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Archive for the ‘Tax avoidance’ Category

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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When people figure out ways to keep the money they earn in their own pockets, rather than having it confiscated by government, I’m almost always happy.

That’s because governments tend to waste money (should any of us pay for corrupt pork-barrel spending?).

And it’s because government impose bad tax policy (is it fair to have governments tax us more than one time?).

I also object to oppressive tax collection tactics (why do murderers have a presumption of innocence, but not taxpayers?).

With this bit of background, you can understand why I cheer when greedy politicians fail in their efforts to grab more money.

Here are three stories about tax avoidance. The first and third stories should make you smile, while the middle story is a tragic reminder of what happens when you mix bad tax policy with bad enforcement tactics.

Our first story is from the U.K.-based Times, which reports that English shoppers will travel all the way to Belgium to buy cigarettes.

Smokers — and smugglers — are flocking to a small village on the Belgian coast in search of cheap tobacco to beat the taxman. …The savings are substantial. A sleeve of 200 Benson & Hedges Gold costs £45 in Belgium, compared with £90 at a British newsagent; a 50g pouch of Amber Leaf tobacco is on sale for £5.65, about £11 cheaper than at home. Sticking to the recommended allowance of 1kg of tobacco and 800 cigarettes will save a smoker about £400 per trip. However, as there are no limits on the amount of tobacco and alcohol that a person can bring back from an EU country, some day-trippers are pushing that to 3kg of tobacco and 3,000 cigarettes, for combined savings of £1,350.

The folks making the trip resent the way their government (often using Orwellian tactics) is trying to pillage them.

Many smokers are angry at high UK prices and annual rises in duty. A grandmother from the West Midlands tweeted to the Conservative party: “I saved £3,000 for a holiday this year. I won’t pay UK tax to be bullied. Much cheaper to buy abroad.” …An estimated 80 coaches make the trip each week from different parts of the UK. The Times joined a service run by Excalibur Coaches, starting at Elephant and Castle in south London at 5.55am and joining a P&O ferry crossing at Dover. …“There are a lot of English here but the government has made cigarettes so expensive that, with this price difference, people are bound to be tempted.”

I’m glad for these people. The U.K. government has gone way overboard in their efforts to grab more tax. Notwithstanding what the politicians say, it’s not immoral to protect your income from rapacious and untrustworthy government.

There was no suggestion that anyone on the Excalibur coach broke any rules, but trippers are reluctant to speak openly for fear that they will draw the attention of Border Force officers, who are cracking down on the illicit traders.

The same thing happens in the United States, by the way. Excessive tobacco taxes by some state and local governments create big incentives for consumers to seek out cigarettes that are more affordable.

And our second story is about how government over-reaction can lead to horrifying consequences.

First, some background from A. Barton Hinkle, writing for Reason.

Thanks to New York’s laughably high cigarette taxes ($4.35 state plus another $1.60 in the city) and higher prices generally, a pack of smokes in New York City costs $14 or more. That creates a powerful incentive to smuggle smokes in from states such as Virginia, where you can buy a pack for a third of that price. …The robust cigarette smuggling irritates officials in New York, because they miss out on a lot of tax revenue.

And because politicians deploy resources to capture some of that foregone revenue, it leads to enforcement efforts that, in the tragic case of Eric Garner, led to a man’s death.

The writers at National Review have done a superb job of addressing this issue. Let’s start with some observations from Kevin Williamson.

…one must have a permit to sell cigarettes in New York, and New York bans the sale of so-called loosies, single cigarettes sold to those who lack either the means or the desire to purchase an entire pack at the going New York City rate of $12 to $14. …In a sane world, selling cigarettes would not be a crime. …That isn’t an argument for anything-goes lawlessness, but it is an argument that we have too many criminal offenses, and an argument that not everything that is a crime is a danger.

David Harsanyi has some similar thoughts.

Garner wasn’t targeted for death because he was avoiding taxes, but nonetheless, prohibitive cigarette taxes unnecessarily generate situations that make events such as this possible. …In the case of Garner, police were enforcing a law that has nothing to do with violence, not in the short or long term. …New York has by far the highest cigarette taxes in the nation: more than five bucks a pack. Unsurprisingly, the policy has spurred a black market. …The more profitable it becomes to circumvent taxes, the more dangerous this mini-prohibition will be. Garner was selling single cigarettes, incidentally. Does anyone believe that isn’t a waste of time for police and prosecutors?

