Archive for the ‘Tax avoidance’ Category

The United States has what is arguably the worst business tax system of any nation.

That’s bad for the shareholders who own companies, and it’s also bad for workers and consumers.

And it creates such a competitive disadvantage that many U.S.-domiciled companies are better off if they engage in an “inversion” and shift their corporate charter to a jurisdiction with better tax policy.

Unsurprisingly, the Obama White House doesn’t like inversions (with some suspicious exceptions) because the main effect is to reduce tax revenue.  But the Administration’s efforts to thwart them haven’t been very successful.

The U.K.-based Economist has just published an article on American companies re-domiciling in jurisdictions with better tax law.

A “tax inversion” is a manoeuvre in which a (usually American) firm acquires or merges with a foreign rival, then shifts its domicile abroad to reap tax benefits. A spate of such deals last year led Barack Obama to brand inversions as “unpatriotic”. …The boardroom case for inversions stems from America’s tax exceptionalism.

But this isn’t the good kind of exceptionalism.

The internal revenue code is uniquely anti-competitive.

It levies a higher corporate-tax rate than any other rich country—a combined federal-and-state rate of 39%, against an OECD average of 25%. And it spreads its tentacles worldwide, so that profits earned abroad are also subject to American taxes when they are repatriated.

And that worldwide tax system is extremely pernicious, particularly when combined with America’s punitive corporate tax rate.

Given these facts, the Economist isn’t impressed by the Obama Administration’s regulatory efforts to block inversions.

Making it hard for American firms to invert does precisely nothing to alter the comparative tax advantages of changing domicile; it just makes it more likely that foreign firms will acquire American ones. That, indeed, is precisely what is happening.

So what’s the answer?

If American policymakers really worry about losing out to lower-tax environments, they should get rid of the loopholes that infest their tax rules, drop the corporate-income tax rate and move to a territorial system. …jobs would be less likely to flow abroad.

In a companion article, the Economist lists some of the firms that are escaping from the IRS.

…companies have continued to tiptoe out of America to places where the taxman is kinder and has shorter arms. On August 6th CF Industries, a fertiliser manufacturer, and Coca-Cola Enterprises, a drinks bottler, both said they would move their domiciles to Britain after mergers with non-American firms. Five days later Terex, which makes cranes, announced a merger in which it will move to Finland. For many firms, staying in America is just too costly. Take Burger King, a fast-food chain, which last year shifted domicile to Canada after merging with Tim Horton’s, a coffee-shop operator there.

I’ve previously shared lists of inverting companies, as well as a map of where they go, and this table from the article is a good addition.

So how should Washington react to this exodus? The Economist explains once again the sensible policy response.

The logical way to stem the tide would be to bring America’s tax laws in line with international norms. Britain, Germany and Japan all have lower corporate rates and are among the majority of countries that tax firms only on profits earned on their territory.

But the Obama Administration’s response is predictably unhelpful. And may even accelerate the flight of firms.

…the US Treasury has been trying to make it harder for them to leave. …Despite such speed bumps, inversions still make enormous sense for companies with large overseas operations. If anything, the rule changes have led to more companies looking to get out before it is too late.

The Wall Street Journal opined on this issue earlier this month and reached a similar conclusion.

…a mountain of evidence that an un-competitive tax system has made the U.S. an undesirable location for corporate headquarters and investment. …high tax rates matter a great deal in determining where a company is based and where it grows.

The WSJ also pointed out that taxpayers have a right and an obligation to legally protect themselves from bad tax policy.

Shareholders deserve nothing less from management than the Warren Buffett approach of paying the lowest possible legal tax rate.

But since the White House isn’t very interested in helpful reform, expect more inversions.

Which is one more piece of evidence that punitive corporate taxation isn’t good news for workers.

…absent American tax reform will end up pushing more U.S. companies into foreign hands. …The ultimate losers in all of this aren’t so much the owners as American workers, who often lose their jobs when a company moves abroad. …It’s well past time for our government to stop creating advantages for foreign competitors.

In looking at this issue, it’s easy to be discouraged since the Obama Administration is unwilling to even consider pro-growth policy responses.

As such, the problem will fester until at least 2017.

But it’s possible that there could be pro-reform legislation once a new President takes office.

