Why? Because if they’re not constrained by the fear that taxpayers can escape, I worry that short-sighted politicians (i.e., “stationary bandits“), will over-tax and over-spend.
And that can lead to Greek-like fiscal and economic chaos, which I’ve referred to as “goldfish government.”
Now let’s consider a wonky aspect of this debate. In order for tax competition to be an effective constraint on the greed of politicians, taxpayers need an ability to actually benefit from better tax policy in other jurisdictions.
These jurisdictions had very strong human-rights laws with regard to financial privacy and – equally important – they did not view it as their responsibility or obligation to help enforce the bad tax policies of high-tax governments.
All of which explains why those high-tax governments were so determined to destroy financial privacy as part of their broader fight to replace tax competition with tax harmonization.
In part, this was a fight over fiscal policy. High-tax governments wanted the ability to track money around the world so they could impose extra layers of tax on income that is saved and invested.
But this was also a fight about legal principles, especially the concept of “dual criminality” – which is the idea that governments only help each other enforce laws where there is mutual agreement about what’s legal and illegal.
The tax havens not only had strong human rights laws regarding privacy, but they also had various types of tax laws (no income taxes, territorial tax systems, no tax bias against saving and investment) that were incompatible with the onerous tax policies in most nations.
The net result was that high-tax governments couldn’t track and tax the money. And this made me happy because politicians from those nations instead faced pressure to lower tax rates.
But I’m not happy any more. Sadly, the big nations of the world have largely prevailed in their anti-tax competition campaign. At least with regards to financial privacy.
Even the Swiss agreed to weaken their human rights policies so high-tax nations could impose extraterritorial tax enforcement, notwithstanding the absence of dual criminality (in this case, Goliath beat David).
This was bad news. No longer constrained by the principle of dual criminality, politicians now feel more empowered to boost tax rates.
As you might imagine, my leftist friends usually dismiss my concerns. But I’m guessing they will change their tune about extraterritoriality after reading this column in the New York Times.
The authors (David S. Cohen, Greer Donley and Rachel Rebouché) are very worried that some states want to impose their abortion laws outside their borders. Here are some excerpts.
Some states will go beyond banning abortion within their borders. They will try to impose their policy preferences on other states, in an attempt to stop their citizens from getting abortions anywhere at all. …it will be up to abortion-supportive states to determine the future of abortion law and access. …All states have statutes that require their civil and criminal courts to assist in another state’s depositions, subpoenas and legal processes. Abortion-supportive states could amend these laws; such states could prohibit their courts from cooperating with out-of-state civil and criminal cases that stem from abortions that took place legally within their borders. To further protect abortion providers, states could block their law enforcement agencies from cooperating with out-of-state investigations related to the provision of otherwise lawful abortions. And they could change their extradition laws to refuse to extradite abortion providers… States where abortion remains legal can instruct their medical boards and in-state malpractice insurance companies to abstain from taking any adverse action against providers who give out-of-state patients abortions that are legal in the provider’s state.
In a world where people are intellectually honest, they will have consistent views on dual criminality, regardless of the underlying laws.
I strongly suspect, however, that most of my left-leaning friends will now embrace the principle of dual criminality as a constraint on extraterritoriality while still thinking it is good that low-tax jurisdictions have been coerced into acting as vassal tax collectors for high-tax governments.
Heck, some of my right-wing friends also will be hypocrites. They will support fiscal sovereignty but embrace extraterritoriality for abortion laws.
The bottom line – regardless of how we feel about tax policy or abortion policy – is that the power of governments should be constrained by borders.
If you don’t like the tax laws of Jurisdiction A or the abortion laws of Jurisdiction B, work to change those laws by devoting your time, energy, and money to an issue campaign. That’s the right approach, especially when compared to trying to achieve the same goals by using the laws of Jurisdiction C or Jurisdiction D.
P.S. The battle over the taxation of online sales was really a fight over whether businesses in some states could be forced into enforcing the tax laws of other states.
P.P.S. As a result of my efforts to protect tax havens, I’ve been subjected to slurs, attacks, and even potential imprisonment.
From the perspective of politicians, it’s easy to understand why they want a tax cartel. it’s a way for them to get their hands on more money. Just as gas stations would want a system that rigs gas prices at a high level. Or grocery stores would want a system to rig high food prices.
From the perspective of taxpayers, however, tax competition is much better. Politicians have a much harder time raising tax rates (and in many cases feel pressure to lower tax rates) when they know that jobs and investment can shift across borders from high-tax nations to low-tax nations.
As illustrated by this visual.
To explore this issue in greater detail, let’s look at a new article, written by Sven Larson for the European Conservative.
First, a quick history of the global campaign against low taxes. …it has been spearheaded by the Organization for Economic Cooperation and Development, OECD. This government-funded international think tank has built an international cartel of more than 130 governments to battle tax competition. …People who want to keep more of their own money, and who want to enjoy strong privacy laws, are being told by the OECD and the tax cartel that their financial planning is “harmful.” The purpose behind the OECD-led campaign is both sinister and transparent: to make sure taxpayers in high-tax countries have no low-tax options. …It won a big victory this past summer when the countries in the G-7 group complied with the directives of the OECD and agreed to create a global minimum corporate-income tax.
Sven also makes a great point about how the corporate tax cartel is just the beginning.
This tax cartel is only the beginning. Once countries with costly governments have created a Berlin Wall around their high-tax jurisdictions, they will be free to collude on other taxes beyond the corporate income tax. Personal income taxes, wealth taxes, death taxes… there is no end to the imagination of a government that does not have to worry about tax competition.
You should read the entire article. But for purposes of my column, I’m going to highlight one additional point – which is Sven’s observation about how human rights are better protected in a world where people can safely invest their money where national governments can’t grab it.
There are also reasons related to individual freedom to preserve low-tax jurisdictions. To take just one example, in 2017, …Turkish President Erdogan accused investors of “treason” if they moved their assets out of the country. Erdogan’s comments, France24 explains, came on the heels of Turkish prosecutors seizing the assets of an investor who had testified in a court in New York on how a Turkish bank circumvented U.S. sanctions against Iran. The asset seizure easily comes across as retaliatory and meant to send a signal to others who might act in ways that would displease Mr. Erdogan. A total of 23 individuals were affected by the asset seizure. If these individuals had been able to shield their assets from the Turkish government, they would have been free to oppose the Erdogan regime while working, investing, and developing their businesses.
Especially when you consider that politicians have a very strong tendency to over-tax and over-spend (leading to goldfish government) in the absence of some sort of external constraint.
Supporters of the initiative said I was exaggerating, and that the OECD, acting on behalf of the high-tax nations that dominate its membership, simply wanted to reduce tax evasion. Indeed, some advocates even said that the effort could lead to lower tax rates.
That was a nonsensical claim. I actually read the various reports issued by the Paris-based bureaucracy. It was abundantly clear that the effort was based on a pro-tax harmonization theory known as “capital export neutrality.”
And, as I documented in my first study on the topic back in 2000, the OECD basically admitted the goal of the project was to enable higher taxes and bigger government.
Low-tax policies “unfairly erode the tax bases of other countries and distort the location of capital and services.”
Tax competition is “re-shaping the desired level and mix of taxes and public spending.”
Tax competition “may hamper the application of progressive tax rates and the achievement of redistributive goals.”
The OECD’s agenda was so radical that it even threatened low-tax jurisdiction with financial protectionism if they didn’t agree to help welfare states enforce their punitive tax laws.
At first, there was an effort to push back against the OECD’s tax imperialism – thanks in large part to the creation of the pro-competition Center for Freedom and Prosperity, which helped low-tax jurisdictions fight back (I almost got thrown in a Mexican jail as part of the fight!).
But then Obama got to the White House and sided with Europe’s big welfare states. Lacking the ability to resist the world’s most powerful nations, low-tax jurisdictions around the world were forced to weaken their human rights laws on privacy so it would be easier for high-tax countries to track and tax flight capital.
Once that happened, was the OECD satisfied?
Hardly. Any victory for statism merely serves as a springboard for the next campaign to weaken tax competition and prop up big government.
Indeed, the bureaucrats are now trying to impose minimum corporate tax rates. Let’s look at some excerpts from a report in the U.K.-based Financial Times.
…large multinationals could soon face a global minimum level of corporate taxation under new proposals from the OECD… The Paris-based organization called…for the introduction of a safety net to enable home countries to ensure their multinationals cannot escape taxation, even if other countries have offered them extremely low tax rates. …The proposals would…reduce incentives for countries to lower their tax rates… The OECD said: “A minimum tax rate on all income reduces the incentive for…tax competition among jurisdictions.”
Sadly, the Trump Administration is not fighting this pernicious effort.
Indeed, Trump’s Treasury Department is largely siding with the OECD, ostensibly because a one-size-fits-all approach is less bad than the tax increases that would be imposed by individual governments (but also because the U.S. has a bad worldwide tax system and our tax collectors also want to reach across borders to grab more money).
Last but not least, here are two visuals that help to explain why the OECD’s project is economically misguided.
First, here’s the sensible way to think about the wonky issue of “capital export neutrality.”
Yes, it would be nice if people could make economic decisions without having to worry about taxes. And sometimes people make inefficient decisions that only make sense because they don’t want governments to grab too much of their money.
So I have mixed feelings about this video from Dalibor Rohac of the American Enterprise Institute.
I can’t resist nit-picking on some of his points.
Brexit was unquestionably a vote about the merits of membership in the European Union. The 2016 presidential election was about a lot of issues (trade, immigration, Hillary Clinton, etc). The United Nations was an asterisk at most.
A nation can import flags (or anything else) while retaining sovereignty. A nation can also make a sovereign choice to abide by a certain set of trade rules, such as the World Trade Organization.
While I have disagreements with Dalibor, that definitely doesn’t put me in the same camp as Donald Trump.
The President is an incoherent mix. He combines odious protectionism with mostly-empty rhetoric about globalism. And he does all that without understanding issues – and, in some cases, his actions are contrary to his rhetoric.
Dan Henninger wrote about these issues two days ago for the Wall Street Journal.
Global governance is one distressing possibility. Henninger worries about Chinese-style administrative authoritarianism.
President Trump at the United Nations this week elaborated on his long-running antagonism toward globalism. …There is merit to these concerns, but I think the critics of “globalism,” including most prominently Mr. Trump, underestimate the near-term danger of the serious difficulties appearing today in national democratic governance. Democracies maintain their legitimacy in the public’s eye only if they demonstrate a reasonable capacity to address society’s inevitably complex challenges. …it’s clear that many of the 21st century’s independent nations are having a remarkably difficult time executing their sovereign responsibilities. …Mr. Trump’s concerns about undemocratic governance by remote international bureaucracies are plausible, but the greater threat is more imminent. If the expansion of an increasingly dysfunctional administrative state inside the world’s sovereign democracies is inexorable and unreformable, the future will belong to China’s brand of administrative authoritarianism. …Elizabeth Warren and her multiple plans—heavily dependent on criminal prosecutions and intense oversight—is flirting with a milder version of this future.
Henninger is certainly correct that nations mostly get in trouble because of their own mistakes.
For instance, I’ve pointed out that the fiscal crisis in Europe should not be blamed on the euro.
Let’s now look at an interesting column that John Bolton (Trump’s former National Security Advisor) wrote on global governance for the U.K.-based Times back in 2016. Here are some of the key passages.
He makes the should-be-obvious point that not all international bureaucracies are alike.
…international organisations sometimes act as if they are governments rather than associations of governments and sprout bureaucracies with pretensions beyond those of cosseted elites in national capitals. …International bodies take many different forms, and it serves no analytical purpose to treat them interchangeably. Nato, for example, is not equivalent to the United Nations. Neither is equivalent to the European Union. Each has different objectives, and different implications for constitutional and democratic sovereignty. …Nato is America’s kind of international partnership: a classic politico-military alliance of nation states. It has never purported to assume sovereign functions, and is as distant as is imaginable from the EU paradigm.
He explains that some of them – most notably the IMF – are counterproductive and should be shut down.
Proposals to reform the UN and its affiliated bodies such as the World Bank and the IMF are almost endless. The real question is whether serious, sweeping reform of these organisations…is ever possible. …In 1998, during the Asian financial crisis, the former secretaries of the Treasury William Simon and George Shultz, and Walter Wriston, a former chairman of Citibank, wrote in The Wall Street Journal: “The IMF is ineffective, unnecessary, and obsolete. We do not need another IMF, as Mr. [George] Soros recommends. Once the Asian crisis is over, we should abolish the one we have.” …We should consider privatising all the development banks… We should ask why US taxpayers are compelled to provide subsidised interest rates for loans by international development banks.
…the Brexit referendum was, above all else, a reassertion of British sovereignty, a declaration of independence from would-be rulers who, while geographically close, were remote from the peasantry they sought to rule. …The Brexit decision was deplored by British and American elites alike… It does not surprise Americans that British elites have not reconciled themselves to losing… London and Washington can fashion a new economic relationship, perhaps involving Canada, with the potential for significant economic growth. Let the EU wallow in strangling economic regulation, and the euro albatross that Britain wisely never joined.
The good kind involves trade, peaceful interaction, and jurisdictional competition, all of which are consistent with sovereignty.
The bad kind of globalism involves international bureaucracies acting as supranational governments – almost always (as Nobel laureate Edward Prescott observed) with the goal of enabling and facilitating a larger burden of government.
I was interviewed yesterday about the economy. That meant talking about new jobs numbers, as well as speculating on what’s happening with the Federal Reserve.
For today’s column, though, I want to share the part of the interview that focused on the United Kingdom’s vote to leave the European Union.
If “Brexit” actually happens, there will be diminished trade between the United Kingdom and the European Union. That will be bad for both sides.
That being said, I pointed out that the United Kingdom is better positioned to prosper after Brexit. That’s definitely the case in the long run, but I think it could be true even in the short run.
By the way, at the end of this clip, I should have stated that the European Union doesn’t want to strike a mutually beneficial deal.