Another National Review contribution is from Jonah Goldberg.

…you know what reasonable people can’t dispute? New York’s cigarette taxes are partly to blame for Eric Garner’s death. Senator Rand Paul of Kentucky made this point Wednesday night on MSNBC’s Hardball with Chris Matthews, and liberals have been freaking out about it ever since. …anyone with a level head should understand — and agree with — Paul’s point. When you pass a law, you authorize law enforcement to enforce it. …Without laws making cigarettes more expensive, Eric Garner would be alive today, period. …In the war on tobacco, like the war on drugs, if politicians will the ends, they must will the means. This is something that libertarians understand better than everyone else: The state is about violence. You can talk all day about how “government is just another word for those things we do together,” but what makes government work is force, not hugs. If you sell raw-milk cheese even after the state tells you to stop, eventually people with guns will show up at your home or office and arrest you. If you resist arrest, something very bad might happen. You might even die for selling bootleg cheese.

Heck, we’ve even gotten to the point that the bureaucrats at the Food and Drug Administration are conducting raids on dairies for the horrible crime of selling to consumers who prefer unpasteurized milk.

But let’s focus on what Jonah wrote about the state and violence. Charles C. W. Cooke also addressed that issue in his NR column.

Ultimately, “the State” is a synonym for “organized violence.” “If you refuse to pay your taxes,” Representative David Brat recently noted, “you will lose. You will go to jail, and if you fight, you will lose. The government holds a monopoly on violence. Any law that we vote for is ultimately backed by the full force of our government and military.” In consequence, Brat proposed, we should be careful about when and how that violence is utilized. Certainly, civilized nations need laws. But it is one thing to recruit armed men to prevent murder and rape and grievous bodily harm, and it is quite another to do so in order to regulate the manner in which cigarettes may be sold. …Was Garner killed deliberately? No, of course he was not. …Nevertheless, we should all be willing to acknowledge that Garner would never have been so much as approached had the city not wanted its pound of flesh in the first instance. Because there are consequences to all laws — however minor — it is incumbent upon us to ask if those laws are worth the risks that they yield. What, I wonder, would the anti-tax rebels who threw off the British Empire make of the news that a man had lost his life for peacefully selling a “loosie”?

By the way, the National Review writers openly state that the Eric Garner case involves a lot more than taxes. They point out that there are very big issues about race, the proper use of force, and the integrity of the justice system.

But everything they wrote about misguided tobacco taxation is also right on the mark.

Now let’s look at our third story, which is fortunately amusing rather than tragic. It was sent to me from the Public Secrets blog, and it deals with a Spanish theater is taking a rather unusual step to avoid that nation’s crippling value-added tax.

Crippled by colossal tax rates and falling ticket sales, the Spanish cultural sector is taking creative action to cut its tax bill, including one theatre which has changed its main business to pornography to avoid having to pay high taxes. …Theatre director Karina Garantivá said: “It’s scandalous when cultural heritage is being taxed at 21 percent and porn at only at 4 percent. Something is wrong”. Her company, which performs works by the “Spanish Shakespeare” Pedro Calderón de la Barca has decided to circumvent the new, punitive taxes by registering as a distributor of pornographic magazines – and is offering free performances. Punters buying €16 worth of hardcore-swingers magazine Gente Libre from the company receive a ‘free’ ticket to a performance of the highly regarded 17th century comic drama El Mágico Prodigioso.

You have to give them credit for creativity. I previously wrote about a Spanish theater that gave “free” tickets to customers who purchased low-taxed carrots for absurd prices, but I’m guessing the porn angle will be more successful.

Heck, I’m a cultural rube, and even I might be tempted to patronize the theater.

But not because of the porn. Instead, I admire the philosophical approach. Unlike a lot of artists, these folks in Spain apparently aren’t looking for handouts.

Garantivá said: “We don’t want subsidies, we are a private initiative. The best subsidies are fiscal measures that don’t prevent me from doing my work”. …Although the company is presently selling second-hand pornography to escape tax, they may produce their own to sell in future, as their present stock is only 300 magazines. Doing so would be “a stand against the government”, said the director.