Particularly since the Senate’s Permanent Subcommittee on Investigations (which used to be chaired by the clownish Sen. Levin, infamous for the FATCA disaster) has produced a very persuasive report on how bad U.S. tax policy is causing inversions.

Here are some excerpts from the executive summary.

The United States has the highest corporate tax rate in the industrialized world, and (alone among its peers) has retained a worldwide system that taxes American companies for the privilege of repatriating their overseas earnings. Meanwhile, most other nations with advanced economies have adopted competitive tax rates and territorial-type tax systems. As a result, U.S. firms too often have a significant incentive to relocate their headquarters overseas. Corporate inversions may be the most dramatic manifestation of that incentive… The lesson policymakers should draw from our findings is straightforward: The high U.S. corporate tax rate and worldwide system of taxation are competitive disadvantages that make it easier for foreign firms to acquire American companies. Those policies also strongly incentivize cross-border merging firms, when choosing where to locate their new headquarters, not to choose the United States. The long term costs of these incentives can be measured in a loss of jobs, corporate headquarters, and revenue to the Treasury.

Those are refreshing and intelligent comments, particularly since politicians were in charge of putting out this report rather than economists.

So maybe there’s some hope for the future.

For more information on inversions and corporate tax policy, here’s a short speech I gave to an audience on Capitol Hill.

P.S. Let’s close with some political satire.

I’ve written about Bernie Sanders being a conventional statist rather than a real socialist.

But that wasn’t meant to be praise. He’s still clueless about economics, as illustrated by this amusing Venn diagram.

Though I’m sure many other politicians would occupy that same space.

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If I asked you what Donald Trump and Bono have in common, the easy and accurate answer is that they both have lots of money.

But if I asked you to identify a shared perspective by the two men, at first glance that would seem to be a much harder question.

After all, it seems like a rock star and a real-estate tycoon are about as different as two people could possibly be.

Yet the answer should be obvious.

I’ll give you a big hint. You probably have the same perspective as well.

At least if you answer “no” to the first question and “yes” to the second question.

  1. Do you ever voluntarily pay extra tax?
  2. Or do you, like John Kerry or Bill and Hillary Clinton, take prudent steps to minimize the amount of your income confiscated by government?

In other words, the perspective shared by Donald Trump and Bono is one that is widely held by every sensible person. Simply stated, your income belongs in your pocket, not in the grasping hands of politicians.

This irks politicians such as David Cameron in the U.K., who seem to think we have some sort of moral obligation to help finance their vote-buying efforts.

But I bet almost all of us agree with Trump’s view. Here are some excerpts from a CNN report.

Trump was unambiguous. “I pay as little as possible,” he said. “I fight like hell to pay as little as possible, for two reasons. Number one, I’m a businessman, and that’s the way you’re supposed to do it, and you put the money back into your company and employees and all of that.” “But the other reason is that I hate the way our government spends our taxes. I hate the way they waste our money. Trillions and trillions of dollars of waste and abuse and I hate it,” Trump said. “And I’ll be probably the first candidate in the history of politics within this country to say, I try — by the way, like every single taxpayer out there — I try to pay as little tax as possible, and again, one of the big reasons is I hate what our country does with the money that we pay.”


As an economist, I don’t want tax increases because the economy will be hurt and workers will suffer.

But what upsets me at a visceral level is the notion of sending more money to DC when there’s so much waste, fraud, and abuse.

And I suspect tens of millions of other Americans agree that it would be foolish to reward the wasteful antics of Washington politicians with more of our money.

Which is why almost all of us also agree with Bono’s view. As reported by the U.K.-based Mirror, Bono says it is very “sensible” to minimize tax and that it would be “stupid” to behave otherwise.

Members of U2 have hit back at claims they shield millions of pounds in overseas tax havens – claiming they are just “being sensible”. In an interview with Sky News, lead singer Bono insisted the band pays a fortune in tax and it was the right decision to move some of their business to the Netherlands. “It is just some smart people we have working for us trying to be sensible about the way we are taxed,” he said. …“Because you’re good at philanthropy and because I am an activist people think you should be stupid in business and I don’t run with that.”

Bingo, he’s exactly right.

Indeed, even though I’ve praised Bono’s economic analysis in the past, I suspect he doesn’t even understand how right he is.