But the bureaucrats are so upset with Brexit that they won’t agree to a free trade agreement that would be good for both parties.
Since we’re on the topic of Brexit, here’s a radio interview I did with KABC, one of the big stations in Los Angeles. I had much more time to explore nuances, including the fact that the opposition parties don’t want an election since they fear it will produce a strong majority in favor of a Clean Brexit.
There are three things about the interview worth highlighting.
First, as I explain starting about 3:15, Brexit is like refinancing a mortgage. It might cost a bit in the short run, but it makes sense because of the long-run savings. Indeed, that was my main argument when I wrote “The Economic Case for Brexit” back in 2016, before the referendum.
Second, as I explain starting about 6:15, the same people who oppose Brexit were also the ones who wanted the U.K. to be part of the euro (the European Union’s common currency). Given what’s happened since, including bailouts, joining the euro would have been a big mistake.
Third, starting about 11:50, I put forth an analogy – involving a hypothetical referendum to repeal the income tax in the United States – to illustrate why the issue is arousing so much passion. This is basically the last chance Britons have to reclaim self-government.
By the way, returning to the second point, the anti-Brexit crowd were the ones who tried to scare voters (“Project Fear”) by claiming a vote for Brexit would tip the U.K. into recession.
They were wrong on the euro, they were wrong on the economic response to the Brexit vote, and they’re wrong about actual Brexit.
In America, we say three strikes and you’re out.
P.S. If you want Brexit-themed humor, click here and here.
I’ve been waiting anxiously to write about Brexit, either to celebrate a “Clean Brexit” or to castigate Theresa May and the other politicians for a “Brexit in Name Only.”
Except Members of Parliament can’t make up their collective mind. They’ve been voting against good options and also voting against bad options.
So while we’re waiting for some sort of resolution, I’m going to augment our 2016 collection of Brexit-themed humor with some new items. We’ll start with this nice meme about the Queen deciding it’s time for a royal coup de grâce.
Next we have a new word for everyone’s dictionary.
One of the options being discussed in London is having another vote, which would be very consistent with the European tradition of requiring people to vote over and over again until they give the result desired by the elites.
At which point, as shown below, there are no more votes.
And I’ve saved the best for last, A satirist put together a clever song about the message British voters sent to the elite back in 2016 (warning: PG-13).
I especially like the references to the establishment’s hysterical doom-and-gloom predictions about what would happen (“Project Fear”) if voters opted for independence.
It’s a simple issue of what route is most likely to produce prosperity for the people of the United Kingdom. And that means escaping the dirigiste grasp of the European Union.
The European Union’s governmental manifestations (most notably, an über-powerful bureaucracy called the European Commission, a largely powerless but nonetheless expensive European Parliament, and a sovereignty-eroding European Court of Justice) are – on net – a force for statism rather than liberalization. Combined with Europe’s grim demographic outlook, a decision to remain would guarantee a slow, gradual decline….Leaving the EU would be like refinancing a mortgage when interest rates decline. In the first year or two, it might be more expensive because of one-time expenses. In the long run, though, it’s a wise decision.
But if I was rewriting that column today, I would change the title to “The Economic Case for Hard Brexit.”
That’s because Prime Minister Theresa May and other opponents are pushing for a watered-down version of Brexit. Sort of Brexit in Name Only.
Indeed, Dan Hannan, a member of the European Parliament, explains in the Washington Examiner that the deal negotiated by Theresa May is the worst possible outcome.
This is the sort of deal that a country signs when it has lost a war. Under its terms, Britain will remain subject to all the costs and obligations of EU membership, but will give up its vote, its voice and its veto. …EU exporters will enjoy privileged access to the world’s fifth-largest economy. They won’t need to worry about world competition. …In the two-and-a-half years since the referendum, civil servants, politicians, financiers and politically-connected business cartels have worked assiduously to overturn to result. …Some, including George Soros and Tony Blair, sought to overturn the result outright with a new referendum. Others, more craftily, sought instead to ensure that, while something technically called Brexit may happen, nothing actually changes. Sadly, they have achieved something far worse than no change. Their deal — Theresa May’s deal — will leave Britain in a more disadvantageous place than either leaving cleanly or staying put. It keeps the burdens of EU membership but junks the advantages.
Brian Wesbury and Bob Stein, both with First Trust Advisors, point out that Hard Brexit is the best option. Trade would continue, but based on WTO rules instead of the EU’s free trade agreement.
Some analysts and investors are concerned about a “Hard Brexit,” in which the U.K. supposedly plunges into chaos as it crashes out of the EU without an agreement. …Count us skeptical. …Any harm to the U.K.’s economy would be relatively mild… It’s not like there would be no trade between the U.K. and the EU after a Hard Brexit. Trade rules would simply shift to the ones that apply between the EU and other countries under the World Trade Organization, like those that apply to EU-U.S. trade.
While WTO rules are quite good, they’re not as good as complete free trade.
But there would be pressure to move in that direction under a Hard Brexit.
…the EU would be under enormous pressure to lower tariffs and cut a new deal with the U.K. In 2017, the rest of the European Union ran a roughly $90 billion trade surplus with the U.K. So if a Hard Brexit makes it tougher for the rest of the EU to export to the U.K., every national capital in the EU would be flooded with lobbyists asking to cut a deal. Meanwhile, leaving the EU means the U.K. would have the freedom to make free trade deals with the U.S. and Canada, and any other country it wanted, without having to wait for the EU. Yes, a Hard Brexit risks some financial jobs, but the same argument was used when the U.K. decided not to join the Euro currency bloc, after which London kept its role as Europe’s financial center.
For what it’s worth, I’m more interested in whether we can get a really good trade deal between the US and UK following a Hard Brexit.
Regardless, any possible slippage on trade between the UK and EU would be more than offset by the likelihood of better policy in other areas.
…there’s another basic reason why a Hard Brexit would be in the long-term interests of the U.K….any organization powerful enough to overrule the democratic process in the U.K. regarding economic laws and regulations…is also powerful enough to impose anti-free market policies… And, over time, since men are not angels and power corrupts, any international body with such power would gravitate toward policies that aggrandize the international political elite… In fact, the EU has already issued rules that stifle competition, like setting a standard minimum Value-Added Tax rate.
Felix Hathaway from London’s Institute of Economic Affairs, debunks Project Fear in an article just published by Cayman Financial Review.
…the only option ahead with a clear path, and requiring no new legislation in parliament, is some form of ‘Hard Brexit.’ …By Hard Brexit I mean the U.K. leaving the EU on March 29 without a withdrawal agreement. Unlike most other options, this does not require the cooperation of the EU to proceed. In this scenario, the U.K. leaves both Single Market and Customs Union of the European Union at 11 p.m. on March 29, 2019, along with leaving the various political institutions of the EU and the jurisdiction of the Court of Justice of the EU. …many of the more alarming warnings of no cooperation at all can be dismissed as fanciful. A more believable ‘no deal’ Brexit might look as follows. …the Commission is doing all it can to publicly rule out this sort of “managed no deal,” yet in doing so has stated that it would unilaterally extend agreements in selected sectors, including for financial services, following a WTO exit. …one could reasonably expect further agreements, possibly at the 11th hour in March… These would likely cover citizens’ rights, road haulage, and facilitated customs checks for certain classes of goods, and would be negotiated with the member states with which the U.K. does the most business.
For what it’s worth, I think vindictive EU bureaucrats probably want to inflict some needless harm, even though it will hurt them as much – and maybe more – than it would hurt the UK.
But Felix is right that common sense – sooner or later – will lead to agreements to smooth over any bumps in the transition. Indeed, he just wrote another article demonstrating how this is already happening.
Here’s the most important part of his article, which I like because it echoes my arguments about the pressure for better policy in an independent United Kingdom.
Ultimately, the most significant factor will be domestic policy decisions by the U.K. government, particularly in areas of taxation and housing. This may be fairly unexciting news at the end of an article about Brexit, but if the U.K. is to succeed as a “free trading, buccaneering nation,” such success will depend in large part on the ability of companies to attract investment through low corporate taxes, and the ability of workers to move to where they will be most productive through further housebuilding in key areas. …perhaps as an unexpected consequence of the conversation surrounding Brexit,… A recent ComRes poll found that, although divided on almost every other aspect, a clear two thirds of voters agree that when Brexit is complete, “the U.K. should try to become the lowest tax, business-friendliest country in Europe, focused on building strong international trade links.”
The Cockburn column in the Spectatormocks the New York Times for its anti-Brexit fanaticism.
The Times usually supports democracy in backward and violent states, but it hates Brexit. No news is too fake for the Times to print when it comes to Brexit. This week, the Times hit new heights of fantasy. ‘Roads gridlocked with trucks. Empty supermarket shelves. An economy thrown into paralysis,’ a would-be novelist named Scott Reyburn wrote earlier this week. His story, ‘As Brexit Looms, the Art World Prepares for the Fallout’, was recycled as a front-page item on the Times’s international edition. …Britain is in a ‘crazed Brexit vortex’, adds Roger Cohen, holder of the Tom Friedman Chair in Applied Chin-Stroking. …Yes, the British government are useless. But nobody in London is stockpiling food. Nobody is fighting in the streets, as the French are every weekend. The markets factored in their Brexit uncertainty two years ago. The supermarkets and roads are as jammed as ever. …The economy is doing much better than the Eurozone, which is slipping into recession. Polls show the British, who the Times characterize as sliding down a neofascist vortex, to be more welcoming of immigration than any other European people.
I’m mostly sharing his column because this satirical paragraph got me laughing.
The scene that met Cockburn’s eyes upon exiting the terminal at Heathrow reminded him of his days as a foreign correspondent during the Lebanese civil war, or a night out in south London. A dog was eating the innards of a corpse, because supplies of Romanian dog food have broken down. A naked fat man had carved off a slice of his own buttock and was roasting it over a burning tyre, because imports of Bulgarian lamb are held up at Calais. A woman offered to prostitute herself for an avocado, and to sell both of her blank-eyed children for a packet of French butter. There were no black taxis either, because London’s notoriously pro-Brexit taxi drivers had all joined one nationalist militia or other. Finally, a black-market cheese dealer with a rocket launcher affixed to the back of his pickup agreed to take Cockburn into the city. They bribed their way through the checkpoints with wedges of brie. Or not.
Here’s a new Brexit-related installment in the series.
Not as clever as the first Hitler parody I shared as part of my collection of Brexit humor, but it has some funny moments.
And if you have time, this Brexit tapestry is quite amusing.
P.S. There are some anti-Brexit people who support free markets, which is rather baffling since I can’t imagine why they would want the U.K. to be part of a bureaucracy that tries to brainwash children in favor of higher taxes. Indeed I was only semi-joking when I wrote that Brussels was “the most statist place on the planet.”
P.P.S. Though there are many reasons to question whether U.K. politicians can be trusted to adopt good policy.
But that’s besides the point. What’s really needed is a case-by-case analysis to determine whether the aforementioned treaties and organizations are making the world a better place.
To help understand this topic, let’s look at some excerpts from an anonymously authored article in the latest issue of Cayman Financial Review.
What is the oft-cited “postwar order” that ostensibly is being threatened by populism? …begin with some history. There have been three major attempts to create an international architecture in hopes of discouraging war and encouraging peaceful commerce among world’s countries. The first occurred after the Napoleonic wars, the second occurred after World War I, and the third occurred after World War II.
The article explains that first postwar order was a big success, with 100 years of relative peace and prosperity between 1815 and 1914.
But the second postwar order, which followed World War I, was a miserable failure.
…the urgent economic problems that World War I had created – the need for demobilization, the restoration of the gold standard, the resumption of international trade flows, and the reconstruction of war-ravaged areas. Reparations burdened Germany and contributed to hyperinflation. …Germany depended on American loans to make its reparations payments to France and the United Kingdom. In turn, France and the United Kingdom depended on German reparations to repay their wartime loans from the United States. This financial merry-go-round was inherently unstable. …In the 1930s, many countries tried economic nationalism to escape from the Great Depression. Abandonment of the interwar gold standard, high tariffs to discourage imports, and competitive devaluations to boost exports became widespread. However, these “beggar-thy-neighbor” failed economically, caused the collapse of international trade, and contributed to rising international tensions.
And this grim experience was in the minds of policymakers as they sought to restore a system based on peace and open commerce.
…neither Churchill nor Roosevelt wanted to punish ordinary Germans, Italians or Japanese. Instead of the postwar harshness of Clemenceau, Churchill and Roosevelt favored the postwar magnanimity of Metternich, in which Germany, Italy, and Japan would be reconstructed as democratic capitalist countries. …both Churchill and Roosevelt thought that other new international organizations would be needed to help finance postwar reconstruction, provide stable exchange rates, and promote the progressive liberalization of international trade. …At the risk of oversimplifying, there are four major pieces of what is now loosely though of as the postwar order.
1. The United Nations and other multilateral bodies
2. The International Monetary Fund and World Bank
3. The World Trade Organization and affiliated trade pacts
4. NATO and other military/security alliances
The article is filled with details on how these various institutions evolved.
But for our purposes, let’s focus on ostensible threats to this order. Here’s what “Hamilton” wrote.
All four components of the current international architecture have critics, but they should be examined separately.
The United Nations is routinely condemned for being ineffective, wasteful and anti-Western. However, the UN part of the post-war order is not under serious threat. However, the OECD is subject to considerable attacks because of its statist policy agenda.
The IMF and World Bank are routinely condemned for being wasteful and anti-market. The IMF also is singled out for bailout policies that are said to encourage profligacy in developing nation and to reward sloppy lending practices by big western banks. Notwithstanding the instability than many say is caused by the IMF, this part of the postwar order is not under serious threat.
The WTO and regional FTAs are under threat from a populist backlash in the United States and Europe, driven in large part by angst over financial prospects for lower-skilled workers. This part of the postwar order is under serious threat, especially because U.S. laws give the president significant unilateral powers over trade policy.