And they’re even willing to produce their own porn as a way of saying “bugger off” to government. Given my libertarian principles, maybe I should…um…volunteer to help? Viva la libertad!

Though I won’t be waiting by my phone expecting a call.

All kidding aside, the common theme in all these stories is that people don’t like paying excessive taxes.

We may not all agree about when taxation becomes excessive, but I assume just about everyone will agree that it’s perfectly legitimate to avoid or evade the French tax laws that require some people to pay more than 100 percent of their income to government.

On the other hand, most of us also will have little sympathy for folks who try to avoid or evade when they live in jurisdictions – such as Hong Kong, Bermuda, and Switzerland – that are honest, well-run, and lightly taxed.

My proposal is that we have a simple and fair system like the flat tax so that people have much less reason to evade or avoid.

In the meantime, I’ll continue rooting for taxpayers who thwart the greed of the political class.

So three cheers for French entrepreneurs, American companies, Italian boat owners, California citizens, Greek shop owners, Facebook millionaires, Norwegian butter buyers, New York taxpayers, Bulgarian smokers, foreign cab drivers, New Jersey residents, Australian film stars, and everyone else who does their part to limit the amount of tax revenue flowing to governments.

P.S. There’s at least one tax avoider who doesn’t deserve any support. Actually, there are at least two of them. Make that three. Oops, four and five. Wait, we have six. Seven. Eight…and an entire building of them…well, I think you get the point I’m trying to make.

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Since I’ve been in Washington for nearly three decades, I’m used to foolish demagoguery.

But the left’s reaction to corporate inversions takes political rhetoric to a new level of dishonesty.

Every study that looks at business taxation reaches the same conclusion, which is that America’s tax system is punitive and anti-competitive.

Simply stated, the combination of a very high tax rate on corporate income along with a very punitive system of worldwide taxation makes it very difficult for an American-domiciled firm to compete overseas.

Yet some politicians say companies are being “unpatriotic” for trying to protect themselves and even suggest that the tax burden on firms should be further increased!

In this CNBC interview, I say that’s akin to “blaming the victim.”

While I think this was a good interview and I assume the viewers of CNBC are an important demographic, I’m even more concerned (at least in the short run) about influencing the opinions of the folks in Washington.

And that’s why the Cato Institute held a forum yesterday for a standing-room-only crowd on Capitol Hill.

Here is a sampling of the information I shared with the congressional staffers.

We’ll start with this chart showing how the United States has fallen behind the rest of the world on corporate tax rates.

Here’s a chart showing the number of nations that have worldwide tax systems. Once again, you can see a clear trend in the right direction, with the United States getting left behind.

Next, this chart shows that American companies already pay a lot of tax on the income they earn abroad.

Last but not least, here’s a chart showing that inversions have almost no effect on corporate tax revenue in America.

The moral of the story is that the internal revenue code is a mess, which is why (as I said in the interview) companies have both a moral and fiduciary obligation to take legal steps to protect the interests of shareholders, consumers, and employees.

The anti-inversion crowd, though, is more interested in maximizing the amount of money going to politicians.

Actually, let me revise that last sentence. If they looked at the Laffer Curve evidence (here and here), they would support a lower corporate tax rate.

So we’re left with the conclusion that they’re really most interested in making the tax code punitive, regardless of what happens to revenue.

P.S. Don’t forget that your tax dollars are subsidizing a bunch of international bureaucrats in Paris that are trying to impose similar policies on a global basis.

P.P.S. Let’s end with a note on another tax-related issue.

We’ve already looked at evidence suggesting that Lois Lerner engaged in criminal behavior.

Now we have even more reasons to suspect she’s a crook. Here are some excerpts from the New York Observer.

The IRS filing in federal Judge Emmet Sullivan’s court reveals shocking new information. The IRS destroyed Lerner’s Blackberry AFTER it knew her computer had crashed and after a Congressional inquiry was well underway. As an IRS official declared under the penalty of perjury, the destroyed Blackberry would have contained the same emails (both sent and received) as Lois Lerner’s hard drive. …With incredible disregard for the law and the Congressional inquiry, the IRS admits that this Blackberry “was removed or wiped clean of any sensitive or proprietary information and removed as scrap for disposal in June 2012.” This is a year after her hard drive “crash” and months after the Congressional inquiry began. …One thing is clear: the IRS has no interest in recovering the emails. It has deliberately destroyed evidence and another direct source of the emails it claims were “lost.” It has been blatantly negligent if not criminal in faiing to preserve evidence and destroying it instead.