Because he’s not just doing what’s right from his band’s perspective, he’s also doing what’s right for the rest of us as well.

P.S. While I’m glad lots of leftists seek to minimize their tax burdens, it would be better if they weren’t such total hypocrites.

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Europe is suffering from economic stagnation caused in part by excessive fiscal burdens.

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 the European 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.

For what it’s worth, if growing up means acquiescing to disgusting government overreach, I prefer to remain a child.

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They say economists are boring people. Today, though, I’m going to break the stereotype by writing about the fascinating intersection of sex and public policy.

Okay, maybe it’s only the sex part that’s interesting, but we’re going to look at a couple of examples of how excessive government can take the fun out of anything.

In other words, we’re going to add to our “sin tax” collection.

  • California bureaucrats regulating participants in porn films, as humorously described by Mark Steyn.
  • The World Bank paying poor young women so they don’t take up with sugar daddies.
  • Obamacare being so costly that some young women are looking for sugar daddies.
  • British taxpayers financing sex trips to Amsterdam.
  • A ruling from the U.S. Tax Court that money spent on sex change operations is deductible.
  • The law in Hawaii allows cops to have sex with prostitutes.
  • In Germany, by contrast, prostitutes have to use parking meters to pay tax.
  • Pakistani officials use transsexuals to encourage tax payments.
  • But in Colorado, you can get busted (no pun intended) for cutting hair while topless, but not because you’re bare-chested.
  • And in Spain, porn has a lower tax rate than the theatre.

Now let’s get to our new additions.

Here are some of the details from a story in the U.K.-based Telegraph.

A brothel in Austria is offering free sex to its customers – as a tax protest. Pascha brothel in the city of Salzburg is advertising a “Summer Special”. “We’re not paying any more tax!” says an announcement on the brothel’s website. “From now on: Free entry! Free drinks! Free sex!” The brothel’s owner, Hermann Müller, is paying the prostitutes out of his own pocket as a protest against what he says are unfair taxes.

Gee, this sounds a lot more intriguing than throwing tea in Boston Harbor.

And a lot more popular.

“…we’ve already had to send hundreds of customers away because we had a full house,” Mr Müller told Austria’s Kronen Zeitung newspaper.

The brother owner doesn’t like the fact that government seems to make more money off prostitution than he does.

The German-born Mr Müller runs a chain of brothels… “In the past decade alone I’ve paid nearly €5m in taxes in Salzburg alone,” he said. “And they want more and more…” He complained that tax officials check up on the brothel’s business every 14 days.

Maybe Mr.  should move to Nevada. That state, for unknown reasons (perhaps politicians are big customers?), has a loophole in the sales tax for prostitution services.

And maybe the women also should move since Nevada doesn’t have a state income tax.

Under Austrian law prostitutes must be self-employed – so they will still be liable for their own taxes.

By the way, we have similar issues in the United States.

As reported by the New York Law Journal, it seems government tax collectors like to insert themselves (no pun intended) between consenting adults.

Pole dance routines by exotic dancers in an Albany-area juice bar are an expression of artistic merit, but the private couch dances performed for individual patrons are not, a state tax department administrative law judge has ruled. The distinction drawn by ALJ Joseph Pinto Jr. is an important one for the outcome of the state Division of Taxation’s latest attempt to collect sales taxes from the Nite Moves club on couch dances. Auditors contend that the club and its proprietors owe the state just under $530,000 in unpaid taxes on the private dances and on cover charges for the period.

The strip club wanted to take advantage of the sales tax exemption for art.

The same club challenged its tax bill for 2002-05, also on grounds it was due the exemption for artistic performances on First Amendment grounds.

But the Judge decided that pole dances qualify, but not lap dances.

Pinto rejected the claim of Nite Moves’ owners that the couch dances, being artistic in nature, fall under the same state sales tax exemption… He cited the testimony presented by several dance experts about the artistic merit of the pole routines.

The Judge’s decision seems to track the outcome of a similar case involving the Hustler Club in New York City, so government officials in the Empire State are obviously on top (no pun intended) of these issues.

And even though bureaucrats have a reputation for being lazy, some of them are willing to go above and beyond the call of duty to make sure the tax laws are enforced.