NATO and other security arrangements are being questioned for both cost and changing geopolitical factors (e.g., the rise of China, Islamic terrorism). While unlikely at this point, dramatic policy changes from the United States could substantially alter the structure and/or operation of these military alliances.
How depressing. The part I like is the part that is under assault.
Here are the key points from the article’s conclusion.
The so-called postwar order is not a monolithic entity. …Some have been very successful. Consider, for instance, the sweeping reduction in trade barriers and the concomitant rise in cross-border commerce. …But other parts of the post-war order do not have very strong track records. Bureaucracies such as the IMF and OECD arguably deserve some hostile attention because of their support for anti-market policies. Policymakers who want to preserve the best parts of the post-war order may want to consider whether it is time to jettison or reform the harmful parts.
This is spot on.
Parts of the “postwar order” should be preserved. The World Trade Organization definitely belongs on that list. And presumably nobody wants to disrupt or eliminate the parts of the “international architecture” that facilitate things such as cross-border air travel, international shipping, and global telecommunications.
But the helpful work of those entities doesn’t change the fact that other entities engage in activities that are counterproductive. A “rules-based order” is only good, after all, if it advancing good rules.
Needless to say, the answer to all of these questions is no.
Which brings to mind the old saying about “Don’t throw the baby out with the bathwater.”
As “Hamilton” wrote, the bad parts of the postwar order should be jettisoned to preserve the good parts.
For those interested in this topic, Adam Tooze of Columbia University has a very interesting article on the same topic.
Published in Foreign Policy, his article basically applies a “public choice” description of how the current postwar order evolved. And he says it initially was not very successful
For true liberals in both the United States and Europe, who hankered after the golden age of globalization in the late 19th century, the resulting Cold War economic order was a profound disappointment. The U.S. Treasury and the first generation of neoliberals in Europe fretted against the U.S. State Department and its interventionist economic tendencies. Mavericks such as the young Milton Friedman—true advocates of free markets in the way we take for granted today—demanded a bonfire of all regulations. …The reality of the liberal order that supposedly came into existence in the postwar moment was the more or less haphazard continuation of wartime controls. It would take until 1958 before the Bretton Woods vision was finally implemented. Even then it was not a “liberal” order by the standard of the gilded age of the 19th century or in the sense that Davos understands it today. International mobility of capital for anything other than long-term investment was strictly limited.
Tooze argues that genuine liberalism (i.e., open markets and trade) didn’t really take hold until the 1980s, with the market-based revolution of Thatcher and Reagan, the “Washington Consensus,” and the collapse of communism.
The stakeholders in the 1970s were obstreperous trade unions, and that kind of consultation was precisely the bad habit that the neoliberal revolutionaries set out to break. …the global victory of the liberal order required a more far-reaching struggle. …the market revolution of the 1980s… the aftermath of the Cold War, the moment of Western triumph. …the defeat of inflation, this was the age of the Washington Consensus.
For those not familiar with this particular piece of jargon, the “Washington Consensus” refers to the 1980s-era acceptance of free markets as the ideal route for economic development.
And “neoliberal” refers to classical liberalism, not the modern dirigiste version of liberalism found in the United States.
The image uses the example of trade and jurisdictional competition, so I don’t pretend is captures all the issues and controversies that we discussed today.
But it reinforces why it is wrong to blindly accept and support the anti-market components of the postwar order simply because there are other parts that deserve our support. The goal is more global prosperity, not less.
I just spent several days in London, where I met with journalists and experts at think tanks to find out what’s happening with Brexit.
By way of background, I think voters in the UK made the right decision for the simple reason that the Brussels-based European Union is a slowly sinking ship based on centralization, harmonization, and bureaucratization.
Membership already involves onerous regulations, and remaining a member of the EU would mean – sooner or later – sending ever-larger amounts of money to Brussels, where it then would be used to prop up Europe’s failing welfare states.
Getting out may involve some short-term pain, but it will avert far greater pain in the future.
At least that was the theory.
The reality is that the Tory-led government in London has made a mess of the negotiations. The newly announced deal isn’t a real Brexit.
Writing for the Telegraph, Dan Hannan, a British member of the European Parliament, sums up why the deal is a joke.
The deal, as one Italian newspaper puts it, represents “a resounding victory for the EU over Her Majesty’s subjects”. Yet there was nothing inevitable about this climbdown. On the contrary, there is something extraordinary, awe-inspiring even, about the slow-witted cowardice that led British negotiators to this point. …there is something extraordinary, awe-inspiring even, about the slow-witted cowardice that led British negotiators to this point. …the disastrous acceptance of the EU’s sequencing, which meant that all British leverage, including the exaggerated financial contributions, would be tossed away before the EU even began to discuss trade. …Can you blame Eurocrats for gloating? They sensed right at the start that they were dealing with a defeated and dispirited British team, whose only objective was to come back with something – anything – that could be described as a technical fulfilment of the referendum mandate. …we have ended up with the sort of deal that a defeated nation signs under duress. Britain will be subject to all the costs and obligations of EU membership with no vote, no voice and no veto.
But it gets worse.
Unbelievably, Britain has given the EU a veto over whether it can leave these arrangements: unlike EU membership itself, we have no right to walk away. Brussels will run our trade policy, our economy, even elements of our taxation for as long as it likes. As the usually Euro-fanatical Bloomberg asked incredulously last week, “Once Britain has acceded to this, what reason is there for the EU to agree to any other kind of deal?” …Leavers never did “own” this process. From the start, it has been controlled by those who wished it wasn’t happening, and who defined success as salvaging as much as they could of the old dispensation.
That final sentence is key. Theresa May was not a Brexit supporter. She failed to play some very strong cards and she basically worked to come up with a fake Brexit.
It remains to be seen, though, whether Parliament will approve this humiliating package. The House of Commons will vote in about two weeks and here’s how the UK-based Timesdescribes the possible outcomes if the plan gets rejected.
Scenario 1: a second Commons vote The prime minister fails to secure Commons support for her withdrawal agreement… Her response is to…then bring…it back for a second vote…, as happened in America after Congress initially rejected its government’s bank rescue plan in 2008. …Scenario 2: change of prime minister May fails to get the deal through and either resigns, or faces a confidence vote among Tory MPs which, if she lost, would also see her step down. …The question for Tory MPs would then be whether to back the deal mainly negotiated under May… Scenario 3: a second referendum A defeat for May could result in a second referendum but only if she or her successor supported it. Tory policy is to oppose a second referendum. …Scenario 4: no-deal Brexit Tory Brexiteers in the cabinet and in the party would respond to a defeat for the May proposals by pushing for a no-deal Brexit, or a “managed” no-deal. …Scenario 5: the Norway option Though there is no parliamentary majority at present for the May deal, or for no deal, there could be for a closer relationship with the EU. This could take the form of…the EEA (European Economic Area), the so-called Norway option.
For what it’s worth, I fear “Scenario 1.” Members of the Conservative Party are like American Republicans. They occasionally spout the right rhetoric, but most of them are go-along-to-get-along hacks who happily will trade their votes for a back-room favor.
So I will be disappointed but not surprised if this deal is enacted. It’s even possible it will be approved on the first vote.
My preference is for “Scenario 4” leading to something akin to “Scenario 5.”
A report from the Adam Smith Institute offers a user-friendly description of this “Norway option.”
We cannot however be subordinate to a supranational institution… Nor should we make do with a semi-detached position inside the EU that also gives us semi-detached influence while still constraining the UK in the wider world. …we have to leave and reform the relationship in a characteristically British, outward-looking and open way. …The UK therefore requires something of a “soft” exit that maintains open trade but removes Britain from political union and from all that Britain has consistently struggled with – the Common Agricultural Policy, the Common Fisheries Policy, the hollowing out and the outsourcing of democracy, the constraints on global trade deals.
And what does that look like?
…the most optimal way to exit would be to take up a position outside the EU but inside the European Economic Area (‘EEA’), which very likely means re-joining the European Free Trade Association (‘EFTA’). As Britain is already a contracting party to the EEA Agreement there would be no serious legal obstacle and it would mean no regulatory divergence or tariffs but it would mean retaining freedom of movement for EU/EEA nationals. …Such a deal would require agreement from the EU and EFTA but both would have strong reasons for allowing it…with the UK on board, EFTA would instantly become the fourth largest trade grouping in the world. …In short, EEA countries have a market-based relationship with the EU by having full single market access. They are free of the EU’s political union ambitions, and can class themselves as self-governing nation states. …The EEA position also opens up the ability to make trade agreements with third countries (something the UK cannot do now), would provide the UK with the freedom to set its own levels of VAT, and would allow the UK to step away from its joint liability of EU debts. That would be very attractive to Britain seeking a liberal soft exit.
Here’s a table showing the difference between EU membership and EEA membership.
Sounds like the outline of a acceptable deal, right?
Not so fast. The crowd in Brussels doesn’t want a good deal, even though it would be positive for the economic well-being of EU member nations. They have an ideological desire to turn the European Union into a technocratic superstate and they deeply resent the British for choosing self-government and democracy.
As such, the goal is to either maneuver the British government into a humiliating surrender (Theresa May was happy to oblige) or to force a hard Brexit, which would probably cause some short-term economic disruption.
But there was also resistance on the British end to this option since it ostensibly (but perhaps not necessarily) requires free movement of people. In other words, it might mean unchecked migration from EU/EEA nations, which arouses some nativist concerns.
Since I mentioned that a hard Brexit could lead to potential short-term economic disruption, this is a good opportunity to cite a very key section of Mark Littlewood’s recent column in the UK-based Times.
The Treasury has suggested that GDP could fall by as much as 7.7 per cent if Britain exited the EU without a deal. However, is there any reason to treat this projection any more seriously than the Treasury’s view that the Leave vote itself would lead to a recession and a reduction in GDP by between 3 per cent and 6 per cent? Almost all official predictions relating to the economic impact of the Brexit vote have been shown to be enormously over-pessimistic. Why should one assume that present forecasts are not beset by the same flaws?
Amen. The anti-Brexit crowd (the “remainers”) tried to win by arguing that a vote for Brexit would cause an economic collapse. That “Project Fear” was exposed as a joke (and was the target of some clever humor).
And the new version of Project Fear is similarly dishonest.
In a column for CapX, Julian Jessop of the Institute of Economic Affairs has additional details.
The public is being bombarded with warnings of potentially devastating impacts on the economy, their security and their welfare if the UK becomes a “third country” at 11pm on 29th March 2019, without the Withdrawal Agreement and framework for a future relationship anticipated in Article 50. …the daftest headline…is that a “no-deal” Brexit means that the UK would run out of food by August 2019 (the 7th, to be precise). This relies on the bizarre assumption that the UK would no longer be able to import food, not just from the EU but from anywhere in the world, and that we would continue to export food even as our own people starve. …it is often assumed that the EU would ignore its other legal obligations, including WTO rules. …the EU would not be able to treat the UK any less favourably than other WTO members.. Relying on the courts to fix things is also ra.rely a good idea. But it is absolutely right that the EU can’t go out of its way to make life difficult for the UK either.
Anyhow, this column is already too long, but here are links to four other CapX columns for interested parties.
I especially like the last column. One of the behind-the-scenes aspects of the Brexit debate is that the eurocrats in Brussels are scared that the UK will become more market-oriented once it has escaped the EU’s regulatory clutches.
And just as the EU has gone after Ireland and Switzerland for supposedly insufficient taxation, it also now is trying to hamstring the United Kingdom. All the more reason to escape and become the Singapore of Europe.
P.S. Donald Trump could help the United Kingdom by negotiating a quick and clean free-trade agreement. Sadly, that violates his protectionist instincts.
Moreover, Walter Williams and Thomas Sowell have already dissected his irrational ramblings on economics and explained that free markets are better for the poor. Especially when compared to government dependency.
But since Pope Francis just attacked tax havens, and I consider myself the world’s foremost defender of these low-tax jurisdictions, I can’t resist adding my two cents. Here’s what the Wall Street Journal just reported about the Pope’s ideological opposition to market-friendly tax systems.
The Vatican denounced the use of offshore tax havens… The document, which was released jointly by the Vatican’s offices for Catholic doctrine and social justice, echoed past warnings by Pope Francis over the dangers of unbridled capitalism. …The teaching document, which was personally approved by the pope, suggested that greater regulation of the world’s financial markets was necessary to contain “predatory and speculative” practices and economic inequality.
“The supranational dimension of the economic system makes it easy to bypass the regulations established by individual countries,” the Vatican said. “The current globalization of the financial system requires a stable, clear and effective coordination among various national regulatory authorities.”
And he said that governments should have more money to spend.
A section of the document was dedicated to criticizing offshore tax havens, which it said contribute to the “creation of economic systems founded on inequality,” by depriving nations of legitimate revenue.
What an amazing vote. The people of the United Kingdom defied the supposed experts, rejected a fear-based campaign by advocates of the status quo, and declared their independence from the European Union.
Here are some takeaway thoughts on this startling development.
2. Brexit is a vote against centralization, bureaucratization, and harmonization. It also is a victory for more growth, though the amount of additional long-run growth will depend on whether the UK government seizes the opportunity for lower taxes, less red tape, and a smaller burden of government.
3. President Obama once again fired blanks. Whether it was his failed attempt early in his presidency to get the Olympic Games in Chicago or his feckless attempt in his final year to get Britons to remain in the EU, Obama has a remarkably dismal track record. Maybe I can get him to endorse the Boston Red Sox, thus ensuring the Yankees make it to the World Series?
4. Speaking of feckless foreign leaders, but I can’t resist the temptation to point out that the Canadian Prime Minister’s reaction to Brexit wins a prize for vapidity. It would be amusing to see Trudeau somehow justify this absurd statement, though I suspect he’ll be too busy expanding government and squandering twenty-five years of bipartisan progress in Canada. Potential mea culpa…I can’t find proof that Trudeau actually made this statement. Even with the excuse that I wrote this column at 3:00 AM, I should have known better than to believe something I saw on Twitter (though I still think he’s vapid).