Utterly disgusting.

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What do cigarettes and capital gains have in common?

Well, they both start with the same letter, so maybe the Cookie Monster could incorporate them into his favorite song, but I’m thinking about something else. Specifically, both cigarettes and capital gains tell us something important about tax policy, the Laffer Curve, and the limits of political bullying.

In both cases, there are folks on the left who disapprove of these two “c” words and want to penalize them with high tax rates.

But it turns out that both cigarettes and capital gains are moving targets, so the politicians are grossly mistaken if they think that punitive taxation will generate a windfall of revenue.

I’ve already discussed why it’s senseless to impose high tax rates on capital gains. Simply stated, people can avoid the tax by not selling assets.

This might not be an ideal way of managing one’s investments, and it certainly isn’t good for the economy if it discourages new investment and prevents people from shifting existing investments into more productive uses, but it’s very effective as a strategy for individuals to protect against excessive taxation.

We see something quite similar with cigarettes. People can simply choose to buy fewer smokes.

Michel Kelly-Gagnon of Canada’s Montreal Economic Institute explains why higher tobacco taxes are not a guaranteed source of revenue for the political class.

Tax increases do not in each and every case lead to increases in government revenues. …When taxes on the consumption of a good are too high, you can get to a point where taxable consumption decreases and government revenues diminish rather than increase. Or at any rate, they don’t increase as much as what would be expected given the tax increase. This phenomenon constrains government’s ability to levy taxes. …There have been numerous examples in Canada of excessive taxes having a negative impact on government revenues. As shown by my colleagues Jean-François Minardi and Francis Pouliot in a study published last January ., there’s been three “Laffer moments” when it comes to tobacco tax revenues in Quebec since 1976. Whenever the level of taxation exceeded $15 per carton, the proceeds of the tobacco taxes eventually diminished. These are no isolated incidents. Laffer shows that the theory is confirmed by the experience of Cyprus, Denmark, Germany, Great Britain, Greece, Ireland, Latvia, Portugal, and Sweden.

Here’s a chart from his column showing how tax revenue has dropped in Quebec when the tax burden became too onerous.

Michel then acknowledges that some people will be happy about falling revenue because it presumably means fewer smokers.

But that’s not necessarily true.

While it is true that some people are deterred from smoking by tax increases, this is not the case of all smokers. Some avoid taxes by buying contraband cigarettes. Tax increases have no effect on the health of these smokers.

And because the tax burden is so severe, the underground economy for cigarettes is booming.

The folks at Michigan’s Mackinac Center have some remarkable and thorough estimates.

Since 2008, Mackinac Center for Public Policy analysts have periodically published estimates of cigarette smuggling in 47 of the 48 contiguous states. The numbers are quite shocking. In 2012, more than 27 percent of all Michigan in-state consumption was smuggled. In New York, almost 57 percent of all cigarettes consumed in the state were also illicit. This has profound effects on the revenue generated by state (and sometimes local) government. …We estimate nationwide revenue losses due to cigarette smuggling at $5.5 billion, a statistic consistent with the Bureau of Alcohol, Tobacco, Firearms and Explosives’ $5 billion estimate for 2009.

Here are the numbers for each state.

If all this evidence isn’t enough for you, I also encourage a look at the impact of higher tobacco taxes in Ireland, the United States, and Bulgaria and Romania.

Heck, even the city of Washington, DC, serves as a perverse role model on the foolishness of over-taxation.

P.S. Since this column focuses on the Laffer Curve and tobacco taxation, I would be remiss if I didn’t point out that Art Laffer recently put together a Handbook of Tobacco Taxation – Theory and Practice.

P.P.S. Art implies, at least indirectly, that policy makers should set the tax rate on tobacco at the revenue-maximizing level. That is far better than having the rate above the revenue-maximizing level, to be sure, but it rubs me the wrong way. I will repeat to my final day on earth that the growth-maximizing tax rate is far superior to the revenue-maximizing tax rate.

P.P.P.S. I’m currently in Australia for a series of speeches on fiscal policy. But as you can see from this photo, the PotL and I managed to find time to act like shameless tourists.

