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Archive for the ‘Tax Competition’ Category

Okay, I’ll admit the title of this post is an exaggeration. There are lots of things you should know – most bad, though some good – about international bureaucracies.

That being said, regular readers know that I get very frustrated with the statist policy agendas of both the International Monetary Fund and the Organization for Economic Cooperation and Development.

I especially object to the way these international bureaucracies are cheerleaders for bigger government and higher tax burdens. Even though they ostensibly exist to promote greater levels of prosperity!

I’ve written on these issues, ad nauseam, but perhaps dry analysis is only part of what’s needed to get the message across. Maybe some clever image can explain the issue to a broader audience (something I’ve done before with cartoons and images about the rise and fall of the welfare state, the misguided fixation on income distribution, etc).

It took awhile, but I eventually came up with (what I hope is) a clever idea. And when a former Cato intern with artistic skill, Jonathan Babington-Heina, agreed to do me a favor and take the concept in my head and translate it to paper, here are the results.

I think this hits the nail on the head.

Excessive government is the main problem plaguing the global economy. But the international bureaucracies, for all intents and purposes, represent governments. The bureaucrats at the IMF and OECD need to please politicians in order to continue enjoying their lavish budgets and exceedingly generous tax-free salaries.

So when there is some sort of problem in the global economy, they are reluctant to advocate for smaller government and lower tax burdens (even if the economists working for these organizations sometimes produce very good research on fiscal issues).

Instead, when it’s time to make recommendations, they push an agenda that is good for the political elite but bad for the private sector. Which is exactly what I’m trying to demonstrate in the cartoon,

But let’s not merely rely on a cartoon to make this point.

In an article for the American Enterprise Institute, Glenn Hubbard and Kevin Hassett discuss the intersection of economic policy and international bureaucracies. They start by explaining that these organizations would promote jurisdictional competition if they were motivated by a desire to boost growth.

…economic theory has a lot to say about how they should function. …they haven’t achieved all of their promise, primarily because those bodies have yet to fully understand the role they need to play in the interconnected world. The key insight harkens back to a dusty economics seminar room in the early 1950s, when University of Michigan graduate student Charles Tiebout…said that governments could be driven to efficient behavior if people can move. …This observation, which Tiebout developed fully in a landmark paper published in 1956, led to an explosion of work by economists, much of it focusing on…many bits of evidence that confirm the important beneficial effects that can emerge when governments compete. …A flatter world should make the competition between national governments increasingly like the competition between smaller communities. Such competition can provide the world’s citizens with an insurance policy against the out-of-control growth of massive and inefficient bureaucracies.

Using the European Union as an example, Hubbard and Hassett point out the grim results when bureaucracies focus on policies designed to boost the power of governments rather than the vitality of the market.

…as Brexit indicates, the EU has not successfully focused solely on the potentially positive role it could play. Indeed, as often as not, one can view the actions of the EU government as being an attempt to form a cartel to harmonize policies across member states, and standing in the way of, rather than advancing, competition. …an EU that acts as a competition-stifling cartel will grow increasingly unpopular, and more countries will leave it.

They close with a very useful suggestion.

If the EU instead focuses on maximizing mobility and enhancing the competition between states, allowing the countries to compete on regulation, taxation, and in other policy areas, then the union will become a populist’s dream and the best economic friend of its citizens.

Unfortunately, I fully expect this sage advice to fall upon deaf ears. The crowd in Brussels knows that their comfortable existence is dependent on pleasing politicians from national governments.

And the same is true for the bureaucrats at the IMF and OECD.

The only practical solution is to have national governments cut off funding so the bureaucracies disappear.

But, to cite just one example, why would Obama allow that when these bureaucracies go through a lot of effort to promote his statist agenda?

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While Switzerland is one of the world’s most market-oriented nations, ranked #4 by Economic Freedom of the World, it’s not libertarian Nirvana.

Government spending, for instance, consumes about one-third of economic output. That may be the second-lowest level among all OECD nations (fast-growing South Korea wins the prize for the smallest public sector relative to GDP), but it’s still far too high when compared to Hong Kong and Singapore.*

Moreover, while the Swiss tax code is benign compared to what exists in other European nations, it also is not perfect. One of the warts is a wealth tax, which is a very pernicious levy that drains capital from the private sector.