He cited the testimony of the supervisor of the Nite Moves audit who said the “private dance was essentially a full body rub” and far different than the pole dances the supervisor observed in his 10 to 15 visits to the club.

Hmmm…, I wonder whether “the supervisor” has a wife and whether she thought 10 to 15 visits were really necessary?

Let’s close by making a serious point. Prostitutes and “exotic dancers” presumably don’t have easy lives. And maybe we should even have some sympathy for their customers, who presumably would prefer not to have to pay women for their company.

So why, then, impose extra-high taxes on the sex industry?

Though maybe we should look at the bright side. At least hookers and strippers aren’t savers and investors.

Those are the people who get hit hardest by the tax system, though I’ve never understood why financing tomorrow’s growth is a sinful activity that should be discouraged.

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While the Bureaucrat Hall of Fame and Moocher Hall of Fame already exist, the Hypocrite Hall of Fame is just a concept.

But once it gets set up, Congressman Alan Grayson of Florida will definitely be a charter member.

Here are some passages from a column in the Tampa Bay Times.

U.S. Rep. Alan Grayson, the outspoken, populist Democrat who thunders against Wall Street fat cats,and used to to joke about Mitt Romney’s low tax bill, incorporated a couple hedge funds in the Cayman Islands so investors could avoid taxes. Grayson Fund Ltd. and Grayson Master Fund were incorporated in 2011 in the Cayman Islands… That was the same year he wrote in the Huffington Post that the IRS should audit every Fortune 500 company because so many appear to be “evading taxes through transfer pricing and offshore tax havens.”

But apparently Grayson only wants other people to cough up more money to Washington.

Grayson’s financial disclosure statements indicate he has between $5-million and $25-million invested in the Grayson fund, and he lists no income from it.

The above sentence frankly doesn’t make sense. How can Grayson have millions of dollars of personal wealth and not generate any income?

The only plausible answer is that he’s just as bad at managing his own money as he is at managing the money of taxpayers (he “earned” an F from the National Taxpayers Union).

In any event, Grayson has plenty of company from fellow leftists who also use tax havens.

Including Treasury Secretary Jacob Lew.

And the President’s top trade negotiator.

Along with big donors to Obama.

Joined by huge donors to Democrats.

Politicians from Massachusetts also are hypocrites. They endorse higher taxes on everyone else, but use neighboring states to protect themselves from oppressive taxation. John Kerry is a prime example, as are run-of-the-mill hacks from the state legislature.

The on-air “talent” at MSNBC also has trouble obeying tax laws. At least Bill and Hillary Clinton have figured out how to legally dodge taxes while endorsing higher burdens for the rest of us.

Though I must admit that the really smart pro-tax statists simply choose to work at places where they’re exempt from taxation. Hey, nice “work” if you can get it.

P.S. Nothing written here should be construed as criticism of tax havens, which are very admirable places.

I’m just irked when I discover that greedy pro-tax politicians are protecting their own money while pillaging our money.

P.P.S. By the way, it’s worth noting that the Cayman Islands is basically a conduit for investment in America’s economy.

Here’s a chart, prepared by the Treasury Department, showing that “Caribbean Banking Centers” are the biggest source of investment for America’s financial markets.

And the reason why the Cayman Islands are a platform for investment to the United States is that America is a tax haven for foreigners, assuming they follow certain rules.

P.P.P.S. Since today’s topic deals with international taxation, here’s an update on “FATCA,” which arguably is the worst provision in the entire tax code.

Here are some passages from a recent column in the New York Times.

…recent efforts by the United States Congress to capture tax revenues on unreported revenues and assets held in foreign accounts are having disastrous effects on a growing number of Americans living abroad. The Foreign Account Tax Compliance Act, or Fatca, signed into law in March 2010 but only now coming into full effect, has been a bipartisan lesson in the law of unintended consequences. Pressure is growing to halt its pernicious impact.

I agree the law is a disaster and that pressure is growing to ameliorate its negative effects, but we need more lawmakers like Rand Paul if we want to translate unhappiness into action.

Here are further details from the column.

