Now, tax evaders aren’t necessarily a commendable category of people: surely there are a lot of criminals among them (if I don’t obey the law when it prohibits killing people, am I really expected to comply with its fiscal provisions?). But I find rather convincing the idea that all those activities that run the gamut between fiscal arbitrage and outright tax evasion have had somehow the effect of lowering overall fiscal burden. The mere possibility of an ever greater erosion of their tax basis may have slightly slowed down that incredible increase in taxation which we have experienced almost everywhere in the West.
From the Econlog blog.
I have written a fair bit on this site and elsewhere (I work in the financial/media world) about this subject, and there is no doubt in my mind that the idea that tax competition is harmful is almost always held by politicians and collectivist-minded commentators who want to create a sort of global tax cartel. Cartels are, we learn in our textbooks, harmful although they tend to fracture with time. (The OPEC cartel had a problem in the 80s and 90 sustaining high oil prices, which at one stage went below $10 a barrel). However futile the attempt, do not underestimate the harm that is being done in the process of trying to shut down offshore financial centres and the like. The possibility that people can and will take their money elsewhere is one of the few constraints that exist on otherwise rapacious governments. So naturally, governments try to stop this from happening – hence all this talk about shutting down tax “competition”.
When governments claim that tax dodgers are taking food from the mouths of poor babies, treat it with scorn. The money that goes offshore doesn’t disappear down some black hole, never to appear again: that money, if it is to earn a return and outpace inflation, is invested – ie, it is put to work, often far more effectively than would otherwise be the case.
Without tax competition (AND regulation competition – with different nations have different laws) government can grow without limit – or, rather, the only limit is utter breakdown (mass starvation, cannibalism and so on).
With tax competition (and regulation competition) people can “vote with their feet” (to use the term of “Lenin” against him) thus taking themselves and their enterprises to other nations – this produces an incentive to keep taxes and regulations down (or a government loses individuals and companies it wishes to tax).
Efforts to form regulation “blocks” (such as the E.U.) where (the hope of the Euro fanatics is) when you cross the borders the regulations are the same (so there is no point in escaping) undermine all this – and mean that regulations can increase without limit (after all “where are you going to go – it is the same over there as it here”).
This is also true of taxes – tax “harmonisation” and international (world?) agreements against “trying to avoid paying your fair share of tax” are a dagger at the throat of freedom – which would lead to the unlimited rise of taxation (until total collapse and the arrival of a new Dark Age).
Rather than being a threat to freedom (as some Classical Liberals have been taught to believe) national independence (taxes and general regulations being fundamentally different in different nations) is the foundation of freedom.
Statism and nationalism make a natural marriage. A lot of the people who complain about “offshore” tax evasion would not be moved by the argument that the money is being invested elsewhere, even if they believed that private investment is more productive than government investment. For most people, a key function of government is to protect domestic markets and domestic policies from foreign influence. This is true even of most people who otherwise support free markets. You see this in quasi free market arguments in favour of protectionism, which have become more popular in the U.S. as the trade imbalance with China has grown.
(I’m not making this argument, only pointing out why a lot of people won’t buy the argument that “offshore” tax evasion isn’t lost wealth.)
This back door form of capital control is relentlessly growing and will only get worse into the future. My wife and I had a small account overseas with a very modest sum that paid almost no interest that was largely there to use when we visited that country yearly to see family. Then I read the horror stories about people with overseas accounts who failed to pay taxes on interest and DECLARE THEIR ACCOUNTS AND DETAILS YEARLY on an FBAR form facing US$ 100K and up penalties and potentially jail time. So I spent two years getting those accounts compliant, learning the law regarding FBAR filing. Bottom line, for less than $US 50 of unpaid tax on interest over a period of 10 years (that’s right, 5 dollars a year), I had to pay almost US$5000 in penalties. Nice. The only thing that I can say about the process that was positive is that, although the process was lengthly, the IRS examiners we dealt with were courteous and professional.
I now invest a LOT of time insuring that I am completely compliant. And now with the new FACTA laws, its just a matter of time before the bank sends me a letter telling me they are closing my account because I am American.
Wow. Land of the Free indeed.