Let’s look at some excerpts from a report in the Wall Street Journal, starting with a description of the Swiss system.

Switzerland has taxed wealth since the late 18th century. Its 26 cantons in 2014 levied taxes on net wealth with rates varying from 0.13% in the lighter taxing German-speaking parts to 1% in French-speaking Geneva. Swiss wealth taxes are also special because they apply from wealth as low as 25,000 Swiss francs, ensuring large swaths of the middle class incur them. Typical taxpayers pay a rate of just over 0.5%.

Here are the wealth tax rates in the various cantons, based on a recent study of the system.

As noted in the WSJ story, that study contains strong evidence that the tax is hurting Switzerland.

…according to a new paper, …taxing wealth leads declared wealth to disappear. Based on experience in Switzerland, which uses wealth taxes the most, reported wealth falls around 20 times as much in response to an increase in a wealth tax as it does to an equivalent increase in a tax on capital income, such as dividends or capital gains. …Economists at the University of Lausanne and Massachusetts Institute of Technology found that a 0.1 percentage point increase in Swiss wealth taxes caused a 3.5% reduction in reported wealth. That’s equivalent to 100,000 Swiss francs going missing for a person worth 3 million francs. …they conclude in a study investigating changes in wealth tax rates on Swiss taxpayers’ reported wealth from 2001 to 2012.

Why is there such a big response?

For the same reason that class-warfare taxes don’t work very well in the United States. Simply stated, taxpayers have considerable ability to rearrange their financial affairs when governments try to tax capital (or capital income). And that ability is especially pronounced for those with higher levels of income and wealth.

Individuals have greater control over their reported wealth–especially financial wealth such as bank deposits, stock and bonds–than their reported income.

By the way, the story also included this nugget of good news.

Thanks primarily to tax competition, many nations have eliminated wealth taxes over the past 20 years.

…only five members of the Organization for Economic Cooperation and Development still levy annual taxes on individuals’ total financial and non-financial wealth… That is down from 14 nations two decades ago.

And if you want more good news, the Swiss cantons also are lowering their tax rates on wealth.

Here’s another map from the study. It shows that a couple of French-speaking cantons have imposed very small increases in the tax since 2003, while the vast majority of cantons have moved in the other direction, in some cases slashing their wealth tax rates by substantial amounts.

Since I’m a big fan of Switzerland, let’s close with some more good news about the Swiss tax system. Not only are tax rates on wealth dropping, but there’s no capital gains tax. And there are no taxes on interest.

So while there is a wealth tax, which is a very unfortunate and destructive imposition, the Swiss avoid many other forms of double taxation on income that is saved and invested.

*The burden of government spending also is excessive in Hong Kong and Singapore. Based on historical data, economic performance will be maximized if total government spending is less than 10 percent of GDP.

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When I was younger, my left-wing friends said conservatives unfairly attacked them for being unpatriotic and anti-American simply because they disagreed on how to deal with the Soviet Union.

Now the shoe is on the other foot.

Last decade, a Treasury Department official accused me of being disloyal to America because I defended the fiscal sovereignty of low-tax jurisdictions.

And just today, in a story in the Washington Post about the Center for Freedom and Prosperity (I’m Chairman of the Center’s Board of Directors), former Senator Carl Levin has accused me and others of “trading with the enemy” because of our work to protect and promote tax competition.

Here’s the relevant passage.

Former senator Carl Levin (D-Mich.)…said in a recent interview that the center’s activities run counter to America’s values and undermine the nation’s ability to raise revenue. “It’s like trading with the enemy,” said Levin, whose staff on a powerful panel investigating tax havens regularly faced public challenges from the center. “I consider tax havens the enemy. They’re the enemy of American taxpayers and the things we try to do with our revenues — infrastructure, roads, bridges, education, defense. They help to starve us of resources that we need for all the things we do. And this center is out there helping them to accomplish that.”

Before even getting into the issue of tax competition and tax havens and whether it’s disloyal to want limits on the power of governments, I can’t resist addressing the “starve us of resources” comment by Levin.

