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.
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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[…] hoping the Panama Paper” issue will quickly fade from the news (as happened after a similar data theft from BVI in 2013) for the simple reason that even left-leaning reporters will get bored when they […]
[…] hoping the “Panama Papers” issue will quickly fade from the news (as happened after a similar data theft from BVI in 2013) for the simple reason that even left-leaning reporters will get bored when they […]
[…] hoping the “Panama Papers” issue will quickly fade from the news (as happened after a similar data theft from BVI in 2013) for the simple reason that even left-leaning reporters will get bored when they […]
[…] ground-breaking exposé with huge ramifications, but it turned out to be a tempest in a teapot. As I pointed out at the time, all that we really learned is that people who use offshore services are generally honest and […]
[…] ground-breaking exposé with huge ramifications, but it turned out to be a tempest in a teapot. As I pointed out at the time, all that we really learned is that people who use offshore services are generally honest and […]
[…] ground-breaking exposé with huge ramifications, but it turned out to be a tempest in a teapot. As I pointed out at the time, all that we really learned is that people who use offshore services are generally honest and […]
[…] this information was made public, libertarians such as Cato economist Dan Mitchell came to the BVI’s defense, arguing that the small tropical paradise and other places like it promote tax competition and […]
[…] this information was made public, libertarians such as Cato economist Dan Mitchell came to the BVI’s defense, arguing that the small tropical paradise and other places like it promote tax competition and […]
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I am a veteran (retired) of offshore tax havens, 35 years resident in the Cayman Islands, and former manager and sometime director of our local Chamber of Commerce. I have a blog that carries several reasonably well-written essays in defence (defense, yes of course!) of offshore havens; the most recent is one in January called “What tax havens do”.
I’ve just discovered this International Liberty website, and I’m delighted to learn of its existence. Although I’m not involved in tax-haven work these days, I retain an interest in the subject, and am a strong opponent of income tax for individuals and profits tax for corporations.
I will take issue with your map of countries most to blame for money-laundering and terrorist-financing. It’s a travesty. The US and Britain would be at the head of every list composed by every self-respecting tax-haven professional, with the usual suspects – Israel, Germany and France – running them close. Iran?? Oh, please! Surely you jest.
“Couldn’t there be something less amoral, like educating people to choose leaders that are not for big government and high taxes and to find dignity in work, etc?”
It’s perfectly moral for me to protect my hard-earned money from a mob of greedy, entitled SOBs. Morality should determine legality, but the reverse isn’t true beyond the practical imperative to play the hand you’re dealt.
You’re trying to be moderate, but they’ll give no quarter and there’s no limit to confiscatory taxation. Cyprus revealed (again) that if you can’t earn enough they’ll just take it straight out of your savings. And if you think you’re safe turning it into gold, look at executive order 6102, passed by FDR in 1933.
And it’s not a problem of education, it’s ideological, and it’s very hard to penetrate. The totalitarian mindset does not grasp that individuals produce anything. “You didn’t build that” isn’t a slogan, it’s a core belief. Everything must come from a great All-Provider. So when you talk about free markets to a totalitarian, they just assume that you’re lobbying for a corporate all-provider instead of their government all-provider.
The western world is on the cusp of a better era. The dream is finally materializing. We’re about to outlaw heaven !
Service to the public shall be extracted from all. Or at least from enough to achieve a four percent annual growth trendline and stave off decline.
Countries with this level of economic freedom and incentives to production will not stay on top for long. Americans are now burning through past momentum – momentum accumulated when Americans’ freedom differential to the rest of the world was vast. But the rest of the world woke up while America is falling into the standard siren song of statism (why should she be expected to avoid such fate really?). But burning through momentum is doomed to be a short lived phase of delusion.
For those who can see the forest for the trees, the past economic crisis was just a chapter in this overall theme where the western world’s standard of living is converging to the world average. It just so happened that the housing bubble was the weakest sandbag to give way and led to the correction. But the root cause is much deeper. It is the overall ideological convergence of the western world and America to the world average.
Three billion emerging world souls are moving towards more freedom, while the western world moves towards more statism. Convergence is well under way already – in case you have not noticed. The west is due for another major correction. Protracted wretched steady decline? One or more abrupt corrections separated by relative calm? The details of the decline mode are much harder to tell. The chaotic and fractal like behavior of a seven billion intelligent species are too complex to predict. Hard to tell which one is the next weakest sandbag. But from a macro perspective it is irrelevant, and the final outcome is unavoidable:
With productivity incentives converging, so will prosperity – inevitably. That is a reality that no one can escape – a principle akin to conservation of energy applied to economics. Prosperity cannot exceed production. The mechanics of the exact decline are harder to predict – and irrelevant from a macro perspective.
But from a micro perspective the details are very-very important as some of us will fare far better and end up making the best of a bad situation, while the oblivious voter-lemming masses around us decline into a future of their own making. Many (e.g. HopNChangers) will keep working with some momentum, resting their hopes on the futile perpetual economic motion machinations of Paul Krugman who will continue to sell the potion of increased production through decimation of incentives. Eventually reality will catch up with the momentum driven HopNChangers buried in their cubicles. But for now, they will work with some remaining enthusiasm. That is a wave that can be ridden by the rest of us, for a while…
…so prepare for the decline while at the same time enjoy and take full advantage of the smorgasbord years. The years we consume what was accumulated when America’s freedom differential to the rest of the world was vast. So first secure yourself a life raft for when America becomes France. Then you can relax a bit and join the smorgasbord.
Are tax havens the only possible competition model to in-country tax systems? Couldn’t there be something less amoral, like educating people to choose leaders that are not for big government and high taxes and to find dignity in work, etc?
You hit it. Again. People broke into a house, stole private information, and looked through billions of lines of private information of normal people, looking for a few lines of people that they had already determined were guilty anyways.
The same work could have been done at the grocery store.
Dan
You are 100% right! Never give up
Good comment Patric, and right on point. The “Fair Share” is 100% of all tax revenue, didn’t you know… 🙂
Dan – We met many years ago; I’m a Director of ACA. I just wante dot congratulate you on your constant fearlessness in pointing out that our money does NOT belong to the Federal government, and the only true guarantee against government confiscation or simply incompetent spending remains our freedom to move it out of their reach! Those with financial means will ALWAYS be in the political minority in EVERY country. Yet it is on their shoulders to effectively pay for most of the costs of government. In America, “certain parties” (no names…) continue to blather about how the “rich don’t pay their fair share” – while never actually saying what that “fair share” is. Yet the statistics are undeniable and open for all to see at the IRS website (www.irs.gov) that the top 20% of earners in America pay 80% of all of the taxes to the Federal government. I think, therefore, it is only “fair” to ask our President just what exactly does he think a “fair share” is? Those making under $50,000 in AGI constitute well above the majority of taxpayers, yet contribute only 8% of all tax revenue to the Federal government. Yet the result of President Obama’s “fair share” demogoguery have them thinking that THEY pay the most and the rich get off scott free! What a surprise they would have if the wealthy simply decided to pack up and leave! Keep up the fight!