5. Nigel Farage and UKIP have voted themselves out of a job. A common joke in Washington is that government bureaucracies never solve problems for which they were created because that would eliminate their excuse for existing. After all, what would “poverty pimps” do if there weren’t poor people trapped in government dependency? Well, Brexit almost surely means doom for Farage and UKIP, yet they put country above personal interest. Congratulations to them, though I’ll missFarage’sacerbic speeches.
6. The IMF and OECD disgracefully took part in “Project Fear” by concocting hysterical predictions of economic damage if the U.K. decided to get off the sinking ship of the European Union. To the extent there is some short-term economic instability over the next few days or weeks, those reckless international bureaucracies deserve much of the blame.
7. As part of his failed effort to influence the referendum, President Obama rejected the notion of quickly inking a free-trade agreement with the UK. Now that Brexit has been approved, hopefully the President will have the maturity and judgement to change his mind. Not only should the UK be first in line, but this should be the opportunity to launch the Global Free Trade Association that my former Heritage Foundation colleagues promoted last decade. Unfettered trade among jurisdictions with relatively high levels of economic freedom, such as the US, UK, Australia, Switzerland, New Zealand, Chile, etc, would be a great way of quickly capturing some of the benefits made possible by Brexit.
8. David Cameron should copy California Governor Jerry Brown. Not for anything recent, but for what he did in 1978 when voters approved an anti-tax referendum known as Proposition 13. Brown naturally opposed the referendum, but he completely reversed himself after the referendum was approved. By embracing the initiative, even if only belatedly, he helped his state and himself. That would be the smart approach for Cameron, though there’s a distinct danger that he could do great harm to himself, his party, and his country by trying to negotiate a deal to somehow keep the UK in the EU.
9. Last but not least, I’m very happy to be wrong about the outcome. I originally expected that “Project Fear” would be successful and that Britons would choose the devil they know over the one they don’t know. Well, I’m delighted that Elizabeth Hurley and I helped convince Britons to vote the right way. We obviously make a good team.
Joking aside, the real credit belongs to all UK freedom fighters, even the disaffected Labour Party voters who voted the right way for wrong reasons.
On June 23, the people of the United Kingdom will have the opportunity to restore sovereignty and protect democracy by voting in a national referendum to leave the European Union.
They should choose “leave” over “remain.”
The European Union’s governmental manifestations (most notably, an über-powerful bureaucracy called the European Commission, a largely powerless but nonetheless expensive European Parliament, and a sovereignty-eroding European Court of Justice) are – on net – a force for statism rather than liberalization.
A vote to leave, by contrast, would create uncertainty and anxiety in some quarters, but the United Kingdom would then have the ability to make decisions that will produce a more prosperous future.
Leaving the EU would be like refinancing a mortgage when interest rates decline. In the first year or two, it might be more expensive because of one-time expenses. In the long run, though, it’s a wise decision.
From an American perspective, George Will has been especially insightful and eloquent. Here are some excerpts from a recent column in the Washington Post.
Lord Nigel Lawson… is impatient with the proposition that it is progress to transfer to supra-national institutions decisionmaking that belongs in Britain’s Parliament. …The Remain camp correctly says that Britain is richer and more rationally governed than when European unification began. The Leave camp, however, correctly responds that this is largely in spite of the E.U. — it is because of decisions made by British governments, particularly Margaret Thatcher’s, in what is becoming a shrinking sphere of national autonomy. In 1988, Thatcher said: “We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level with a European super-state exercising a new dominance from Brussels.”
Here’s a good visual of what’s happening. What began as a good idea (free trade under the Treaty of Rome) has become a bad idea (economic union under the Maastricht and Lisbon treaties) and may become an even worse idea (common government).
Here’s what Dan Hannan, a British Member of the European Parliament, wrote on the issue. He’s very pro-Europe, but understands that does not mean European-wide governance is a good idea.
I’m emotionally drawn to Europe. I speak French and Spanish and have lived and worked all over the Continent. I’ve made many friends among…committed Euro-federalists. …they are also decent neighbours, loyal companions and generous hosts. I feel twinges of unease about disappointing them, especially the anglophiles. But, in the end, the head must rule the heart.
Dan identifies six reasons why it is sensible to leave.
Here are relevant portions of his arguments, starting with the fact that the EU is becoming a super-state..
The EU has acquired, one by one, the attributes and trappings of nationhood: a president and a foreign minister, citizenship and a passport, treaty-making powers, a criminal justice system, a written constitution, a flag and a national anthem. It is these things that Leavers object to, not the commerce and co-operation that we would continue to enjoy, as every neighbouring country does.
Second, it is only pro-trade for members, not the wider world.
The EU is not a free-trade area; it is a customs union. The difference may seem technical, but it goes to the heart of the decision we face. Free-trade areas remove barriers between members and, economists agree, tend to make participants wealthier. Customs unions, by contrast, erect a common tariff wall around their members, who surrender the right to strike individual trade deals. …Britain is one of only two of 28 member states that sell more to the rest of the world than to the EU. We have always been especially badly penalised by the EU’s Common External Tariff. Unlike Switzerland, which enjoys free trade with the EU at the same time as striking agreements with China and other growing economies… It’s a costly failure. In 2006, the EU was taking 55 per cent of our exports; last year, it was down to 45 per cent. What will it be in 2030 — or 2050?
Third, the advocates of common government are candid about their ultimate goals.
The Five Presidents’ Report sets out a plan for the amalgamation of fiscal and economic policies… The Belgian commissioner Marianne Thyssen has a plan for what she calls ‘social union’ — i.e. harmonisation of welfare systems. …These are not the musings of outlandish federalist think tanks: they are formal policy statements by the people who run Brussels.
Fourth, Europe is stagnant.
…in 1973, the states that now make up the EU accounted for 36 per cent of the world economy. Last year, it was 17 per cent. Obviously, developing economies grow faster than advanced ones, but the EU has also been comprehensively outperformed by the United States, Canada, Australia and New Zealand. …Why tie ourselves to the world’s slowest-growing continent?
Fifth, there are examples of very successful non-EU nations in Europe.
…we can get a better deal than…Switzerland…and Norway…; on the day we left, we’d become the EU’s single biggest export market. …They trade freely with the EU…they are self-governing democracies.
And last but not least, a decision to remain will be interpreted as a green light for more centralization, bureaucratization, and harmonization.
A Remain vote will be…capitulation. Look at it from the point of view of a Euro-federalist. Britain would have demanded trivial reforms, failed to secure even those, and then voted to stay in on unchanged terms. After decades of growling and snarling, the bulldog would have rolled over and whimpered. …With the possibility of Brexit off the table, there will be a renewed push to integration, on everything from migrant quotas to a higher EU budget.
Dan’s bottom line is very simple.
We have created more jobs in the past five years than the other 27 states put together. How much bigger do we have to be, for heaven’s sake, before we can prosper under our own laws?
…the 1970s turned out to be an odd period where many things that seemed like good ideas at the time turned out not to be. …While there may have been an element of truth about EEC membership in the 1970s that seduced many subsequent sceptics…our timing for joining “the club” could not have been worse. …globalisation was beginning to eat into the logic of a political European Union at the very point it was striding towards statehood with a single euro currency. …the European single market is being rapidly eclipsed. …The EU is therefore increasingly becoming a pointless middleman as a vast new global single market takes over.
Here’s a chart from the article showing the European Union’s rapidly falling share of global economic output.
Mr. Smith does not think it’s smart to link his country’s future to a declining bloc of nations.
We are now less dependent than ever on our closest trading partners in Europe and this trend is marching relentlessly onward. For the first 40 years of our membership, the majority — over 60% — of UK exports went to the EU. But in 2012, for the first time, that figure dropped below 50%. It is now at 45% and continues to sink. …The demographics of the European continent, alongside the dysfunctional euro and its insidious effects across Europe have also played a large part in this change… This situation and these trends are not going to change.
Here’s his conclusion.
This Brexit vision is therefore a global, outward-looking and ambitiously positive one. It eschews the inward-looking outlook of…the Remain lobby… So a parochial inward-looking “little Europe” and a demographically declining one, ranged against an expansive, liberal and global outlook. …The crux of the matter is that we in Britain want trade and cooperation; our EU partners want merger and a leashed hinterland.
These are strong arguments, so why does Prime Minister David Cameron want to remain?
And why is he joined by the hard-left leader of the Labour Party (actually, that’s easy to answer given the shared leftist orientation of both Jeremy Corbyn and EU officials), along with most big companies and major unions?
Most of them, if asked, will argue that a vote to leave the EU will undermine the economy. They’ll cite estimates of lower economic output from the International Monetary Fund, the Organization for Economic Cooperation and Development, the British Treasury, and other sources.
To be blunt, these numbers lack credibility. A pro-centralization, pro-EU Prime Minister asked for numbers from a bureaucracy he controls. As critics have pointed out, the goal was to produce scary numbers rather than to produce real analysis.
Indeed, the palpable mendacity of these numbers has probably boomeranged on supporters of the EU. Polls show that voters don’t believe these hysterical and overwrought numbers.
Instead, they laugh about “Project Fear.”
Yet, as reported by John Fund of National Review, the EU crowd is doubling down in their panic to frighten people.
…the organizers of Project Fear have gone into overdrive. European Council President Donald Tusk said in an interview with the German newspaper Bild that radical anti-European forces will be “drinking champagne” if Brexit passes. …Tusk said. “As a historian I fear that Brexit could be the beginning of the destruction of not only the EU but also of western political civilization in its entirety.”
End of western civilization? Seriously?
Gee, why not also predict a zombie apocalypse?
These chicken little predictions are hard to take seriously when Britons can look at other nations in Europe that are prospering outside the European Union.
Consider Norway. Advocates of the EU claimed horrible results if the country didn’t join. Needless to say, those horrible results never materialized.
This doesn’t mean there aren’t honest people who sincerely think it would be a mistake to leave the European Union.
Indeed, a survey by the Centre for Macroeconomics found very negative views.
Almost all panel members thought that a vote for Brexit would lead to a significant disruption to financial markets and asset prices for several months, which would put the Bank of England on high alert. On top of the risk of a financial crisis in the near future, an unusually strong majority agree that there would be substantial negative long-term consequences.
Other economists seem to agree.
Four of them produced an article for VoxEU, and here’s some of what they wrote.
The possibility of the UK leaving the EU has generated an unusual degree of consensus among economists. …analysis from the Bank of England, to the OECD, to academia has all shown that Brexit would make us economically worse off. The disagreement is mainly over the degree of impoverishment… The one exception is…Professor Patrick Minford of Cardiff University, who argues that Brexit will raise the UK’s welfare by 4% as a result of increased trade… Minford’s policy recommendation is that following a vote for Brexit, the UK should not bother striking new trade deals but instead unilaterally abolish all its import tariffs… we know of no cases where an industrialised country has ever implemented full unilateral liberalisation – and for good reason. Persuading other countries to reduce their trade barriers is easier if you can also say you’re going to reduce your own as part of the deal. If we’re committed to going naked into the world economy, other countries are unlikely to follow suit voluntarily. …In reality, the UK will still continue to trade extensively with our closest geographical neighbours, it’s just that the higher trade barriers mean that we will do less of it.
Other establishment voices are convinced that the United Kingdom would be crazy to leave the EU.
Robert Samuelson, in his Washington Postcolumn, views it as a form of national suicide because of existing economic ties to continental Europe.
Countries usually don’t knowingly commit economic suicide, but in Britain, millions seem ready to give it a try. …Leaving the E.U. would be an act of national insanity. It would weaken the U.K. economy, one of Europe’s strongest. The E.U. absorbs 44 percent of Britain’s exports; these might suffer because trade barriers, now virtually nonexistent between the U.K. and other E.U. members, would probably rise. Meanwhile, Britain would become less attractive as a production platform for the rest of Europe, so that new foreign direct investment in the U.K. — now $1.5 trillion — would fall. Also threatened would be London’s status as Europe’s major financial center, home (for example) to 78 percent of E.U. foreign exchange trading. With the U.K. out of the E.U., some banking activities might move to Frankfurt or other cities. …Brexit is an absurdity. But it is a potentially destructive absurdity. It creates more uncertainty in a world awash in uncertainty.
Allister Heath of the Daily Telegraphdisagrees with these proponents of the status quo.
David Cameron and George Osborne have been claiming, over and again, that those of us who support Brexit have lost the economic argument. …utter nonsense. …The free-market, cosmopolitan, pro-globalisation economic case for leaving is stronger than ever… The hysterical studies claiming that Brexit would ruin us are grotesque caricatures, attempts at portraying a post-Brexit Britain as a nation that suddenly decided to turn its back on free trade and foreigners. …a Brexit would almost certainly mean the UK remaining in the European Economic Area (EEA), like Norway: we would be liberated from much political interference, be allowed to forge our own free-trade deals while retaining the single market’s Four Freedoms. Europe’s shell-shocked corporate interests would demand economic and trade stability of its equally traumatised political classes, and they would get it. …with supply-side reforms at home, the UK would become more, rather than less, attractive to global capital. The Treasury, OECD and IMF’s concocted Armageddon scenarios wouldn’t materialise. Remain has only won the economic argument in the sense that most economists and the large institutions that employ them support their side.
And Allister points out that the supposed consensus view of economists has been wildly wrong in the past.