He was in office from 1979-2015. During that time, federal tax receipts soared from $463 billion to $3.2 trillion. Even if you only count the time the Center for Freedom and Prosperity has existed (created in late 2000), tax revenues have jumped from $2 trillion to $3.2 trillion.

At the risk of understatement, Senator Levin has never been on a fiscal diet. And he wasn’t bashful about spending all that revenue. He received an “F” rating from the National Taxpayers Union every single year starting in 1993.

Let’s now address the main implication of the Washington Post story, which is that it’s somehow wrong or improper for there to be an organization that defends tax competition and fiscal sovereignty, particularly if some of its funding comes from people in low-tax jurisdictions.

The Post offer[s] an inside look at how a little-known nonprofit, listing its address as a post office box in Alexandria, became a persistent opponent of U.S. and global efforts to regulate the offshore world. …the center met again and again with government officials and members of the offshore industry around the world… Quinlan and Mitchell launched the center in October 2000. …The center had two stated goals. Overseas, the center set out to persuade countries on the blacklist not to cooperate with the OECD, which it derided as a “global tax cartel.” In Washington, the center lobbied the Bush administration to withdraw its support for the OECD and also worked to block anti-tax haven legislation on Capitol Hill. To spread the word, the center testified before Congress, published reports and opinion pieces in leading financial publications, and drafted letters to lawmakers and administration officials. Representatives of the center crisscrossed the globe and sponsored discussions in 2000 and 2001, traveling to London, Paris, the Cayman Islands, the Bahamas, Panama, Barbados and the British Virgin Islands.

To Senator Levin and other folks on the left, I guess this is the fiscal equivalent of “trading with the enemy.”

In reality, this is a fight over whether there should be any limits on the fiscal power of governments. On one side are high-tax governments and international bureaucracies like the OECD, along with their ideological allies. They want to impose a one-size-fits-all model based on the extra-territorial double-taxation of income that is saved and invested, even if it means blacklisting and threatening low-tax jurisdictions (the so-called tax havens).

On the other side are proponents of good tax policy (including many Nobel Prize-winning economists), who believe that income should not be taxed more than one time and that the power to tax should be constrained by national borders.

And, yes, that means we sometimes side with Switzerland or Panama rather than the Treasury Department. Our patriotism is to the ideals of the Founding Fathers, not to the bad tax policy of the U.S. government.

In any event, I’m proud to say that the Center’s efforts have been semi-successful.

In May 2001, the center claimed a key victory. In a dramatic departure from the Clinton administration, Paul O’Neill, the incoming Treasury Secretary appointed by Bush, announced that the United States would back away from the reforms pushed by the OECD. …fewer than half of the nations on the OECD blacklist pledged to become more transparent in their tax systems, a victory for anti-tax forces such as the center.

Even the other side says the Center is effective.

…said Elise Bean, former staff director and chief counsel of Levin’s Homeland Security Permanent Subcommittee on Investigations, which started investigating tax havens in 2001. “They travel all around the world and they have had a tremendous impact.” …“They were very effective at painting the OECD’s work as end-times are here for tax competition, and we’re going to have European tax rates imposed upon the whole world if the OECD’s work continued,” said Will Davis, the former head of OECD public affairs in Washington.

What’s most impressive is that all this was accomplished with very little funding.

Tax returns for the center and a foundation set up in its name reported receiving at least $1.4 million in revenue from 2003 to 2010.

In other words, the Center and its affiliated Foundation managed to thwart some of the world’s biggest and most powerful governments with a very modest budget averaging about $175,000 per year. And I don’t even get compensation from the Center, even though I’m the one who almost got thrown in a Mexican jail for opposing the OECD!

So while Senator Levin had decades of experience spending other people’s money in a promiscuous fashion, I work for an organization, the Cato Institute, that is ranked as the most cost-effective major think tank, and I’m on the Board of a small non-profit that has a track record of achieving a lot with very little money.

Yet another example of why we should be thankful that tax competition makes it more difficult for politicians to extract more revenue from the economy’s productive sector.

P.S. I mentioned to the Post reporters that the world’s biggest tax haven is the United States, but that important bit of information was omitted from the article. Which is a shame since it would have given me a chance to laud Senator Rand Paul for blocking a very dangerous agreement that would undermine America’s attractive tax laws for overseas investors.