That has happened to MANY people. When I recently opened an account in Europe, I had to sign three documents pursuant to various legal niceties, followed by FOUR different documents from the bank attesting that I was not a US citizen, had no tax liabilities in the USA, did not have a US Green Card and had no investments of any kind in the USA and that none of the above was likely to change. If I had said YES to ANY of those things, the bank said they did not want my business. They literally will not take money from any one who has anything whatsoever to do with the USA, because it is just not worth the hassle. And this is a reputable old bank. Astonishing.
What we’re witnessing is the death throes of a global financial system on the brink of collapse. The entire world is on a fiat money system, with central banks creating “money” seemingly without limit or concern. This is all of a piece. When you see countries with long, proud traditions of financial secrecy (Switzerland, Grand Cayman, etc.) acceding to the demands of the US and other tax bullies you know the end must be near. Sooner or later the piper will be paid.
That sounds rather unconvincing to me. If you “shut down offshore financial centres and the like” you make the money go offshore? The money that is already offshore?
Without offshore finance people could also bring their money to other countries that are NOT offshore centres, let’s say from Germany to France. So I don’t really see the point here.
One could eliminate taxation by abolishing the state pension (freeing the young from having their wealth stolen by the old, especially the feckless, parasitic Baby Boomers), ending all public transport subsidies, and making any and all contributions voluntary. No part of government should be guaranteed a penny of taxpayer’s money. Schools should be replaced with online education. Children should have their own passport and bank account by 10 years old ths should be compulsory to insure independence at a young age.
Correct Laird – it is not “nationalism” – it is the opposite, internationalism. Not a formal “world government” – just “cooperation” by the global establishment (who go to similar universities and are influenced by similar media) to hit “tax dodgers” and so on. And YES the fear that the credit bubble monetary system is falling apart is leading them to ever more desperate moves (as the subversion of Switzerland showed).
If the Swiss (against all the odds) vote for some limit on fiat money (that at least a proportion of it must be covered by physical gold)then the whole thing will come down – if not it will drag on a bit longer.
I have already been astonished at how long the global elite have managed to drag all this out.
I was reminded of this gem from Adam Smith:
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.
This desire to cartelize applies to states trying to foist their excessive taxes on us and rob us of other choices. However, it equally applies to the residents of a nation who want to tell us to “Buy British” or “Buy American” or invoke all sorts of other contrivances to raise their labor prices.
A good quote, Fraser, and I suspect that most people would readily agree with it. What they generally miss is that politicians and government functionaries are also “of the same trade”, and the rule applies to them just as much as it does businessmen.
Taxation is theft.
I’m surprised the EU has lasted this long precisely because it was founded, at least in part, to be a tax cartel (that’s why high welfare spending is one of its principles). And now that Brussels has abandoned its promise that the union’s stronger economies would never be forced to subsidize the weaker, I expect to see the rats start leaving the sinking ship any day now.
What happens when, say, the Swiss decide that compliance with US and EU reporting laws is costing them too much, and decide to resurrect the numbered bank account? They may lose their free trade with the EU, but I’ll bet they get more than enough new investment from the Arabs and Chinese to make up the loss. But they’re not even a member. Sooner or later Austria or Jersey will pull out in order to restore the banking secrecy they used to have? Somehow, I expect their neighbors to put up with it lest NATO fall apart.
Paul Marks,
‘vote with their feet’ What are you some sort of heretic?
Members of a union don’t like competition especially the Top End of Town.
Remember the Chinese didn’t want to trade with Europe but the Europeans waged a war to compel the Chinese buy opium. Now the Chinese are making their own shit, manufacturing is moving to China a market of over a trillion customers, Europe 300 million, Europe’s fucked.
Jdgalt, the Swiss can’t afford to ignore US tax and banking laws because the US holds all the cards. Aside from the fact that all the big swiss banks all have US operations, most large transactions go through the US. Any bank which refuses to comply with our laws is barred from such transactions, which would be the death knell for any big bank. It won’t happen until some alternative banking system arises.
The Steel Ferret,
It’s not just Europe. I had to sign a similar declaration, that I was not, in any way, of interest to the IRS, when I opened a bank account here in Thailand last week.