thinks the anti-tax competition agenda of Europe’s welfare states is so important that it is willing to risk the health of the American economy, undermine the soundness of U.S. financial institutions, disregard the rule of law, and abuse the regulatory process.

Indeed, this proposal is even worse than the increasingly infamous Foreign Account Tax Compliance Act.

And that’s saying something, because with each passing day, it is more and more obvious that FATCA is a destructive law that will significantly harm the American economy. But at least it’s a law, one that was approved by Congress and signed by the President. And the costly FATCA regulations being developed by the IRS are for the purpose of enforcing the law.

The interest-reporting IRS regulation is also costly and destructive, to be sure, but what makes it so perverse is that it is – at best – completely gratuitous. It is being advanced solely for reasons of ideology, regardless of the law and consequences be damned.

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The Secretary of the Treasury, Tim Geithner, is infamous for conveniently forgetting to pay tax on $80,000 of income and then getting kid-glove treatment from the IRS when his crime was uncovered.

Not only did Geithner avoid even a slap on the wrist, he was confirmed to head the department that includes the IRS. So you can understand why a clever person came up with this t-shirt mocking the Treasury Secretary.

But it appears that Geithner’s elitist disdain for the law is shared by high-level left-wing political figures in other nations. Here’s a very similar story from the United Kingdom, where a cabinet official got caught for not complying with the value-added tax.

Here are some excerpts from the UK-based Independent.

Mr Cable was hit with a £500 penalty from HM Revenue and Customs (HMRC) after the blunder over a VAT bill of up to £15,000 on his media work. The Business Secretary – who has criticised firms which seek to avoid tax – admitted it was a “bit embarrassing” that his VAT liability “wasn’t spotted earlier”. But he insisted that he “made no attempt to avoid tax” and the “oversight” had happened in good faith. Downing Street said it regarded the incident as “closed”, adding that Mr Cable retained the Prime Minister’s full confidence.

If you recognize Mr. Cable’s name, there’s a good reason. He is member of the parasite class in England most associated with the push for higher tax rates on capital gains – which led to a clever set of posters attacking his destructive proposal.

Makes you wonder if there is some secret fraternity of politicians, with initiation rites involving the chant: “Taxes for thee, but not for me.”

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I’ve joked on many occasions that bipartisanship occurs in Washington when the evil party and the stupid party come up with an idea that is simultaneously malicious and misguided.

The international version of two-wrongs-don’t-make-a-right occurs whenever the French and the Germans conspire on economic policy. The latest example is a joint proposal for “economic governance” for eurozone nations. Here are some blurbs from the BBC’s report.

The French and German leaders have called for “true economic governance” for the eurozone in response to the euro debt crisis. Speaking at a joint news conference, German Chancellor Angela Merkel and French President Nicolas Sarkozy urged much closer economic and fiscal policy in the eurozone. …They also advocated a tax on financial transactions to raise more revenues.

I don’t pretend to have any predictive ability, but I’ll bet dollars-to-donuts that “true economic governance” will lead to more spending and higher taxes. Why? Because “economic governance” is just a sanitized way of describing a cartel of governments.

When politicians don’t have to worry as much about jobs and capital migrating to jurisdictions with less oppressive tax law, they will behave in a predictable fashion by raising tax rates. In other words, the weakening of tax competition is a recipe for bigger, more expensive government.

Indeed, the tax on financial transactions is a perfect example. Any one nation would be unlikely to impose this perverse levy for fear of losing business to neighbors. But if there’s a one-size-fits-all eurozone government, then bad policy becomes more feasible.

The only good news is that Merkel hasn’t totally lost her mind. Perhaps because her de facto socialist party is not doing well in the polls against the de jure socialist party in Germany, she is temporarily resisting the idea of “eurobonds.”

Ms Merkel again played down the chances of introducing “eurobonds” – jointly guaranteed debts of the 17 eurozone governments – as a solution to the crisis. The idea has been advocated by the Italian finance minister, Giulio Tremonti, as well as billionaire investor George Soros as a way of providing cheap financing to struggling governments while also incentivising them to put their finances in order.

The more profligate European governments like eurobonds for the same reason that California and Illinois would like to jointly issue debt with Texas. It’s a way for the spendthrift to free ride off the frugal.

And speculators like eurobonds because their holdings can dramatically rise in value when downside risk gets transferred to taxpayers (nothing wrong with speculation, by the way, so long as losses aren’t socialized).

Eurobonds might temporarily calm European markets, but only by setting the stage for a bigger collapse in the near future when the Germans are pulled underwater by their reckless neighbors.

For those who want more information, this video is a primer on the importance of jurisdictional competition.

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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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I suppose there are some good jokes to make about Pakistan employing transgender tax collectors in an attempt to coerce more money from taxpayers, but I’m enough of a policy wonk to have serious questions about the system.

First, why does the government need to “shame” people. Can’t they just arrest taxpayers and/or seize their property? Or do Pakistani taxpayers actually enjoy the presumption of innocence, unlike their oppressed American counterparts?

Second, I read stories about religious zealots in Pakistan killing Christians and stoning adulterers. How do these tax collectors escape persecution? Is it that they only operate in a big city, which is more tolerant, while the really awful stuff happens in rural areas?

Third, why does Pakistan even bother with an income tax. I commented last year about Hillary Clinton’s ideological advice to Pakistan about squeezing the so-called rich, but the CNN story excerpted below says only 1 percent of the population is affected. What’s the point? The tax obviously doesn’t generate much revenue. Why not get rid of an oppressive law and make the country a tax haven?

Miss your tax deadline in the United States this weekend, and you might get a nasty letter at your door. In Karachi, Pakistan’s largest city, you might get Riffee and the gang. They are “transgender” tax collectors — whose weapons include flamboyancy, surprise — and a little lipstick. In a move that speaks volumes about the lengths to which Pakistan is going to tackle tax evasion, Karachi officials are using Riffee – who like many people in South Asia works under a single name – and her team as enforcers with a difference. They are sent to the businesses or houses of debtors. The aim — in this very conservative Muslim society — to embarrass tax debtors into paying up. Riffee — like her tax-collector friends Sana and Kohan — is physically a man, but prefers to be called and dress as a woman. Their job is quite simple: each morning they turn up to work and get a list of missed payments. One by one, they make house-calls, causing trouble at each debtor’s home or office, trying to get them to pay up. It’s not clear how effective this tactic is, but officials insist they would not do it if it did not work. “Their appearance causes great embarrassment amongst the people,” said Sajid Hussein Bhatti, the tax superintendent who gives Riffee her orders every morning.

Pakistan does have a lot of tax evasion, to be sure, but the unwillingness to comply is actually just a symptom of high tax rates and and a corrupt government. People don’t like paying tax when they feel like they are getting ripped off to finance a wasteful public sector. That’s true in Pakistan, Greece, and just about every other nation. That’s why lower tax rates are the best way to boost compliance.

(h/t Pejman Yousefzadeh)

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