P.P.S. If politicians really want to hurt tax havens, they should adopt a flat tax. That would dramatically boost tax compliance.

P.P.P.S. All things considered, I think the reporters who put together the story were reasonably fair, though there was a bit of editorializing such as referring to one low-tax jurisdiction as a “notorious tax haven.” When they write about France, do they ever refer to it as a “notorious tax hell”?

Also, when writing about trips the Center arranged for congressional staff to low-tax jurisdictions, the article stated, “The staffers reported receiving from $900 to $2,360 for the trips”, which makes it sound as if the staffers got paid. That’s wrong. The sentence should have read, “The staffers reported that the Center’s travel and lodging expenses ranged from $900 to $2,360 for the trips.”

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I wonder whether October 3, 1913, was the worst day in American history. That’s when one of America’s worst presidents signed into law the income tax.

The top rate was only 7 percent when Woodrow Wilson approved the income tax, and the tax only applied to the very richest Americans. But as is so often the case, taxes on the wealthy are a precursor to taxes on the rest of us.

And that’s exactly what happened and today we’re burden with a grossly unjust and punitive tax code.

But it doesn’t have to be this way. I’ve been at a conference in Monaco for the past few days and I’ve seen firsthand how a nation with zero income tax can be a prosperous Mecca (and I’ve also noticed that the Princess of the Levant is far more likely to accompany me on a trip when she has an opportunity to show off a new dress).

No income tax, by the way, means no income tax. Nothing. No capital gains tax, either. The main source of revenue is a value-added tax, generally about 20 percent, along with a tax on business income, but only if a substantial share is earned outside Monaco.

So is this benign tax regime actually conducive to prosperity?

Yes. Here is the data from the United Nations on per-capita economic output. You’ll see several of my favorite places, including the Cayman Islands, Liechtenstein, Singapore, Switzerland, and Bermuda. But leading the list is Monaco.

By the way, Monaco’s good policy doesn’t just generate domestic prosperity.

It also means some spin-off employment for France.

Every day some 41,000 people come from outside to go to work and all these non-Monegasque nationals, most of whom are French, depend on our economic success. …commerce and the manufacturing also employ significant numbers; over 3,000 workers are, for instance, taken up by the latter.

While Monaco’s per-capita GDP numbers are very impressive, the numbers on per-capita wealth are even more astounding. The average person has more than $1.5 million of assets.

By the way, the unluckiest people in the world are the residents of Roquebrune and Menton in France. That’s because those towns were part of Monaco until the mid-1800s. Now they’re part of a tax hell rather than a tax haven.

So what’s the bottom line? What can we say about Monaco?

Students for Liberty has a good summary.

P.S. In addition to zero income tax, Monaco also apparently has widespread gun ownership. What a great place.

P.P.S. Monaco is in 5th-place for per-capita readership of International Liberty, so the people are both prosperous and discerning!

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The Foreign Account Tax Compliance Act (FATCA) arguably is the worst feature of the internal revenue code. It’s an odious example of fiscal imperialism that is based on a very bad policy agenda.

But there is something even worse, a Multilateral Convention on Mutual Administrative Assistance in Tax Matters that has existed for decades but recently has been dangerously modified. MCMAATM is a clunky acronym, however, so let’s go with GATCA. That’s because this agreement, along with companion arrangements, would lead to a Global Tax Compliance Act.

Or, as I’ve argued, it would be a nascent World Tax Organization.

And the United States would be the biggest loser. That’s because FATCA was bad legislation that primarily imposed heavy costs on – and caused much angst in – the rest of the world.

GATCA, by contrast, is an international pact that would impose especially heavy costs on the United States and threaten our status as the world’s biggest haven for investment.

Let’s learn more about this bad idea, which will become binding on America if approved by the Senate.

James Jatras explains this dangerous proposal in a column for Accounting Today.