The bureaucratic burden of identifying, verifying and reporting has caused many banks to regard American clients, particularly those of moderate means, as more trouble than they are worth. Middle-class Americans living abroad are losing bank accounts and home mortgages and, in some cases, having their retirement savings exposed to debilitating taxes and penalties. …Those impacted are left with the choice of uprooting their families (including foreign spouses and children), careers and businesses to re-establish a life in the United States; or to make the painful decision to renounce their citizenship.

No wonder so many Americans are put in a position where they have to give up their passports and become foreigners.

But here’s the really frightening part.

Worse yet, the law has spawned a potentially more intrusive program known as the Global Account Tax Compliance Act, or Gatca. The proposal, developed by the Organization for Economic Cooperation and Development, calls for data from accounts opened by a foreign national to be automatically reported to that person’s homeland tax authorities. While Gatca is in an early stage of negotiation and implementation, observers believe that as many as 65 countries will ultimately be involved. Fatca, and by extension Gatca, are forming more links in the chain of global government snooping into the lives of innocent individuals under the guise of identifying criminals and tax cheats. For Americans, it is a massive breach of the Fourth Amendment, which forbids unreasonable search and seizure. The repeal of Fatca is the only way to end this dangerous and growing government overreach.

I’ve been warning about this awful outcome for almost four years, so it’s good to see more people are recognizing the danger.

And if you want more details, Richard Rahn and David Burton have explained why these awful policies will lead to bigger government and more statism.

P.P.P.P.S. I’m sure nobody will be surprised to learns that Obama has played a destructive role in these debates.

After all, tax havens and tax competition inhibit government growth and Obama wants the opposite outcome.

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Who benefits most from the death tax?

There are two obvious answers.

First, politicians presumably benefit since they get more money to spend. Yes, it’s true that the tax discourages capital formation and may actually lose revenue in the long run, but politicians aren’t exactly famous for thinking past the next election cycle.

Second, there are some statists who are motivated by envy and resentment. These are the folks who make class-warfare arguments about the death tax being necessary to prevent the “rich” from accumulating more wealth, even though evidence shows large family fortunes dissipate over time.

Both of those answers are correct, but they don’t fully explain why this pernicious levy still exists.

Tim Carney of the Washington Examiner has a must-read piece for the American Enterprise Institute. He reveals the groups that actually are spending time and money to defend this odious version of double taxation.

…about two-thirds of Americans tell pollsters that they oppose the death tax. …But some segments of the population feel differently — most notably, the estate-planning industry. A survey by an industry magazine in 2011 found that 63 percent of estate-planning attorneys opposed repeal of the estate tax. That’s fitting. The death tax forces people to engage in complex and expensive estate planning. Lobbying disclosure forms show that the insurance industry is lobbying on the issue these days. The Association for Advanced Life Underwriting, which represents companies that sell estate-planning products, lobbied on the issue last year, as it has for years. Last decade, AALU funded a group called the Coalition for America’s Priorities, which attacked estate tax repeal as a tax break for Paris Hilton. …When the estate tax was last before Congress, the life insurance industry revved up the troops, spending $10 million a month on lobbying in the first half of 2010. In that stretch, only three industries spent more, according to data from the Center for Responsive Politics.

I concur with Tim.

Indeed, I remember giving a speech back in the 1990s to a group of estate-planning professionals. In my youthful naiveté, I expected that these folks would very much appreciate my arguments against the death tax.

Instead, the reception was somewhat frosty.

Though not nearly as hostile, I must confess, as the treatment I got when speaking about the flat tax to a group of tax lobbyists for big corporations.

In both cases, I was surprised because I mistakenly assumed that my audiences actually cared about the best interests of their clients or employers.

In reality, they cared about what made them rich instead (economists and other social scientists call this the principal-agent problem).

But I’m digressing. Let’s look at more of Tim’s article. He cites the Clintons to make a key point about rich people being able to avoid the tax so long as they cough up enough money to the estate-planning industry.

Those same techniques, however, often are not available to farmers, small business owners, and others who are victimized by the levy.

