The Free to Choose Media released this video by Cato Senior Fellow Johan Norberg that attempts to refute the idea that there is anything wrong with tax havens.
The argument is that:
- The vast majority of participants in these tax havens are politicians, not entrepreneurs. According to Norberg, there are 5 times as many politicians revealed using these tax havens as private sector businesspeople. I haven’t checked this fact, but it sounds plausible;
- These tax havens act as brakes on the heavy taxes that politicians can get away with imposing. Tax havens thus act as an incentive for cleaner governments.
This is an interesting argument, worth considering.
But I don’t buy it. If the goal is to clean up government, and eliminate corruption and bribery, we should make it much harder for politicians to hide their money overseas. That means closing down secret offshore accounts. If money is kept domestically where tribunals can seize as evidence or as fines, that is a much stronger incentive for politicians to keep their fingers out of the cookie jar.
Second, I think individual rights depend upon legitimate working states that need to be funded by taxes. The marginal tax rate in the U.S. is now quite low, compared to our go-go growth years of the 1950s and 1960s. Hence, I don’t buy the argument that our current marginal tax rates represent a threat to economic success or creativity.
Times change, of course, and what “worked” fifty years ago may not work today. It all depends on the alternatives, and one that is available today—the electronic tax haven—is an incentive for people to question their citizenship loyalties and responsibilities. That is a bad thing.