Treasury’s real agenda is…a so-called “Protocol amending the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.” The Protocol, along with a follow-up “Competent Authority” agreement, is an initiative of the G20 and the Organization for Economic Cooperation and Development (OECD), with the support, unsurprisingly, of the Obama Administration. …the Protocol cannot be repaired. It is utterly inconsistent with any concept of American sovereignty or Americans’ constitutional protections. Ratification of the Protocol would mean acceptance by the United States as a treaty obligation of an international “common reporting standard,” which is essentially FATCA gone global—sometimes called GATCA. Ratifying the Protocol arguably would also provide Treasury with backdoor legal authority to issue regulations requiring FATCA-like reporting to foreign governments by U.S. domestic banks, credit unions, insurance companies, mutual funds, etc. This would mean billions of dollars in costs passed on to American taxpayers and consumers, as well as mandating the delivery of private data to authoritarian and corrupt governments, including China, Saudi Arabia, Mexico and Nigeria.

The Foreign Relations Committee unfortunately has approved the GATCA Protocol.

But Rand Paul, like Horatius at the bridge protecting Rome, is throwing sand in the gears and isn’t allowing easy passage by the full Senate.

…the senator is right to insist that the OECD Protocol is dead on arrival.

Taxpayers all over the world owe him their gratitude.

In a column for Investor’s Business Daily, Veronique de Rugy of the Mercatus Center warns that this pernicious and risky global pact would give the IRS power to collect and automatically share massive amounts of our sensitive financial information with some of the world’s most corrupt, venal, and incompetent governments.

During a visit to the World Bank this week, I got a sobering lesson about the degree to which the people working at international bureaucracies, including the Organization for Economic Cooperation and Development, dislike tax competition. For years, these organizations — which are funded with our hard-earned tax dollars — have bullied low-tax nations into changing their tax privacy laws so uncompetitive nations can track taxpayers and companies around the world. …they never tire of trying to raise taxes on everyone else. Take the Organization for Economic Cooperation and Development’s latest attempt to impose a one-size-fits-all system of “automatic information exchange” that would necessitate the complete evisceration of financial privacy around the world. A goal of the Convention on Mutual Administrative Assistance in Tax Matters is to impose a global network of data collection and dissemination to allow high-tax nations to double-tax and sometimes triple-tax economic activity worldwide. That would be a perfect tax harmonization scheme for politicians and a nightmare for taxpayers and the global economy.

But she closes with the good news.

Somehow the bureaucrats persuaded the lawmakers on the Senate Foreign Relations Committee to approve it. Thankfully, it’s currently being blocked by Sens. Rand Paul, R-Ky., and Mike Lee, R-Utah.

Actually, all that’s being blocked is the ability to ram the Multilateral Convention through the Senate without any debate or discussion.

John Gray explains the procedural issues in a piece for Conservative Review.

Senators Rand Paul (R-KY) and Mike Lee (R-UT)…aren’t blocking these treaties at all. Instead, they are just objecting to the Senate ratifying them by “unanimous consent.” The Senate leadership has the authority to bring these tax treaties to the floor for full consideration – debate, amendments, and votes. That is what Senators Paul and Lee are asking for. …Unanimous consent means that the process takes all of about 10 seconds; there is no time to review the treaties, there is no time for debate, and not a second of time to offer amendments.  They simply want them to be expedited through the Senate without transparency. …As sitting U.S. Senators, they have the right to ask for debate and amendments to these treaties. …These treaties are dangerous to our personal liberties.  Senator Paul and Senator Lee deserve the transparency and debate they’ve requested.

Amen.

For those of us who want good tax policy, rejecting this pact is vital.

An ideal fiscal system not only has a low rate, but also taxes income only one time and only taxes income earned inside national borders.

Yet the OECD Protocol to the Multilateral Convention is based on the notion that there should be pervasive double taxation of income that is saved and invested, and that these taxes should be levied on an extraterritorial basis.

For fans of the flat tax, national sales tax, or other proposals for tax reform, this would be a death knell.

But this isn’t just a narrow issue of tax policy. On the broader issue of privacy and government power, Professor Niall Ferguson of Harvard makes some very strong points in a column for the South China Morning Post.

I should be a paid-up supporter of the campaign to close down tax havens. I should be glad to see the back of 500-euro bills. …Nevertheless, I am deeply suspicious of the concerted effort to address all these problems in ways that markedly increase the power of states – and not just any states but specifically the world’s big states – at the expense of both small states and the individual.