The Clintons may be stupid-rich, but they aren’t stupid — they’re using estate-planning techniques to avoid the estate tax. Bloomberg News reported in 2014 that the Clinton family home has been divided, for tax purposes, into two shares, and those shares have been placed in a special trust that will shield Chelsea from having to pay the estate tax on the full value of the home when she inherits it. Also, the Clintons have created a life insurance trust — a common tool wealthy people use to provide liquidity for heirs to pay the estate tax. The Clintons’ games, and the estate-planning industry’s interest in the tax, highlights how the tax fails at its stated aims of preventing the inheritance of wealth and privilege. Instead, the estate tax forces the wealthy to play games in order to pass on their wealth. These games don’t add anything to the economy, they just enrich the estate-planning industry. Those whose wealth is tied up in a small or medium-sized business, on the other hand, aren’t always capable of playing the estate planning games. They’re the victims.

The bottom line is that the tax should be abolished for reasons of growth.

But it also should be repealed because it’s unfair to newly successful entrepreneurs, investors, and business owners, all of whom generally lack access to the clever tax-planning tools of those with established wealth.

And it should be repealed simply because it would be morally satisfying to reduce the income of those who benefit from – and lobby for – bad government policy.

P.S. The U.S. death tax is more punitive than the ones imposed by even France and Venezuela.

P.P.S. It’s particularly hypocritical for the Clintons to support the death tax on others while taking steps to make sure it doesn’t apply to them.

P.P.P.S. In a truly repugnant development, there are efforts in the U.K. to apply the death tax while people are still alive.

P.P.P.P.S. On a more positive note, a gay “adoption” in Pennsylvania helped one couple reduce exposure to that state’s death tax.

P.P.P.P.P.S. If you live in New Jersey, by contrast, the best choice is to move before you die.

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I’m a relentless (probably to the point of being annoying) proponent of tax competition among jurisdictions.

It’s one of the reasons why I favor tax havens and federalism. Simply stated, politicians are less likely to do bad things when they know economic activity can escape to places with better policy.

And I’m more than happy to pontificate on the theories that support my position. But every so often it helps to have a powerful real-world example.

Our example today deals with the fact that the United Kingdom has a very punitive tax on air passengers, but the U.K. government also is devolving some powers to regions such as Scotland. And this bit of decentralization is already generating some pressure for tax reductions.

Here are excerpts from a story in Scotland’s Herald.

The UK government’s decision to devolve control of Air Passenger Duty (APD) to Holyrood means that a family of four could eventually be saving as much as £388 for a one-way journey to long-haul destinations. The promise to hand the Scottish Government control of APD is part of the UK government’s devolution package… The Scottish Government last week said it would halve the rate within the next Parliament and abolish completely “when the public finances allow”.

That sounds like good news for travelers, but some folks aren’t happy.

…airports as well as tourism bodies south of the border are up in arms, fearing that it will create an uneven playing field for the aviation sector as passengers in the catchment areas of airports such as Newcastle, Manchester and Liverpool will simply drive across the border to rival airports in Scotland to avoid potentially huge APD costs. Newcastle airport’s planning director Graeme Mason told the Sunday Herald that Scotland cutting or scrapping the passenger levy would create an unfair “cross-border market distortion” that would fester unless the UK government matches any reduction in APD south of the border.

Notice the Orwellian distortion of language from Mr. Mason. We’re supposed to view lower taxes as a “cross-border market distortion.”

But what he (and others) refer to as a “distortion” is actually the healthy process of competition.

Just as the I-Phone was a “distortion” for the Blackberry, but very good news for consumers. Just as the personal computer was a “distortion” for the typewriter industry, but very good news for consumers.

Countries, just like companies, should suffer when they don’t provide good value in exchange for people’s hard-earned money.

Here’s more from the story, including the fact that English airports in the long run will probably benefit because the government will now feel pressure to lower the tax burden on air travel.

…anyone travelling long-haul could potentially save themselves hundreds of pounds. The saving could be enough, for example, to undermine direct flights between Newcastle and New York that are set to launch in the May. But in Scotland, the decision to devolve APD to Holyrood has been greeted with delight by airports, the tourist industry and businesses which have campaigned both before and since the independence referendum to get rid of the tax. And many of those behind the campaign say that airports in England will eventually benefit from the abolition of the tax in Scotland, as this increases pressure on the UK government to follow suit.

Here’s some real-world evidence of tax competition promoting better policy on travel taxes.