Time and time again, the majority of economists make spectacularly wrong calls, and it is a small, despised minority that gets it right. In 1999, The Economist wrote to the UK’s leading academic practitioners of the dismal science to find out whether it would be in our national economic interest to join the euro by 2004. Of the 165 who replied, 65 per cent said that it would. Even more depressingly, 73 per cent of those who actually specialised in the economics of the EU and of monetary union thought we should join – the experts among the experts were the most wrong. Britain would have gone bust had we listened… The vast majority of economists did not foresee or predict the financial crisis or the Great Recession or the eurozone crisis. Yet they now have the chutzpah to behave as if they should be treated like philosopher kings… Remember the Twenties? The economics profession overwhelmingly failed to see the great bubble and subsequent crash and depression. The Thirties? It messed up on just about everything. …In the Sixties and subsequently, Paul Samuelson’s best-selling, dominant economics textbook was predicting that the Soviet Union’s GDP per capita would soon catch up with America’s. The Seventies? Most economists didn’t know how stagflation could even be possible. The Eighties? The profession opposed Thatcherism and the policies that saved the UK; infamously, 364 economists attacked Thatcher’s macroeconomic policies in the 1981 Budget and then kept getting it wrong. …The problem this time around is that Remain economists assume that leaving the EU would mean reducing globalisation and halting most immigration. They assume that there are only costs and no benefits from leaving the EU…the EU’s anti-democratic institutions are unsustainable and thus pose a great threat to the liberal international economic order its UK supporters claim to be defending.
The debate among economists is mostly focused on trade.
With that in mind, this television exchange is very enlightening.
In other words, nations all over the world trade very successfully without being in the European Union, so this view that somehow the United Kingdom can’t do likewise is a triumph of theory over reality.
It’s way past time to wrap this up, but there are a few additional items I can’t resist sharing.
A British parliamentarian (akin to a member of Congress in the U.S.) is understandably unhappy that some Americans, most notably President Obama, are interfering in the Brexit election.
Here are parts of Chris Grayling’s column in the Washington Post.
Imagine if you were told that the United States should join an American Union bringing together all the nations of North and South America. It would have its own parliament — maybe in Panama City, a place on the cusp of the two halves of the Americas. That American Parliament would have the power to make the majority of your laws. A Supreme Court of the Americas in Panama would outrank the U.S. Supreme Court and take decisions that would be mandatory in the United States. …That is, more or less, where Britain finds itself today.
Sensible Americans obviously wouldn’t like that state of affairs.
And we would be even more unhappy if that Superstate of the Americas kept grabbing more power, which is exactly what’s happening across the Atlantic.
It decrees that any citizen of any European country can come and live and work in Britain — and that if they do, we must give them free health care and welfare support if they need it. Millions have done so. …it is moving closer and closer to becoming a single government for Europe, and indeed many of its key players — leaders such as Germany’s Angela Merkel and France’s François Hollande — have that as a clear goal. Britain has a small minority of the voting rights, and loses out almost every time.
He’s especially mystified by those who think the EU is a force for liberalization.
Bizarrely, given the EU’s appalling record, these folk see Brussels as the last guardian of enlightenment values; the only way to save the project, they believe, is rule by a transnational nomenklatura. …Remainians are petrified that the British public would…vote the wrong way: for protectionism, nationalisation, xenophobia and stupidity. We would…support idiotic, growth-destroying and socially unacceptable policies. Astonishingly, given the Continent’s collectivist history, such folk equate membership of the EU with free trade and Britain’s Leave camp with protectionism. It’s a breathtaking error of judgement… They cannot grasp that there are other, better ways of opening markets than from within the EU, and that in any case it is just about as far from a libertarian project as it is possible to imagine. …pro-EU Left and Right agree that the people are dangerous, that they must be contained and that, slowly but surely, entire areas of public policy should be hived off beyond the reach of the British electorate. The strategy is to impose top-down restraints and to subcontract decision-making to external bodies… European institutions are actually the antithesis of true liberalism.
Let’s end with some passages from another George Will column.
Michael Gove, secretary of justice and leader of the campaign for Brexit — Britain’s withdrawal from the E.U. — anticipates a “galvanizing, liberating, empowering moment of patriotic renewal.” …American conservatives would regard Britain’s withdrawal from the E.U. as the healthy rejection of political grandiosity. …If Britons vote to remain in the E.U., this might be the last important decision made at British ballot boxes because important decisions will increasingly be made in Brussels. The E.U.’s “democracy deficit” is…the point of such a state. …Under Europe’s administrative state, Gove says “interest groups are stronger than ever” and they prefer social stasis to the uncertainties of societies that welcome the creative destruction of those interests that thrive by rent-seeking. …most of binding law in Britain — estimates vary from 55 percent to 65 percent — arises not from the Parliament in Westminster but from the European Commission in Brussels. The E.U. has a flag no one salutes, an anthem no one sings, a president no one can name, a parliament that no one other than its members wants to have more power (which must be subtracted from national legislatures), a capital of coagulated bureaucracies that no one admires or controls, a currency that presupposes what neither does nor should exist (a European central government administering fiscal policy), and rules of fiscal behavior (limits on debt-to-gross domestic product ratios) that few if any members obey and none have been penalized for ignoring. …the 23rd of June can become Britain’s Fourth of July — a Declaration of Independence. If Britain rejects continuing complicity in the E.U. project — constructing a bland leviathan from surrendered national sovereignties — it will have…taken an off-ramp from the road to serfdom.
Well said.
If I lived in the United Kingdom, I would vote to leave the European Union.
Simply stated, the European project is controlled by statists and the one good thing it provides (free trade between members) is easily overwhelmed by the negative things it imposes (protectionism against outsiders, tax harmonization, horrible agriculture subsidies, bad fisheries policy, etc).
Moreover, the continent is demographically dying.
The bottom line is that the European Union is a sinking ship. This cartoon is a bit flamboyant, but it captures my overall sentiments.
If I had lots of money and was confident of the outcome, I would learn the words to this song and fly to London so I could sing in celebration on June 23rd.
People with cross-border investments use structures designed by providers such as Mossack Fonseca to facilitate the productive allocation of their capital.
People value privacy (even more so if they’re wealthy because they have to worry more about kidnapping and other crimes), so these structures are designed to protect their confidentiality.
Cross-border economic activity and structures play a valuable role in the global economy and should not be demonized, just as GM shouldn’t be demonized if some crooks use a Chevy as their getaway vehicle.
There’s an element of hypocrisy in this issue since low-tax jurisdictions have stronger laws against dirty money than high-tax nations.
The real story is that the leaked documents may have given us a look at how politicians use offshore structures, often to mask wealth that was illegitimately obtained.
I touched on some of these topics in this interview with Neil Cavuto.
Let’s look at what some others have written on this issue.
Veronique de Rugy of the Mercatus Center looks at some reactions from onshore politicians, which range from illogical to extremist.
The French finance minister, for instance, already put Panama back on the list of countries that aren’t sufficiently willing to help enforce onerous French tax law. That’s despite France’s removal of Panama from its list of uncooperative states and territories in 2012 after reaching a bilateral agreement on precisely that issue. President Barack Obama, on the other hand, recognizes that most of the activities reported in the stolen pages are legal. As such, he wants to do something that might be even more radical than what France has done. He proposes making it illegal to legally reduce one’s tax burden. Falling back on some generic and zero-sum concept of tax fairness, he told reporters that we “shouldn’t make it legal to engage in transactions just to avoid taxes” and that he wants to enforce “the basic principle of making sure everyone pays their fair share.”
So France wants to punish Panama, even though Panama already has agreed to help enforce bad French tax laws. Meanwhile, President Obama reflexively wants to punish taxpayers who have the temerity and gall to not voluntarily over-pay their taxes (an issue where Donald Trump actually said something sensible).
If you want more global trade and more global investments, international bureaucracies such as the Organisation for Co-operation and Economic Development and governments around the world shouldn’t make it harder to operate international businesses and engage in cross-border investment and business.
For years, France has punished its entrepreneurs and businesses with high taxes and terrible laws. As a result, last year alone, some 10,000 French millionaires called it quits and moved abroad. However, rather than reform its tax laws and streamline its government, it wants to put its grabby hands on some cash… But it won’t work in the long run. France and other high-tax nations can try very hard to destroy tax competition, financial privacy and the sovereignty of countries with better tax structures, but they still won’t be able to afford their big and broken welfare states. …That’s the real financial scandal.
The Wall Street Journal also has opined on the controversy, wondering about the fact that some folks on the left are fixating on legal tax avoidance.
The papers…purport to document the dealings of the Mossack Fonseca law firm, which appears to have helped wealthy clients establish shell companies in Panama, a rare remaining bastion of bank secrecy. …The fact that an individual created such a company, or opened bank accounts in Panama, is not proof of any wrongdoing… That’s not stopping the media from jumping to conclusions, many are oddly focusing on tax avoidance.
In any event, the editors agree that the real issue from Panama Papers is the presumably dodgy accumulation of assets by politicians.
The mistake now would be to narrow the focus prematurely, zeroing in on tax avoidance that is a hobbyhorse of the political class but in this case is a distraction. The real news here are the incomes and far-flung bank accounts of the political class.
The WSJ is right.
I touch on that issue in this interview with CNBC, explaining that it should be a non-story that international investors use international structures, but hitting hard on the fact that politicians so often manage to obtain a lot of wealth during their time in public “service.”
The bottom line is that if we’re going to have a crusade for transparency, it should focus on government officials, who have a track record of unethical behavior, not on the investors and entrepreneurs who actually earn their money by using capital to boost growth.
I should have dug into my files and provided a few examples of the hypocritical American politicians who have utilized tax havens. Such as…ahem…the current Secretary of the Treasury.
Speaking of hypocrisy, Seth Lipsky of the New York Sun identifies another strange example of double standards, in this case involving privacy.
The New York Times…defended Apple when the iPhone maker refused to help the FBI break into the iPhone that had been used by the Islamist terrorists who slew 14 innocent people in San Bernardino. It even praised Apple for refusing to help. Yet it’s joining in the feeding frenzy over what are coming to be known as the Panama Papers…calling for major investigations into money laundering and tax evasion.
I was sympathetic to Apple’s legal argument, even though I also wished the company would have helped the FBI (albeit without giving the government any details that could have been used to create a backdoor into all of our iPhones).
But Mr. Lipsky is right that the privacy-loving defenders of Apple have a remarkably inconsistent approach to the issue.
Where were most of the do-gooders…when the FBI was frantically trying to gain access to the infamous iPhone? It might be able to tell us to whom the killers had been talking and whether they were planning more attacks. …Apple…got cheered by all the right people. The Gray Lady…praised Apple for refusing to help. …So why are the do-gooders who are so protective of iPhone data when it belongs — or relates — to terrorists nonetheless so delighted about the disclosure of data when the data belong to the rich? Or relates to their property? Property rights, it seems, just don’t interest the do-gooders. They don’t believe individuals have a right to property or to due process before their stuff is taken.
This is a great point.
What it basically shows is that leftists (“do-gooders” to Seth) have more sympathy for medieval butchers who kill innocent people than they have for over-burdened taxpayers who actually want to preserve their money so it is used to promote prosperity rather than to fatten government budgets.
By the way, I can’t resist sharing another excerpt.
…tax havens can serve a benign purpose. They put pressure on law-abiding governments to keep taxation within non-abusive limits, something that is increasingly rare in the age of socialism.
Bingo. This is why everyone – especially those of us who aren’t rich – should applaud low-tax jurisdictions.
Let’s look at one final interview on the topic. But I’m not sharing this BBC interview because I said anything new or different. Instead, I want to use this opportunity to grouse about media bias. You’ll notice that I was out-numbered 2-to-1 in the discussion (3-to-1 if you include the host).
What did irk me, though, was the allocation of time. Both statists got far more ability to speak, turning a run-of-the-mill example of bias into an irritating experience.
On the other hand, I did get to point out that the OECD bureaucrat was staggeringly hypocritical since she urges higher taxes on everyone else when she (like the rest of her colleagues) gets a tax-free salary. So maybe I should be content having unleashed that zinger.
Three years ago, thieves stole a bunch of information from “offshore” service providers in the Cook Islands and British Virgin Islands. This was supposed to be a 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 law-abiding. And they definitely had far more integrity than the politicians who routinely attack the offshore world.
Well, here we go again. We’ve learned that thieves have now obtained client data from a global law firm based in Panama, and leftists once again are making this seem like a giant story.
Here’s some of what I wrote for Caribbean News on the issue, starting with the big picture.
Many nations in Western Europe can no longer afford their big welfare states. Countries such as Greece, Spain, and Italy already have needed bailouts, while it’s just a matter of time before several other European nations face a fiscal day of reckoning. …rather than fix their own fiscal problems, many of these nations are working through international bureaucracies such as the G-20 and the Organization for Economic Cooperation and Development to rewrite the rules and traditions of global commerce in an attempt to extract more tax revenue. This is why there’s been a major attack against so-called tax havens as part of a coordinated campaign to undermine fiscal sovereignty and restrict the human right of financial privacy.
And they’re more than happy to rely on stolen data.
One of the more bizarre chapters in this story is the way the pro-welfare state crowd is now trying to demonize financial service providers such as law firms that are hired to fill out paperwork by investors and entrepreneurs who are setting up trusts, companies, and other entities. Consider, for instance, the plight of Mossack Fonseca, a professional services firm based in Panama. …this collection of legal practitioners and egghead trust advisors is suddenly being portrayed as an international crime syndicate that’s corrupting Western civilization one business incorporation at a time.
But it makes no sense to attack service providers.
The controversy, in large part, derives from a basic and arguably willful misunderstanding of what firms like Mossack Fonseca do – and don’t do – for their clients. In basic terms, these firms help people create new businesses and trusts. …unlike banks, these law firms don’t take possession of their clients’ money. So the notion that they are involved in “money laundering” is laughable. Once incorporation papers are filed, the law firms don’t direct in any way the operation of the businesses.
Firms like Mossack Fonseca are merely just the latest stand-ins and proxies for a much wider campaign being waged by left-wing governments and their various allies and interest groups. This campaign is built around aggressive attacks on anyone who, for any reason, seeks to legally protect their hard-earned assets from confiscatory tax policies. …a cabal of governments…has decided not to compete…instead simply seeking to malign and destroy any entity, individual or jurisdiction that exists that deprives them of tax revenue to which politicians greedily believe they are entitled. As usual, the media outlets running these perennial “exposés,” usually at the bidding of OECD bureaucrats (who ironically get tax-free salaries).
Let’s close with a couple of points about the broader issue.