He cites two examples, starting with the intrusive plan in the U.K. to let anybody and everybody know the owners of property.

The British government announced it will set up a publicly accessible register of beneficial owners (the individuals behind shell companies). In addition, offshore shell companies and other foreign entities that buy or own British property will henceforth be obliged to declare their owners in the new register. No doubt these measures will flush out or deter some villains. But there are perfectly legitimate reasons for a foreign national to want to own a property in Britain without having his or her name made public. Suppose you were an apostate from Islam threatened with death by jihadists, for example.

He also is uncomfortable with the “war against cash.”

…getting rid of bin Ladens is the thin end of a monetary wedge. …a number of economists…argue cash is an anachronism, heavily used in the black and grey economy, and easily replaced in an age of credit cards and electronic payments. But their motive is not just to shut down the mafia. It is also to increase the power of government. Without cash, no payment can be made without being recorded and potentially coming under official scrutiny. Without cash, central banks can much more easily impose negative interest rates, without fearing that bank customers may withdraw their money.

He’s right. The slippery slope is real. Giving governments some power invariably means giving governments a lot of power.

And that’s not a good idea if you’re a paranoid libertarian like me. But even if you have a more benign view of government, ask yourself if it’s a good idea to approve a global pact that is explicitly designed to help governments impose higher tax burdens?

Senators Paul and Lee are not allowing eight treaties to go forward without open debate and discussion. Seven of those pacts are bilateral agreements that easily could be tweaked and approved.

But the Protocol to the Multilateral Convention can’t be fixed. The only good outcome is defeat.

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Economists certainly don’t speak with one voice, but there’s a general consensus on two principles of public finance that will lead to a more competitive and prosperous economy.

To be sure, some left-leaning economists will say that high tax rates and more double taxation are nonetheless okay because they believe there is an “equity vs. efficiency” tradeoff and they are willing to sacrifice some prosperity in hopes of achieving more equality.

I disagree, mostly because there’s compelling evidence that the left’s approach ultimately leads to less income for the poor, but this is a fair and honest debate. Both sides agree that lower rates and less double taxation will produce more growth (though they’ll disagree on how much growth) and both sides agree that a low-tax/faster-growth economy will produce more inequality (though they’ll disagree on whether the goal is to reduce inequality or reduce poverty).

Since I’m on the low-tax/faster-growth side of the debate, this is one of the reasons why I’m a big fan of tax competition and tax havens.

Simply stated, when politicians have to worry that jobs and investment can cross borders, they are less likely to impose higher tax rates and punitive levels of double taxation. Interestingly, even the statist bureaucrats at the Organization for Economic Cooperation and Development (who, ironically, get tax-free salaries) agree with me, writing that tax havens “may hamper the application of progressive tax rates.” They think that’s a bad thing, of course, but we both agree that tax competition means lower rates.

And look at what has happened to tax rates in the past few years. Now that politicians have undermined tax competition and weakened tax havens, tax rates are climbing.

So I was very surprised to see some economists signed a letter saying that so-called tax havens “serve no useful economic purpose.” Here are some excerpts.

The existence of tax havens does not add to overall global wealth or well-being; they serve no useful economic purpose. …these jurisdictions…increase inequality…and undermine…countries’ ability to collect their fair share of taxes. …There is no economic justification for allowing the continuation of tax havens.

You probably won’t be surprised by some of the economists who signed the letter. Thomas Piketty was on the list, which is hardly a surprise. Along with Jeffrey Sachs, who also has a track record of favoring more statism. Another predictable signatory is Olivier Blanchard, the former top economist at the pro-tax International Monetary Fund.

The only surprise was that Angus Deaton, the most recent recipient of the Nobel Prize for economics, signed the letter.

But if that’s an effective “appeal to authority,” there’s a far bigger list of Nobel Prize winners who recognize the economic consensus outlined above and who understand a one-size-fits-all approach would undermine progress.

In other words, there is a very strong “economic purpose” and “economic justification” for tax havens and tax competition.

Simply stated, they curtail the greed of the political class.

Philip Booth of the Institute of Economic Affairs in London opined on this issue. Here’s some of what he wrote for City A.M.