After introducing a form of APD in 2008 the Dutch government scrapped the tax within a year after Dutch residents started travelling in their droves to airports in neighbouring Germany to avoid the tax. Belgium, Denmark, Malta and Norway have also scrapped flight taxes for similar reasons. That leaves the UK as one of only five countries in Europe to levy a passenger departure tax (the others being Austria, France, Germany and Italy) but the UK tax is, on average, five times higher than those other countries and is thought to be the highest in the world… In 2011 the UK government was forced to slash APD on long-haul flights in Northern Ireland, to stem the flow of passengers travelling south to Dublin to take advantage of the Republic of Ireland’s low and now abolished tax on flights.

By the way, the story also reminds us about how dangerous it is to give a government a new source of revenue.

Air Passenger Duty (APD) was introduced by John Major’s UK Conservative government in 1994. It was originally payable at just £5 for one-way domestic and European flights and £10 elsewhere but it has become a nice little earner for successive governments who have steadily increased the levy to the point that it is now the highest tax of its kind anywhere in the world. Long-haul flights in the cheapest economy class are now charged between £67 and £94 per flight, depending on the distance travelled. Other classes of travel, including so-called premium economy class, are charged between £138 and £194 per long-haul flight while anyone travelling in a small plane is charged between £276 and £388 per flight.

Jut keep all this data in mind the next time someone tells you we should let politicians impose a VAT, an energy tax, or a financial tax.

Since we’re on the topic of tax competition, let’s look at the tennis world to see how taxes drive behavior.

In her column for the Wall Street Journal, Allysia Finley explains that top tennis players respond to fiscal incentives.

…tennis players respond to economic incentives and often act as strategically off the court as on. For the past three years Spain’s Rafael Nadal…has bowed out of England’s annual Queen’s Club tournament, traditionally a Wimbledon warm-up, because the U.K. charges foreign athletes a prorated tax on their world-wide income (including endorsements). The more tournaments he plays in Britain, the more he owes Her Majesty’s Government.

Heck, those U.K. tax laws on worldwide income are so powerful (in a bad way) that they even chased away the world’s fastest man.

So what nations offer a more hospitable environment?

Two of my favorite places, Monaco and Switzerland, are high on the list.

The top five French players on the men’s circuit— Jo-Wilfried Tsonga, Gael Monfils, Gilles Simon, Julien Benneteau and Richard Gasquet, as well as Germany’s Philipp Kohlschreiber, all claim residence in Switzerland, ostensibly to avoid paying their home countries’ punitive 45% top personal income-tax rates (not including surcharges or social-security contributions). …the most popular haven for tennis players is the principality of Monaco, which doesn’t tax foreigners’ world-wide income. …Swedish tennis legends Bjorn Borg and Mats Wilander escaped to Monte Carlo during their primes in the 1970s and ’80s to dodge their home country’s 90% top marginal rate, which has since fallen to 57%. …Today, Monaco is the putative home of many of the world’s top-ranked men and women players. They include Serbia’s Novak Djokovic (1), the Czech Republic’s Petra Kvitova (4), Tomas Berdych (7) and Lucie Safarova (16); Canada’s Milos Raonic (8); Denmark’s Caroline Wozniacki (8); Bulgaria’s Grigor Dimitrov (11); and Ukraine’s Alexandr Dolgopolov (23). Players who hail from former communist countries are especially keen, it seems, on keeping their hard-earned money.

Even inside the United States, we see the benefits of tax competition.

Florida is one of the big winners and California is a big loser.

The U.S. has its own Monaco: no-income-tax Florida. It’s no coincidence that America’s top-ranked players Serena (1) and Venus Williams (18) and John Isner (21), as well as Russia’s Maria Sharapova (2) and Japan’s Kei Nishikori (5) live in the Sunshine State. So do twins Mike and Bob Bryan, who have won 16 Grand Slam doubles titles. Like the Williamses, they come from California, where the 13.3% state income-tax rate is the nation’s highest.

Indeed, it’s not just tennis players. Golfers like Tiger Woods have Florida residency. And those that remain in California are plotting their escapes.

Even soccer players become supply-side economists!

So whether it’s taxpayers escaping from France or from New Jersey, tax competition is a wonderful and necessary restraint on the greed of politicians.

P.S. I’ve shared horror stories of anti-gun political correctness in schools.

Well, the Princess of the Levant just sent me this bit of humor.

For more gun control humor, click here.

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