It is hardly a surprise that wealthy people with cross-border investments use instruments (such as foundations, trusts, and companies) designed for such purposes.
Like everyone, wealthy people value privacy (even more so because they have to worry more about kidnapping and other crimes), so these structures are designed to protect their confidentiality.
A few end-user clients may be unsavory (Putin’s cronies, for instance), but should businesses be prohibited from dealing with people who are viewed as sketchy (but otherwise are not under investigation and haven’t been convicted of crimes)?
Cross-border economic activity and structures play a valuable role in the global economy and should not be demonized, just as GM shouldn’t be demonized if some crooks use a Chevy as their getaway vehicle.
So what are European policy makers doing to address this problem?
If you think the answer might have something to do with a shift to responsible fiscal policy, you obviously have no familiarity with Europe’s political elite. But if you have paid attention to their behavior, you won’t be surprised to learn that they’re lashing out at jurisdictions with better policy.
Here are a few blurbs from a story in the Economic Times.
The European Union published its first list of international tax havens on Wednesday… “We are today publishing the top 30 non-cooperative jurisdictions consisting of those countries or territories that feature on at least 10 member states’ blacklists,” EU Economic Affairs Commissioner Pierre Moscovici told a news conference.
This is a misguided exercise for several reasons, but here are the ones that merit some discussion.
1. I can’t resist starting with a philosophical point. Low-tax jurisdictions and so-called tax havens should be emulated rather than persecuted. Their modest fiscal burdens are strongly correlated with high levels of prosperity. It’s high-tax nations that should be blacklisted and shamed for their destructive policies.
2. This new EU blacklist is particularly nonsensical because there’s no rational (even from a leftist perspective) methodology. Jurisdictions get added to the blacklist if 10 or more EU nations don’t like their tax laws. Some nations, as cited in official EU documents, even use “the level of taxation for blacklisting purposes.”
3. As has always been the case with anti-tax competition campaigns, the entire exercise reeks of hypocrisy. Big European nations such as Luxembourg and Switzerland were left off the blacklist, and the United States also was omitted (though the EU figured it was okay to pick on the U.S. Virgin Islands for inexplicable reasons).
By the way, I’m not the only person to notice the hypocrisy. Here are some excerpts from a report in the U.K.-based Guardian.
A blacklist of the world’s 30 worst-offending tax havens, published on Wednesday by theEuropean commission, includes the tiny Polynesian island of Niue, where 1,400 people live in semi-subsistence — but does not include Luxembourg, the EU’s wealthy tax avoidance hub. …the new register does not include countries such as the Netherlands, Ireland.
And Radio New Zealand made a similar point it its report.
Anthony van Fossen, an adjunct research fellow at Australia’s Griffith University, says the list seems to be picking on smaller, easy-to-target tax havens and ignoring major ones like Singapore, Switzerland and Luxembourg. “The list is very strange in that some major havens are ignored, particularly the havens in the European Union itself, and many minor havens, including some in the Pacific Islands are highlighted.”
The more one investigates this new EU project, the more irrational it appears.
Some of the larger and more sensible European nations, including Sweden, Germany, Denmark, and the United Kingdom, didn’t even participate. Or, if they did, they decided that every jurisdiction in the world has “tax good governance.”
But other nations put together incomprehensible lists, featuring some well-known low-tax jurisdictions, but also places that have never before been considered “tax havens.” Is Botswana really a hiding spot for French taxpayers? Do Finnish taxpayers actually protect their money in Tajikistan? Is Bolivia actually a haven for the Portuguese? Do the Belgians put their funds in St. Barthelemy, which is part of France? And do Greeks put their money in Bosnia?!?
As you can see from this map, the Greeks also listed nations such as Saudi Arabia and Paraguay. No wonder the nation is such a mess. It’s governed by brain-dead government officials.
I’ve saved the best evidence for the end. If you really want to grasp the level of irrationality in the EU blacklist, it’s even been criticized by the tax-loving (but not tax-paying) bureaucrats at the OECD. Here are some details from a report out of Cayman.
‘As the OECD and the Global Forum we would like to confirm that the only agreeable assessment of countries as regards their cooperation is made by the Global Forum and that a number of countries identified in the EU exercise are either fully or largely compliant and have committed to AEOI, sometimes even as early adopters’, the email states. …‘We have already expressed our concerns (to the EU Commission) and stand ready to further clarify to the media the position of the affected jurisdictions with regard to their compliance with the Global Forum standards’, Mr Saint-Amans and Ms Bhatia wrote.
Needless to say, being compliant with the OECD is nothing to celebrate. It means a jurisdiction has been bullied into surrendering its fiscal sovereignty and agreeing to serve as a deputy tax collector for high-tax governments.
But having taken that unfortunate step, it makes no sense for these low-tax jurisdictions to now be persecuted by the EU.
P.S. Let’s add to our collection of libertarian humor (see here and here for prior examples).
This image targets the Libertarian Party, but I’ve certainly dealt many times with folks that assert that all libertarians should “grow up” and accept big government.
But this doesn’t mean all forms of tax competition are equally desirable.
If a country lowers overall tax rates on personal income or corporate income in hopes of attracting business activity, that’s great for prosperity. If a jurisdiction seeks faster growth by reducing double taxation – such as lowering the tax rate on capital gains or abolishing the death tax, that’s also very beneficial.
Some politicians, however, try to entice businesses with special one-off deals, which means one politically well-connected company gets a tax break while the overall fiscal regime for other companies stays the same (or even gets worse).
That’s corrupt cronyism, not proper tax competition.
With this in mind, let’s consider the growing controversy about tax planning by multinational companies. There’s lot of controversy, both in the United States and in Europe, about whether companies are gaming the system.
The most recent kerfuffle deals with Luxembourg, which is accused of having a very friendly regime for business taxation.
Syed Kamall, a Tory member of the European Parliament, has a column in the Wall Street Journal Europe about the right kind of corporate tax competition.
It seems to have come as a great shock to many in the European Parliament that Luxembourg may have encouraged multinational companies to domicile there to pay lower taxes. I’m not sure where these members of parliament have been living for the past 20 years.
What worries Syed is that many European politicians want to use the news from Luxembourg as an excuse to push tax harmonization.
…an agenda of EU-wide tax harmonization…is rapidly gaining popularity in some quarters despite being exactly the wrong prescription for Europe. …tax harmonization…would hang the “Closed for Business” sign at Europe’s border. Tax competition across the single market helps keep tax rates competitive and drives inward investment. The Organization for Economic Co-operation and Development has said that “the ability [of companies] to choose the location of economic activity offsets shortcomings in government budgeting processes, limiting a tendency to spend and tax excessively.”
By the way, the OECD is a big proponent of tax harmonization, so it’s especially noteworthy that even those bureaucrats admitted that tax competition constrains greedy government.
You can click here for further examples of OECD economists admitting that tax competition is necessary and desirable, notwithstanding the anti-market policies being advocated by the political appointees who run the institution.
And since we’re discussing the merits of tax competition, we should point out that Mr. Kamall also mentioned those benefits.
The clearest example of that came with the tax reductions enacted byMargaret Thatcher and Ronald Reagan in the 1980s. Those tax-rate cuts in the U.K. and U.S. forced other industrialized nations to cut their average top marginal rate for personal income to 42% today from more than 67% in 1980 simply to remain competitive, according to the Adam Smith Institute. Tax competition has driven down the average top rate for corporate income in the developed world to less than 27% today from 48% in 1980. Tax competition in Europe encouraged many EU members from the former Soviet bloc to enact flat taxes, which have benefitted them substantially. …it’s important for leaders to keep making the case that tax-policy competition within the single market has been good for Europe.
And he correctly warns that tax harmonization would be a vehicle for higher tax burdens.
Imposing uniform rates under a harmonized system would turn the EU into a convoy that can move only as fast as the slowest ship. Europe’s tax rate would be only as low as the highest-taxing member. …A harmonized tax system would encourage companies and investors to seek new solutions outside the EU in order to avoid paying what would inevitably be higher, French-style levels of European taxation.
And if you don’t believe Mr. Kamall, just look at what’s happened over the past couple of years in Europe.
Last but not least, Syed points out that there is a pro-growth way of improving tax compliance.
The best way to cut down on tax avoidance is to cut tax rates and simplify tax codes. That way people and companies would be willing and able to pay their money to Europe’s exchequers, rather than paying accountants to find loopholes.
But that would require politicians to be responsible, so don’t hold your breath.
So what’s the bottom line? Is there a good way of identifying the desirable forms of tax competition that should be defended.
Misguided tax competition, by contrast, exists when there are very narrow preferences that apply to a small handful of powerful taxpayers.
For more information on the general topic, here’s my video on the virtues of tax competition.
P.S. My support for tax competition is so intense that I even try to bring the message to unfriendly audiences, such as Capitol Hill and the New York Times.
P.P.P.S. In you admire hypocrisy, you’ll be very impressed that many rich statists utilize tax havens to protect their money even though they want you to give more of your income to government.
P.P.P.P.P.P.S. I’m not sure how to classify this final bit of information, but it’s surely worth mentioning that Bill Clinton defends corporate tax competition. As does Bono.
That being said, the UN occasionally does something that is so obnoxious that I can’t resist commenting. Especially since my tax dollars pay a big share of that bureaucracy’s bloated budget.
What has me irked is that the United Nations Conference on Trade and Development just released its annual Trade and Development Report.
Here’s how the bureaucrats frame the issue in the report. Keep in mind that “market liberalism” is their term for free markets (in other words, classical liberalism).
Back in 1964, the international community recognized that “If privilege, extremes of wealth and poverty, and social injustice persist, then the goal of development is lost”. Yet, almost everywhere in recent years, the spread of market liberalism has coincided with highly unequal patterns of income and wealth distribution. A world where its 85 wealthiest citizens own more than its bottom three and a half billion was not the one envisaged 50 years ago. …the past three decades have demonstrated that delivery is unlikely with a one-size-fits-all approach to economic policy that cedes more and more space to the profitable ambitions of global firms and market forces. …the moment is right to propose another international “New Deal” that can realize the promise of “prosperity for all”.
But not only does UNCTAD utilize class-warfare rhetoric, they also try to support their ideological agenda with historical illiteracy.
But the statists at the UN want us to think that big government deserves the credit.
None of today’s developed countries depended on market forces for their structural transformation and its attendant higher levels of employment, productivity and per capita incomes. Rather, they adopted country-specific measures to manage those forces, harnessing their creative side to build productive capacities and provide opportunities for dynamic firms and entrepreneurs, while guiding them in a more socially desired direction. They also used different forms of government action to mitigate the destructive tendencies of those same market forces. This approach of managing the market, not idolizing it, was repeated by the most rapidly growing emerging market economies − from the small social democratic economies of Northern Europe to the giant economies of East Asia − in the decades following the end of the Second World War.
Wow. They even want us to think big government deserves the credit for prosperity in Hong Kong and Singapore.
So you know the bureaucrats are either very stupid or very dishonest. I suspect the latter, but it doesn’t matter. All we need to know is that they are willing to make very preposterous claims to advance their agenda.
And what is their agenda? Well, a major theme is that politicians in developing nations need “policy space” to enable bigger government.
For instance, UNCTAD doesn’t like free trade but does like industrial policy (aka, crony capitalism).
Policy space is…reduced by free trade agreements… Along with the proliferation of trade agreements and their expansion into trade-related areas, there has been a global revival of interest in industrial policy.
But a big focus of the report is that tax competition is a threat to the “policy space” of politicians.
Fiscal space goes hand in hand with policy space. …strengthening government revenues is key. …This…allows for higher growth-enhancing public spending… The need for reclaiming and expanding fiscal space faces particular challenges in an increasingly globalizing economy. …A major problem is that globalization has affected the ability of governments to mobilize domestic revenues. …the increased mobility of capital and its greater use of fiscal havens have considerably altered the conditions for taxing income − both personal and corporate − and wealth. The dominant agenda of market liberalism has led to a globalized economy that encourages tax competition among countries, at times pushing them to a “race to the bottom”.
Gasp, how horrible! Politicians don’t have as much “policy space” to impose punitive taxes.
So what do the UN bureaucrats want to solve this supposed problem? Simple, just destroy financial privacy and fiscal sovereignty so that politicians have carte blanche to expand taxes.
…a number of developments aimed at improving transparency and exchange of information for tax purposes have taken place. They include a declaration by G20 leaders to promote information sharing… an OECD Action Plan on base erosion and Profit Shifting (BEPS), increased monitoring by several national tax authorities…and numerous bilateral tax treaties (BTTs) and tax information exchange agreements (TIEAs). …these initiatives are steps in the right direction.
P.S. On a more pleasant topic, the “Beltway Bandits” just played in the softball world series in Las Vegas. We competed in the 55+ grouping and finished with three wins and two losses.
Not bad, but not good enough to win any trophies. But we got to play in replica Major League stadiums, which was a fun experience.
I can now say I’ve hit home runs in Dodger Stadium and Wrigley Field, and also doubled off the Green Monster at Fenway. Sounds impressive so long as nobody asks any follow-up questions!
P.P.S. Here’s something else that I found amusing.
During an interview with CNBC on Tuesday, former President Bill Clinton called to cut corporate taxes and give companies a break on money stashed overseas, dinging President Barack Obama’s latest effort to combat corporate tax-dodging. When asked what should be done about corporate inversion transactions, Clinton responded with a host of GOP talking points about the tax burden on big business. “America has to face the fact that we have not reformed our corporate tax laws,” Clinton told CNBC, according to a transcript. “We have the highest overall corporate tax rates in the world. And we are now the only OECD country that also taxes overseas earnings on the difference between what the companies pay overseas and what they pay in America.”
But I guess we shouldn’t be surprised. This isn’t the first time he’s had sensible things to say on the issue of corporate taxation.
Partisans can argue whether Clinton actually deserves the credit for these good results, but I’m just happy we got better policy. Heck, Clinton was a lot more akin to Reagan that Obama, as this Michael Ramirez cartoon suggests.