…the statement that tax havens “have no useful purpose” is demonstrably wrong and most of the other claims in the letter are incredible. Offshore centres allow companies and investment funds to operate internationally without having to abide by several different sets of rules and, often, pay more tax than ought to be due. …Investors who use tax havens can avoid being taxed twice on their investments and can avoid being taxed at a higher rate than that which prevails in the country in which they live, but they do not avoid all tax. …tax havens also allow the honest to shelter their money from corrupt and oppressive politicians. …one of the advantages of tax havens is that they help hold governments to account. They make it possible for businesses to avoid the worst excesses of government largesse and crazy tax systems – including the 39 per cent US corporation tax rate. They have other functions too: it is simply wrong to say that they have no useful purpose. It is also wrong to argue that, if only corrupt governments had more tax revenue, their people would be better served.

Amen. I especially like his final point in that excerpt, which is similar to Marian Tupy’s explanation that tax planning and tax havens are good for Africa’s growth.

Last but not least, Philip makes a key point about whether tax havens are bad because they are sometimes utilized by bad people.

…burglars operate where there is property. However, we would not abolish property because of burglars. We should not abolish tax havens either.

When talking to reporters, politicians, and others, I make a similar point, arguing that we shouldn’t ban cars simply because they are sometimes used as getaway vehicles from bank robberies.

The bottom line, as Professor Booth notes, is that we need tax havens and tax competition if we want reasonable fiscal systems.

But this isn’t simply an issue of wanting better tax policy in order to achieve more prosperity. In part because of demographic changes, tax havens and tax competition are necessary if we want to discourage politicians from creating “goldfish government” by taxing and spending nations into economic ruin.

P.S. Here’s my video on the economic case for tax havens.

 

P.P.S. Let’s not forget that the Paris-based Organization for Economic Cooperation and Development is the international bureaucracy most active in the fight to destroy tax competition. The is especially outrageous because American tax dollars subsidize the OECD.

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I wrote yesterday about the Obama Administration’s head-in-the-sand approach regarding the anti-competitive nature of America’s corporate tax system (though maybe fiddling while Rome burns is a better metaphor).

Fortunately, some nations have more sensible policy makers. Even in Europe, which might come as a surprise to the pair of class warriors battling for the Democratic nomination.

Consider, for instance, what’s happening in Norway.

Norway will cut the corporate income tax rate to 23 percent from the current 27 percent by 2018…the country’s political parties announced on Wednesday. The basic personal tax rate will also be cut to 23 percent from 27 percent. …As part of the deal, further reductions in the company tax rate will be considered in the future. The compromise included…a small cut in Norway’s wealth tax.

What’s most remarkable about this story from Scandinavia is not that there’s a tax cut, though that surely would be a shock to Bernie Sanders’s mythological view of the Nordic nations.

I think it’s even more noteworthy that Norway already has a far lower corporate tax rate than the United States, yet the government is implementing a further reduction.

And Croatia also is poised to move policy in the right direction.

The reports from government circles that, as part of the tax reform, it could abolish the highest income tax rate of 40 percent have been welcomed by many observers. …“We support such a move. Croatia has a huge ‘brain drain’ of highly educated people, and they fall into the category of those whose salaries are covered by the 40 percent tax rate. Therefore, this decision would contribute to such people remaining in Croatia”, said Bernard Jakelić, the deputy director of the Croatian Employers’ Association. …Former Finance Minister Boris Lalovac (SDP) agreed that the abolition of the tax bracket would be a step in the right direction. …“Croatia is the only country in the region which has such a high rate of income tax. None of the countries in the region have income tax rates higher than 25 percent, and many countries have a flat tax. Its abolition would simplify the tax system and contribute to the reduction of the shadow economy. After all, the taxation of income at a rate of 25 percent is enough”, said Lalovac.

I especially like that the former finance minister makes both an argument based on tax competition and an argument based on the moral principle that there should be a limit on how much government should tax.

Maybe GOPer some day will be smart enough to include a moral component when seeking better tax policy. Especially if they learn that it’s politically persuasive.

So where can voters find a candidate who might implement such reforms in the United State?

