Sunday, 22 July 2012

In defence of tax havens (and why we should be one)


I have this mental image of rich folk in tax havens. It’s the mental image that the people who don’t approve of tax havens want you to have – slightly foreign-looking men hunched over piles of filthy lucre smirking as they count it or slightly overweight blokes in badly co-ordinated clothes lighting cigars with $100 notes. We might summon up a scene by the pool as portly plutocrats frolic with blonde bimbos laughing all the while at their ill-gotten gains.

It is clear that these tax haven denizens are the lowest of the low prepared to leave the ordinary people of their homeland in Dickensian squalor while they live in the lap of (rather poor taste) luxury. And – according to so self-appointed experts – this is $21 trillion’s worth of luxury’s lap. How dare they!

This selfish act – shifting the cash to a place where it’s not a risk of confiscation – is the 21st century’s most monstrous evil. It’s not their money – it is taxes.

These estimates reveal a staggering failure," says John Christensen of the Tax Justice Network. "Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people.

"This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich."

Well actually “this data” shows nothing of the sort. What the data shows is threefold:

  1. The people in charge of undemocratic, autocratic regimes in the developing world have shifted their cash (whether or not it is ill-gotten) to places where it’s safe. This isn’t about tax avoidance – one of the features of developing countries is their inability to raise taxes (which, by the way, is why over a third of Uganda’s national budget is overseas aid). It’s about ensuring that most of the cash stays in the family and isn’t lifted by the next generation of kleptocrats. According to the Guardian’s jolly infogram just 20 developing countries account for $7.5 trillion of the stashed cash.
  2. The second problem is that no distinction is made between income and assets. Most places don’t tax assets so it’s perfectly possible for a lot of this cash to have already been taxed. Perhaps not at the confiscatory rates prefers by Guardian readers but taxed nonetheless. And the implication (a pretty daft one if you ask me) is that all this money is held as cash. And that it’s stored in a big vault in the manner of Scrooge McDuck. Forgive me for thinking that most of these bloated capitalist billionaires would prefer that their cash did some work for them while stashed away avoiding tax? Which means it’s generating more wealth and (as a by-product) creating jobs, supporting businesses and generally doing that good stuff that money well-used – note this you wasteful governments – does.
  3.  Finally, no-one spots the other part of the problem – tax rates on income are too high. This isn’t just the moral offence of taking half of what someone works to earn. It’s much more practical than that – if, as a result of our tax regimes or other confiscatory laws, rich people bundle up their cash and stick it somewhere else, then it’s our tax system that is the problem rather than the “ethics” of the rich people.
I like tax havens. They help – or should help – keep governments honest in matters of tax.  More importantly these places attract billions (trillions even) of lovely pounds, dollars, euros and yen. Wouldn’t you rather that all this money was being managed from your country instead of sitting in Switzerland, Jersey or the Seychelles making those places filthy rich?

The solution is really simple – institute privacy protection on personal assets and set the tax rates on income and capital gains at a lower level. Do this and watch the money pour into your coffers where it can be reinvested in new business, creating wealth and, by these acts, jobs and income for the poor in their Dickensian squalor.



Smoking Scot said...

I agree with your underlying arguement. I believe they're still trying to find some of the money stashed by Marcos. And it'll take several decades to unravel Libya, Egypt, Morocco and so on.

Your guess about North Korea, or Burma or Saudi.

Here they could, at a stroke, help repatriate a huge amount if they quit with the 90 day rule for expatriates and adopted the same 182 rule as they have in most of mainland Europe.

SadButMadLad said...

Did you know that Belgium is tax haven? That's why Amazon et al use it as a place to do most of their business from rather than the UK.

Tax havens aren't always little islands in the middle of no where desperate to suck in loads of money. They are anywhere where the tax regime allows for a particular tax to be taxed at a lower rate than your own country.

Simon Cooke said...

Pretty sure Amazon are HQ'd in Luxembourg - but the argument still holds

SadButMadLad said...

You're right, Amazon is in Lux.