Redstate

By Pejman Yousefzadeh Posted in Economy | Tax Competition | Tax Regimes | taxes — Comments (0) / Email this page » / Leave a comment »

Courtesy of the always-excellent Dan Mitchell. A taste:

First, if you live in a developed country, your taxes are probably much lower today than they were 30 years ago, thanks in part to tax havens. In 1980, top personal income tax rates in OECD countries averaged more than 67 percent, and corporate rates that year averaged nearly 50 percent. To compound the damage, countries routinely imposed extra layers of tax on capital, including dividend taxes, capital gains taxes, inheritance taxes, and wealth taxes. These policies discouraged saving and investment, stifling economic growth and causing significant economic hardship.

Beginning with Reagan and Thatcher, however, governments have been racing to cut tax rates and reform tax regimes. Top personal tax rates now average only about 40 percent, and corporate rates have been reduced to an average of about 27 percent. It is largely globalization--not ideology--that has driven this virtuous "race to the bottom." Governments are cutting taxes because they fear that jobs and investment will flee across national borders. Tax havens, by providing a safe refuge for people seeking to dodge confiscatory tax rates, have played a critical role in these positive developments. Better to get some revenue with modest tax rates, lawmakers have concluded, than impose high tax rates and lose out.

Second, European duchies and Caribbean isles aren't the only places that welcome tax refugees. The United States, for instance, could be considered the world's largest tax haven. The U.S. government generally does not tax interest and capital gains received by foreigners who invest in America. And since the IRS does not collect data on those payments, there is rarely any information to share with foreign tax collectors. Moreover, U.S. corporate structures, such as Delaware and Nevada companies, are excellent vehicles for foreigners to manage their investments. Thanks in part to these attractive policies, foreigners today have more than $12 trillion invested in the United States. Yet if Merkel's efforts are successful and all nations are saddled with the obligation to help enforce foreign tax laws, it is quite likely that a substantial share of that job-creating capital will flee the United States.

Finally, there is even a moral case for tax havens: They play a critical role in protecting people who are subject to religious, ethnic, sexual, political, or racial persecution. Most of the world's population lives in regimes that have inadequate human-rights protections, and people with assets often are targets of oppressive governments. The ability to put money in a tax haven offers important protections for these potential victims. Even the United Nations, in a 1998 report attacking tax havens, felt compelled to admit that, "For much of the twentieth century, governments around the world spied on their citizens to maintain political control. Political freedom can depend on the ability to hide purely personal information from a government."

Read it all. Once we get past the stereotype of tax havens as "loopholes for the rich and powerful," we easily see that they actually serve a very beneficial purpose.