Catherine Rampell of the Washington Post suggests that there is a “fiscally conservative” option already available.

Suppose you’re a hardcore fiscal conservative. …All you care about is getting the nation’s fiscal house in order. …the candidate you should vote for might surprise you. …the most fiscally conservative presidential contender left standing is…

Drum roll, please.

…Hillary Clinton.

No, it isn’t April Fool’s Day.

Ms. Rampell wants us to believe that Hillary Clinton is fiscally conservative because her agenda of much bigger government is matched by proposals for much higher taxes.

I’m not joking. Here’s what Rampell wrote.

Here’s the bottom line for the nation’s bottom line: Clinton’s spending increases and other proposals that cost money have a total price tag of about $1.8 trillion over the next decade. But her offsets, which come mostly from tax hikes, would save an estimated $1.9 trillion over that same period… Maybe when (if) voters start to notice this, Clinton will finally receive the praise she’s been due, from arithmetic fans and fiscal conservatives alike.

I suppose this is the point where I should explain that good fiscal policy is defined by a modest-sized government and a tax code that is designed to raise revenue in a relatively non-destructive fashion, not by whether lots of wasteful spending is okay if accompanied by lots of destructive tax hikes (i.e., a fixation on fiscal balance).

But I’ve made that point many times before, so instead I’ll merely observe that Ms. Rampell is either shockingly uninformed or (more likely) she thinks that she has some really stupid right-leaning readers who can be easily tricked into voting for Clinton.

And since we’re focusing on Mrs. Clinton’s ideological bona fides, ask yourself whether Ira Stoll of the New York Sun was describing a “fiscally conservative” candidate last December.

Call it Hillary’s Reichsfluchtsteuer. The former secretary of state and senator from New York, Hillary Clinton, reportedly will announce on Wednesday plans to impose an “exit tax” on companies that move their headquarters out of America or merge with foreign firms to escape America’s unreasonably high corporate taxes. …the Reichsfluchtsteuer, or Reich flight tax, was a 25% levy imposed originally…by the pre-Hitler, centrist government of Heinrich Brüning… Not exactly something to try to emulate. …As I pointed out back in 2012, the Universal Declaration of Human Rights, a product of the United Nations, says, “Everyone has the right to leave any country, including his own” and “No one shall be arbitrarily deprived of his property.” …it is unjust to force people or companies to stay where they do not want to be. …In 1963, at the Berlin Wall, President Kennedy said,Freedom has many difficulties and democracy is not perfect, but we have never had to put a wall up to keep our people in, to prevent them from leaving us.” Hillary Clinton’s exit tax would do exactly what Kennedy said we’ve never had to do: set up a virtual wall, in the form of a tax, to prevent companies from leaving America.

There’s something rather odious about a politician who wants to extort money from taxpayers as a price for re-domiciling. As a general rule, only very evil regimes levy such taxes.

Speaking of unsavory regimes, let’s play a fill-in-the-blank game. Here’s the first sentence from a recent Associated Press story.

___________ is looking to increase revenue from taxation.

Is the answer Hillary Clinton? That’s a good answer, but not correct in this case. What about Bernie Sanders of Barack Obama? Once again, smart guesses but not accurate for this story.

Give up? Well, here’s your answer.

The Islamic State extremist group is looking to increase revenue from taxation.

I share this item because this it reminded me of the time I gave a speech about reforming the welfare state and a leftist in the audience basically accused me of being a racist because the KKK also didn’t like the welfare state. The fact that I urged reform in part because poor people are hurt by such programs apparently didn’t matter to my accuser.

That being said, if we accept his logic, I guess this means we can accuse Hillary Clinton, Bernie Sanders, and Barack Obama of being in favor of Islamic terrorism because they share a goal with the Islamic State crazies.

Sigh. Needless to say, Hillary isn’t a radical Islamist. Just like Obama isn’t a communist simply because he was endorsed last election by the former head of the U.S. Communist Party.

I just wish folks on the left were equally prudent about avoiding absurd guilt-by-association charges.

P.S. Bruce Bartlett also claimed (presumably for the same disingenuous reason) that Obama is a conservative because of his proposed tax hikes, so Ms. Rampell is not alone.

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