Moreover, Clinton also has been the source of some very good political humor, some of which you can enjoy here, here, here, here, and here.
Most recently, he even made some constructive comments about corporate taxation and fiscal sovereignty.
It is up to the US government to reform the country’s corporate tax system because the international trend is moving to the Irish model of low corporate rate with the burden on consumption taxes, said the former US president Bill Clinton. Moreover, …he said. “Ireland has the right to set whatever taxes you want.” …The international average is now 23% but the US tax rate has not changed. “…We need to reform our corporate tax rate, not to the same level as Ireland but it needs to come down.”
All that being said – and before anyone accuses me of having a man-crush on Bill and/or of being delusional – let me now issue some very important caveats.
When Clinton says we should increase “the burden on consumption taxes,” that almost surely means he would like to see a value-added tax.
This would be a terrible idea, even if at first the revenue was used to finance a lower corporate tax rate. Simply stated, it would just be a matter of time before the politicians figured out how to use the VAT as a money machine to finance bigger government.
Indeed, it’s no coincidence that the welfare state in Europe exploded in the late 1960s/early 1970s, which was also the time when the VAT was being implemented. And it’s also worth noting that VAT rates in recent years have jumped significantly in both Europe and Japan.
Moreover, Clinton’s position on fiscal sovereignty has been very weak in the past. It was during his tenure, after all, that the OECD – with active support from the Clinton Treasury Department – launched its “harmful tax competition” attack against so-called tax havens.
In other words, he still has a long way to go if he wants to become an Adjunct Fellow at the Cato Institute.
P.S. Just in case anyone want to claim that the 1993 Clinton tax hike deserves credit for any of the good things that happened in the 1990s, look at this evidence before embarrassing yourself.
I’m very worried about America’s fiscal future. Simply stated, data from several sources (BIS, OECD, and IMF) indicates that we face a future Greek-style fiscal crisis unless policy makers implement genuine entitlement reform.
Unfortunately, politicians have little incentive to control spending and reform programs if they think that higher taxes are an option.
So how do we control their appetite for more revenue? There’s no silver bullet solution, but part of the answer is that we need tax competition and tax havens. Politicians are less likely to over-tax and over-spend if they’re afraid that the geese that lay the golden eggs can fly across the border.
In other words, tax competition is a necessary but not sufficient condition to promote good policy. And that’s why I’m willing to defend tax havens, even if it requires bringing a message of liberty to traditionally hostile audiences such as readers of the New York Times and viewers of CNN.
I have a new piece to add to this collection. Professor Philip Booth and Dr Richard Wellings of the London-based Institute of Economic Affairs have produced a succinct and powerful case for tax competition and tax havens.
If we consider the performance of high-tax Western countries in recent years – which includes, amongst others, every EU country, plus the US – it has been pretty grim. These are countries which, despite their high levels of taxation, are building up huge debts. These countries also regulate their financial systems heavily, often through bodies which have huge discretion, and yet they have recently suffered the worst financial crisis since the Second World War. You would think that it would be this model – the corporatist model of high taxes and extensive regulation – that would be coming under scrutiny. However, like small children who wish to shift the blame, the EU is focusing its attention on International Financial Centres (IFCs).
Well said, though I would make one small correction. These nations have “huge debts” in part because of – not “despite” – “high levels of taxation.” That’s because of the Laffer Curve causing revenues to be lower than expected when taxes are raised and also because politicians can’t resist spending any revenue that is generated.
Returning to the article, Booth and Wellings make the important observation that these so-called tax havens largely exist because of bad policy in other nations.
Just as offshore centres came into being as a result of incompetent regulatory and tax policy from the US government in the 1960s and 1970s, these centres are just as important today in ensuring the free flow of international capital. The nature of our corporation tax systems is such that investors can be taxed several times over on the same profits. Companies can be taxed when they make profits; investment funds can be taxed on their returns; and investors in funds can be taxed by their home tax authorities. In addition, capital gains tax systems often end up taxing companies when their share price rises as a result of the retention of profits or the anticipation of future profits even though extra tax is levied on those profits when they accrue. If governments reformed their corporation tax systems so that they were coherent and focused on the shareholder rather than on the activities of companies themselves, there would be much less need for IFCs.
Amen. If politicians in high-tax nations really want to hurt tax havens, they should lower tax rates and reform their tax systems.
But I’m not holding my breath waiting for that to happen, so we need some external pressure to encourage good policy.
Booth and Wellings explain how tax competition leads to better policy, which leads to better economic performance.
…competition brings major economic benefits. There are very strong incentives for politicians to increase public spending (and hence taxes) in order to gain the support of powerful special interest groups and raise their chances of re-election. Partly as a result, most Western governments now confiscate around two-fifths of people’s earnings. Such high tax rates mean many wealth-creating economic activities are no longer viable. Indeed, long-term studies suggest that every one per cent added to the level of taxation (as a share of GDP) tends to reduce economic growth by about 0.15 per cent a year. Accordingly, a 10 percentage point increase would decrease average growth rates by around 1.5 per cent a year. High rates of taxation therefore have a very significant and negative long-term impact on living standards.
But I think this passage is the most important part of the article. Tax competition is necessary to protect people from greedy and short-sighted politicians.
This is one reason why IFCs are so important. They act as a deterrent to predatory politicians who wish to raise tax rates to highly damaging levels. Policymakers know that, if they set tax rates too high, business activity will shift to lower tax jurisdictions. The point at which tax increases no longer result in additional revenue to governments is therefore shifted downwards by competition from IFCs. This means tax rates will tend to be closer to the optimal rate for economic growth.
The authors also explain that slower growth has a big impact on government finances.
Lower levels of overall economic output mean fewer resources are available to spend on areas such as health and education. Arguments that high tax rates are necessary to fund essential public services are therefore deeply flawed. High-tax, high-spend policies are entirely counter-productive since their negative effect on economic output inevitably results in lower public spending in the long term. While state spending may absorb a larger share of the economy under the high-tax approach, the overall size of the economy will be very much smaller, limiting the resources available to government.
In other words, if the statists want both prosperity and ample tax revenue, they’re better off supporting modest-sized government and reasonable tax rates.
But this may be the fundamental divide between proponents of economic liberty and supporters of statism. Advocates of big government act as if they are more interested in punishing success than they are in enabling upward mobility for the less fortunate.
That seems perverse, but it’s the explanation that matches their behavior.
But it’s not my job to psychoanalyze statists. Let’s close by sharing my video primer on tax competition.
P.P.P.S. I’m happy to share the news that late-reporting precincts have pushed me into a tie in the Costco poll on whether governments should try to tax outside their borders and persecute low-tax jurisdictions. As I noted last month, I was trailing by a 51-49 margin (though even that was somewhat surprising since I thought the poll used misleading language). Anyhow, here’s the debate and you can still cast a vote by clicking here.
P.P.P.P.S. Perhaps the most persuasive evidence is that the New York Times inadvertently admitted that tax competition is one of the few effective ways of fighting excessive government.
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.
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.
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, 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.
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!
What’s the biggest fiscal problem facing the developed world?
To an objective observer, the answer is a rising burden of government spending, caused by poorly designed entitlement programs, growing levels of dependency, and unfavorable demographics. The combination of these factors helps to explain why almost all industrialized nations – as confirmed by BIS, OECD, and IMF data – face a very grim fiscal future.
If lawmakers want to avert widespread Greek-style fiscal chaos and economic suffering, this suggests genuine entitlement reform and other steps to control the growth of the public sector.
But you probably won’t be surprised to learn that politicians instead are concocting new ways of extracting more money from the economy’s productive sector.
Now they want higher taxes on business. The Organization for Economic Cooperation and Development, for instance, put together a “base erosion and profit shifting” plan at the behest of the high-tax governments that dominate and control the Paris-based bureaucracy.
After five years of failing to spur a robust economic recovery through spending and tax hikes, the world’s richest countries have hit upon a new idea that looks a lot like the old: International coordination to raise taxes on business. The Organization for Economic Cooperation and Development on Friday presented its action plan to combat what it calls “base erosion and profit shifting,” or BEPS. This is bureaucratese for not paying as much tax as government wishes you did. The plan bemoans the danger of “double non-taxation,” whatever that is, and even raises the specter of “global tax chaos” if this bogeyman called BEPS isn’t tamed. Don’t be fooled, because this is an attempt to limit corporate global tax competition and take more cash out of the private economy.
The WSJ is spot on. This is merely the latest chapter in the OECD’s anti-tax competition crusade. The bureaucracy represents the interests of high-tax governments that are seeking to impose higher tax burdens – a goal that will be easier to achieve if they can restrict the ability of taxpayers to benefit from better tax policy in other jurisdictions.
More specifically, the OECD basically wants a radical shift in international tax rules so that multinational companies are forced to declare more income in high-tax nations even though those firms have wisely structured their operations so that much of their income is earned in low-tax jurisdictions.
So does this mean that governments are being starved of revenue? Not surprisingly, there’s no truth to the argument that corporate tax revenue is disappearing.
Across the OECD, corporate-tax revenue has fluctuated between 2% and 3% of GDP and was 2.7% in 2011, the most recent year for published OECD data. In other words, for all the huffing and puffing, there is no crisis of corporate tax collection. The deficits across the developed world are the product of slow economic growth and overspending, not tax evasion. But none of this has stopped the OECD from offering its 15-point plan to increase the cost and complexity of complying with corporate-tax rules. …this will be another full employment opportunity for lawyers and accountants.
The WSJ editorial makes the logical argument that governments with uncompetitive tax regimes should lower tax rates and reform punitive tax systems.
…the OECD plan also envisions a possible multinational treaty to combat the fictional plague of tax avoidance. This would merely be an opportunity for big countries with uncompetitive tax rates (the U.S., France and Japan) to squeeze smaller countries that use low rates to attract investment and jobs. Here’s an alternative: What if everyone moved toward lower rates and simpler tax codes, with fewer opportunities for gamesmanship and smaller rate disparities among countries?
The column also makes the obvious – but often overlooked – point that any taxes imposed on companies are actually paid by workers, consumers, and shareholders.
…corporations don’t pay taxes anyway. They merely collect taxes—from customers via higher prices, shareholders in lower returns, or employees in lower wages and benefits.
Last but not least, the WSJ correctly frets that politicians will now try to implement this misguided blueprint.
The G-20 finance ministers endorsed the OECD scheme on the weekend, and heads of government are due to take it up in St. Petersburg in early September. But if growth is their priority, as they keep saying it is, they’ll toss out this complex global revenue grab in favor of low rates, territorial taxes and simplicity. Every page of the OECD’s plan points in the opposite direction.
The folks at the Wall Street Journal are correct to worry, but they’re actually understating the problem. Yes, the BEPS plan is bad, but it’s actually much less onerous that what the OECD was contemplating earlier this year when the bureaucracy published a report suggesting a “global apportionment” system for business taxation.
Fortunately, the bureaucrats had to scale back their ambitions. Multinational companies objected to the OECD plan, as did the governments of nations with better (or at least less onerous) business tax structures.
It makes no sense, after all, for places such as the Netherlands, Ireland, Singapore, Estonia, Hong Kong, Bermuda, Switzerland, and the Cayman Islands to go along with a scheme that would enable high-tax governments to tax corporate income that is earned in these lower-tax jurisdictions.
But the fact that high-tax governments (and their lackeys at the OECD) scaled back their demands is hardly reassuring when one realizes that the current set of demands will be the stepping stone for the next set of demands.
That’s why it’s important to resist this misguided BEPS plan. It’s not just that it’s a bad idea. It’s also the precursor to even worse policy.
As I often say when speaking to audiences in low-tax jurisdictions, an appeasement strategy doesn’t make sense when dealing with politicians and bureaucrats from high-tax nations.
Simply stated, you don’t feed your arm to an alligator and expect him to become a vegetarian. It’s far more likely that he’ll show up the next day looking for another meal.
P.S. The OECD also is involved in a new “multilateral convention” that would give it the power to dictate national tax laws, and it has the support of the Obama Administration even though this new scheme would undermine America’s fiscal sovereignty!
P.P.S. Maybe the OECD wouldn’t be so quick to endorse higher taxes if the bureaucrats – who receive tax-free salaries – had to live under the rules they want to impose on others.
Given my fervent (and sometimes risky) support of tax competition, financial privacy, and fiscal sovereignty, regular readers won’t be surprised to learn that I jumped at the opportunity.
My main argument was that we need tax havens to help control the greed of the political elite. Simply stated, politicians rarely think past the next election, so they’ll tax and spend until we suffer a catastrophic Greek-style fiscal collapse unless there’s some sort of external check and balance.
…politicians have an unfortunate tendency to over-spend and over-tax. …And if they over-tax and over-spend for a long period, then you suffer the kind of fiscal crisis that we now see in so many European nations. That’s not what any of us want, but how can we restrain politicians? There’s no single answer, but “tax competition” is one of the most effective ways of controlling the greed of the political elite. …Nations with pro-growth tax systems, such as Switzerland and Singapore, attract jobs and investment from uncompetitive countries such as France and Germany. These “tax havens” force the politicians in Paris and Berlin to restrain their greed. Some complain that these low-tax jurisdictions make it hard for high-tax nations to enforce their punitive tax laws. But why should the jurisdictions with good policy, such as the Cayman Islands, be responsible for enforcing the tax law of governments that impose bad policy?
I also made the point that the best way to undermine tax havens is to make our tax system fair and reasonable with something like a flat tax.
…the best way to reduce tax evasion is lower tax rates and tax reform. If the United States had a flat tax, for instance, we would enjoy much faster growth and we would attract trillions of dollars of new investment.
And I concluded by pointing out that there are other very important moral reasons why people need financial privacy.
In addition to promoting good fiscal policy, tax havens also help protect human rights. …To cite just a few examples, tax havens offer secure financial services to political dissidents in Russia, ethnic Chinese in Indonesia and the Philippines, Jews in North Africa, gays in Iran, and farmers in Zimbabwe. The moral of the story is that tax havens should be celebrated, not persecuted.