Tourists in Oz

P.P.P.P.S. Since I’m imitating Crocodile Dundee in the photo, I should close by noting that Paul Hogan (the actor who played Crocodile Dundee) has been harassed by the Australian tax police.

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Last month, I put together a list of six jaw-dropping examples of left-wing hypocrisy, one of which featured Treasury Secretary Jacob Lew.

He made the list for having the chutzpah to criticize corporate inversions on the basis of supposed economic patriotism, even though he invested lots of money via the Cayman Islands when he was a crony capitalist at Citigroup.

But it turns out that Lew’s hypocrisy is just the tip of the iceberg.

It seems the entire Obama Administration was in favor of inversions just a couple of years ago. Check out these excerpts from a Bloomberg story.

President Barack Obama says U.S. corporations that adopt foreign addresses to avoid taxes are unpatriotic. His own administration helped one $20 billion American company do just that. As part of the bailout of the auto industry in 2009, Obama’s Treasury Department authorized spending $1.7 billion of government funds to get a bankrupt Michigan parts-maker back on its feet — as a British company. While executives continue to run Delphi Automotive Plc (DLPH) from a Detroit suburb, the paper headquarters in England potentially reduces the company’s U.S. tax bill by as much as $110 million a year. The Obama administration’s role in aiding Delphi’s escape from the U.S. tax system may complicate the president’s new campaign against corporate expatriation.

But that’s only part of the story.

…his administration continues to award more than $1 billion annually in government business to more than a dozen corporate expats.

And since we’re on the subject of hypocrisy, there’s another Bloomberg report worth citing.

President Barack Obama has been bashing companies that pursue offshore mergers to reduce taxes. He hasn’t talked about the people behind the deals — some of whom are his biggest donors. Executives, advisers and directors involved in some of the tax-cutting transactions include Blair Effron, an investment banker who hosted Obama for a May fundraiser at his two-level, 9,000-square-foot apartment on Manhattan’s Upper East Side. Others are Jim Rogers, co-chairman of the host committee for the 2012 Democratic National Convention; Roger Altman, a former senior Treasury Department official who raised at least $200,000 for Obama’s re-election campaign; and Shantanu Narayen, who sits on the president’s management advisory board. The administration’s connections to more than 20 donors associated with the transactions are causing tensions for the president.

Gee, I’m just heartbroken when politicians have tensions.

But I’m a policy wonk rather than a political pundit, so let’s now remind ourselves why inversions are taking place so that the real solution becomes apparent.

The Wall Street Journal opines, explaining that companies are being driven to invert by the combination of worldwide taxation and a punitive tax rate.

…the U.S. has the highest corporate income tax rate in the developed world, and that’s an incentive for all companies, wherever they are based, to invest outside the U.S. But the current appetite for inversions—in which a U.S. firm buys a foreign company and adopts its legal address while keeping operational headquarters in the U.S.—results from the combination of this punitive rate with a separate problem created by Washington. The U.S. is one of only six OECD countries that imposes on its businesses the world-wide taxation of corporate profits. Every company pays taxes to the country in which profits are earned. But U.S. companies have the extra burden of also paying the IRS whenever those profits come back from the foreign country into the U.S. The tax bill is the difference between whatever the companies paid overseas and the 35% U.S. rate. The perverse result is that a foreign company can choose to invest in the U.S. without penalty, but U.S.-based Medtronic would pay hundreds of millions and perhaps billions in additional taxes if it wanted to bring overseas profits back to its home country. …Keep in mind that the money invested in corporations was once earned by someone who paid taxes on it. And it will be taxed again as dividends or capital gains.

Amen. And kudos to the WSJ for pointing out there the internal revenue code imposes multiple layers of taxation on income that is saved and invested.

That’s very bad news for workers since it means less capital formation.

Let’s close with this great cartoon from Michael Ramirez…

…and also a couple of videos on international taxation.

First we have this video on “deferral,” which is very relevant since it explains why worldwide taxation is so destructive.

And we also have this video about Obama’s anti-tax haven demagoguery.

I particularly like the reference to Ugland House since that’s where Obama’s Treasury Secretary parked money.

But it’s all okay, at least if you’re part of the political class. Just repeat over and over again that rules are for the peasants in the private sector, not the elite in Washington and their crony donors.

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