And what did my opponent, Chye-Ching Huang from the Center for Budget and Policy Priorities, have to say about the issue? To her credit, she was open and honest about wanting to finance bigger government. And she recognizes that tax competition is an obstacle to the statist agenda.
It drains the United States of tax revenues that could be used to reduce deficits or invested in critical needs, including education, healthcare, and infrastructure.
She also didn’t shy away from wanting to give the scandal-plagued IRS more power and money.
U.S. policymakers could and should act… Policymakers could provide the Internal Revenue Service (IRS) with the funding it needs to ensure that people pay the taxes they owe, including sufficient funds to detect filers who are using offshore accounts to avoid paying their taxes.
Her other big point was to argue against corporate tax reforms.
…a “territorial” tax system…would further drain revenues, and domestic businesses and individual taxpayers could end up shouldering the burden of making up the difference.
In any event, I think both of us had a good opportunity to make our points, so kudos to Costco for exposing shoppers to the type of public finance discussion that normally is limited to pointy-headed policy wonks in sparsely attended Washington conferences.
That’s the good news.
The bad news is that I don’t think I’m going to prevail in Costco’s online poll. It’s not that I made weak arguments, but the question wound up being altered from “Should offshore tax havens be illegal?” to “Should offshore bank accounts be taxable?”
So I imagine the average reader will think this is a debate on whether they should be taxed on their account at the bank down the street while some rich guy isn’t taxed on his account at a bank in Switzerland.
Heck, even I would be sorely tempted to click “Yes” if that was the issue.
In reality, I don’t think any of our bank accounts should be taxable (whether they’re in Geneva, Switzerland or Geneva, Illinois) for the simple reason that there shouldn’t be any double taxation of income that is saved and invested.
The folks at Costco should have stuck with the original question (at least the way it was phrased to me in the email they sent), or come up with something such as “Are tax havens good for the global economy?”
But just as you can’t un-ring a bell, I can’t change Costco’s question, so I’m not holding my breath expecting to win this debate.
P.P.S. If you like tax haven debates, here are Part I and Part II of a very civilized debate I had with a young lady from the Task Force on Financial Integrity and Economic Development.
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’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.
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.
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.
In an even bigger display of futile optimism, I also just explained the benefits of tax competition, fiscal sovereignty, and financial privacy for the kleptocrats in Congress.
Here’s some of what I wrote for The Hill, starting with the obvious point that it is preposterous to blame tax havens for the financial crisis.
When the financial crisis hit, politicians from high-tax nations didn’t let the crisis go to waste. Acting through the G-20, they launched an attack on so-called tax havens, asserting that “hot money” from the offshore world somehow had caused the banking system to become unstable. This campaign against low-tax jurisdictions made no sense. Nobody in the Cayman Islands or Monaco was responsible for the Federal Reserve’s easy money. Nobody in Panama or Singapore had anything to do with the corrupt system of Fannie Mae/Freddie Mac subsidies.
So-called tax havens will suffer collateral damage, though, since big firms use them as very desirable platforms for a significant chunk of cross-border economic activity.
Tax havens are being attacked again… Funded with American tax dollars, the Organization for Economic Cooperation and Development (OECD) published a report on “Addressing Base Erosion and Profit Shifting,” (BEPS) and will follow up in a few months with specific recommendations. This new OECD scheme is targeting multinational companies for a big tax hike, probably by requiring global tax returns, but that means tax havens are in the cross hairs because their pro-growth tax policies make them attractive locations for cross-border economic activity. Indeed, the OECD specifically has complained that “small jurisdictions act as conduits, receiving disproportionately large amounts of Foreign Direct Investment compared to large industrialised countries and investing disproportionately large amounts in major developed and emerging economies.” …its new campaign isn’t just targeting small tax havens, but will also undermine the relatively attractive fiscal systems in nations such as Ireland, Hong Kong, Switzerland, Slovakia, Singapore, Estonia, and the Netherlands. The burden of this will fall not on companies, but on workers, consumers, and shareholders.
I close with a warning that tax havens and tax competition are one of the few restraints on the greed of the political class. We need to preserve these liberalizing forces if we want to protect ourselves from even worse fiscal policy.
…anti-tax haven demagoguery is perfectly acceptable in political circles since it is seen as expanding the power of government over taxpayers. The real issue we should be addressing is whether we need some sort of external constraint to protect us from fiscal crises that are triggered by the overspending and overtaxing of the political class. For a couple of decades following the Reagan and Thatcher tax cuts, governments around the world have been forced by tax competition to lower tax rates, reduce double taxation of saving and investment and reform their tax system. Defenders of the welfare state and proponents of class-warfare tax policy have resented this liberalizing process and grab any opportunity to demonize tax havens, particularly since these jurisdictions have strong human rights laws that protect the financial privacy of investors.
Art Laffer has a guaranteed spot in the liberty hall of fame because he popularized the common-sense notion that you can’t make any assumptions about tax rates and tax revenue without also figuring out what happens to taxable income.
Lot’s of people on the left try to denigrate the “Laffer Curve,” but it’s worth noting that even left-wing economists now admit that you don’t maximize revenue with a 100 percent tax rate.*
After enjoying an average growth rate above 3.5% per year between 1960 and 1999, Americans have had to make do with less than one-half that pace since 2000. The consequences are already dramatic and will become even more so over time. Overall we are 20% poorer today than we would be had the pre-2000 growth rate persisted.
That’s a great point. I’ve also tried to get people to focus on the importance of long-run growth.
In his column, Art also correctly defines good tax policy.
The principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce—which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems.
But he then asserts that an Internet sales tax cartel somehow will result in better policy.
…there are reforms that can alleviate the problems associated with declining sales-tax bases and, at the same time, allow the states to move closer to a pro-growth tax system. One such reform would be to have Internet sellers collect the sales taxes that are owed by in-state consumers when they purchase goods over the Web. So-called e-fairness legislation addresses the inequitable treatment of retailers based on whether they are located in-state (either a traditional brick-and-mortar store or an Internet retailer with a physical presence in the state) or out of state (again as a brick-and-mortar establishment or on the Internet). …The exemption of Internet and out-of-state retailers from collecting state sales taxes reduced state revenues by $23.3 billion in 2012 alone, according to an estimate by the National Conference of State Legislatures. The absence of these revenues has not served to put a lid on state-government spending. Instead, it has led to higher marginal rates in the 43 states that levy income taxes.
This is a very disappointing collection of sentences. Let’s review.
1. States have declining sales-tax bases because state lawmakers treat that levy the same way that politicians in Washington treat the income tax – they put in loopholes in exchange for campaign cash and political support. For them to complain about declining sales-tax bases is sort of like the old joke about the guy who murders his parents and then asks the court for mercy because he’s an orphan.
2. Art offers zero evidence that state governments would use the additional revenue from a state sales tax cartel to reduce income tax rates. What’s next, a column saying we should have a value-added tax because the politicians may use the revenue to get rid of the income tax? Yeah, good luck with that approach.
3. Why is it “inequitable” for there to be different tax policies in different states? That’s another way of describing federalism, and it’s something we should be celebrating and promoting. Particularly since it promotes tax competition, which is one of the most effective ways of restraining the greed of the political class.
4. The Internet sales tax cartel being promoted by Art and various politicians requires that governments have the ability to tax sales that tax place outside their borders. That’s an assault of sovereignty, particularly since out-of-state merchants will be coerced into being tax collectors for a distant government. This is the same dangerous ideology that is used by high-tax governments to promote global anti-tax competition policies.
5. Art offers zero evidence that the absences of a state sales tax cartel has led to higher income tax rates. Yes, some states have raised tax rates in recent years, but others have lowered tax rates.
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.
I 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.
Using data stolen from service providers in the Cook Islands and the British Virgin Islands, the Washington Postpublished a supposed exposé of Americans who do business in so-called tax havens.
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.
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.
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.
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.”
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.
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.”
“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.’”
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.
One of the new Tea Party senators, Ted Cruz, gained a lot of support when he was Solicitor General of Texas and successfully defended his state’s ability to execute a murderer over the objections of the International Court of Justice.
A United Nations-based drug agency urged the United States government on Tuesday to challenge the legalization of marijuana for recreational use in Colorado and Washington, saying the state laws violate international drug treaties. …U.S. Attorney General Eric Holder said last week that he was in the last stages of reviewing the Colorado and Washington state laws. Holder said he was examining policy options and international implications of the issue.
Here’s a news flash for the bureaucrats at this branch of the United Nations in Vienna: American states are sovereign and don’t need to kowtow to a bunch of mandarins who get bloated (and tax free!) salaries in exchange for…well, I’m not sure what they do other than pontificate, gorge themselves at receptions, and enjoy first class travel at our expense while jetting from one conference to another.
If the people of Washington and Colorado want to legalize certain drugs, that’s their right. They haven’t signed any treaties with the United Nations.
By the way, this has nothing to do with whether drugs should be legalized.
But since I’m an abstainer, I confess I don’t really lose any sleep about the issue.
I generally do get agitated, by contrast, when international bureaucracies seek to impose one-size-fits-all policies on the world. Much of my ire is directed at the Paris-based Organization for Economic Cooperation and Development, which seeks to penalize jurisdictions that commit the horrible crime of having attractive tax regimes (or, to be more accurate, having tax regimes that are more attractive than those in places such as France and Germany).
P.S. Have you ever noticed that U.N. offices are in swanky places such as New York City, Geneva, and Vienna? If these bureaucrats really want to help the world, why aren’t their offices in Havana, Lagos, and Chisinau. That would be quite appropriate, after all, since Cuba, Nigeria, and Moldova are all members of the U.N. Human Rights Council.
Several months ago, I wrote a rather wonky post explaining that the western world became rich in large part because of jurisdictional competition. Citing historians, philosophers, economists, and other great thinkers, I explained that the rivalry made possible by decentralization and diversity played a big role in both economic and political liberalization.
Now I want to provide another argument in favor of the jurisdictional differences that are encouraged by national sovereignty. Simply stated, it’s the idea of diversification. Reduce risk by making sure one or two mistakes won’t cause a catastrophe.
This isn’t my insight. The author of The Black Swan understands that this simple principle of financial investment also applies to government. He recently explained his thinking in a short interview with Foreign Policy. The magazine began with a few sentences of introduction.
Nassim Nicholas Taleb has made a career of going against the grain, and he has been successful enough that the title of his book The Black Swan is a catchphrase for global unpredictability far beyond its Wall Street origins. …His newest project is helping governments get smarter about risks.
The most stable country in the history of mankind, and probably the most boring, by the way, is Switzerland. It’s not even a city-state environment; it’s a municipal state. Most decisions are made at the local level, which allows for distributed errors that don’t adversely affect the wider system. Meanwhile, people want a united Europe, more alignment, and look at the problems. The solution is right in the middle of Europe — Switzerland. It’s not united! It doesn’t have a Brussels! It doesn’t need one.
But it’s important to understand why he likes Switzerland and dislikes the European Union: Small is beautiful. More specifically, decentralized decision making means less systemic risk.
We need smaller, more decentralized government. On paper, it might appear much more efficient to be large — to have economies of scale. But in reality, it’s much more efficient to be small. …an elephant can break a leg very easily, whereas you can toss a mouse out of a window and it’ll be fine. Size makes you fragile.
Taleb elaborates on this theme, echoing many of the thinkers I cited in my wonky September post.
The European Union is a horrible, stupid project. The idea that unification would create an economy that could compete with China and be more like the United States is pure garbage. What ruined China, throughout history, is the top-down state. What made Europe great was the diversity: political and economic. Having the same currency, the euro, was a terrible idea. It encouraged everyone to borrow to the hilt.
Because it’s a short article, he doesn’t cite many specific examples, so let me elaborate. One of the reasons for the financial crisis is that the world’s financial regulators thought it would be a good idea if everybody agreed to abide the same rules for weighing risks. This resulted in the Basel rules that tilted the playing field in favor of mortgage-backed securities, thus helping to create and pump up the housing bubble. And we know how that turned out.
Unfortunately, governments seem drawn to harmonization like moths to a flame. To make matters worse, the corporate community often has the same instinct. Their motive often is somewhat benign. They like the idea of one rulebook rather than having to comply with different policies in every nations.
But mistakes made for benign reasons can be just as bad as mistakes made for malignant reasons.
P.S. Last but not least, it’s worth noting that Taleb is not a big fan of democracy.
I have a negative approach to democracy. I think it should be primarily a mechanism by which people can remove a bad leader
I don’t know if this is because he recognizes the danger of untrammeled majoritarianism, much like Thomas Sowell, George Will, and Walter Williams. But if you want more information on why 51 percent of the people shouldn’t be allowed to oppress 49 percent of the people, here’s a very good video.
And that can lead to Greek-like fiscal and economic chaos, which I’ve referred to as “goldfish government.”
All of which explains why those high-tax governments were so determined to destroy financial privacy as part of their broader fight to replace tax competition with tax harmonization.
The net result was that high-tax governments couldn’t track and tax the money. And this made me happy because politicians from those nations instead faced pressure to lower tax rates.…All states have statutes that require their civil and criminal courts to assist in another state’s depositions, subpoenas and legal processes. Abortion-supportive states could amend these laws; such states could prohibit their courts from cooperating with out-of-state civil and criminal cases that stem from abortions that took place legally within their borders. To further protect abortion providers, states could block their law enforcement agencies from cooperating with out-of-state investigations related to the provision of otherwise lawful abortions. And they could change their extradition laws to refuse to extradite abortion providers… States where abortion remains legal can instruct their medical boards and in-state malpractice insurance companies to abstain from taking any adverse action against providers who give out-of-state patients abortions that are legal in the provider’s state.
Nassim Nicholas Taleb has made a career of going against the grain, and he has been successful enough that the title of his book The Black Swan is a catchphrase for global unpredictability far beyond its Wall Street origins. …His newest project is helping governments get smarter about risks.
International Liberty 