My previous post about using tax competition to restrain greedy and bloated government generated a lot of email, much of it focused on whether so-called tax havens are good or bad. This is a challenging issue. In an ideal world, there would be no need for financial refuges because every jurisdiction would have low tax rates and limited government. In the real world, though, politicians frequently impose oppressive tax laws targeting the “rich” as part of divisive class-warfare politics. This is bad news for investors and entrepreneurs, to be sure, but it is also bad news for the rest of us because high tax rates and pervasive double taxation of saving and investment slow growth and reduce competitiveness. This is why tax havens, as explained in this video, play a vital role in the global economy by discouraging politicians from imposing self-destructive policy.
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The fight over tax havens is not just a matter of economics and tax policy. It also deals with the critical issue of national fiscal sovereignty. International bureaucracies such as the United Nations and the Paris-based Organization for Economic Cooperation and Development want the power to veto national tax laws, something that should horrify any sensible person.
But this issue should be important even for people who don’t care about sovereignty because it has enormous implications for America’s economic vitality. Simply stated, the United States is a tax haven. Indeed, by some measures, we are the biggest tax haven, and even though the tax haven policies only exist to attract foreign capital, the rest of us benefit because beneficial tax rules for “non-resident aliens” bring trillions of dollars of investment to America.
But you don’t have to believe me. Left wing groups often complain about America’s tax haven status. I’ve written elsewhere about how the United States (specifically the state of Delaware) has been ranked by the ultra-left Tax Justice Network as the world’s best tax haven, and I just commented on a new report from the Center for International Policy showing that America’s financial system is the world’s biggest beneficiary of non-resident deposits (among supposed “secrecy jurisdictions”). Here’s the list, showing the United States first place by a large margin.
1. The United States – $2.18 trillion
2. The Cayman Islands – $1.55 trillion
3. The United Kingdom – $1.53 trillion
4. Luxembourg – $435 billion
5. Germany – $426 billion
6. Jersey – $393 billion
7. Netherlands – $316 billion
8. Ireland – $276 billion
9. Switzerland – $274 billion
10. Hong Kong – $268 billion
I suspect that leftist groups are technically deficient in addition to being philosophically misguided, so I don’t put much faith in their specific numbers. So let’s close with one final set of numbers from the Treasury Department, which show that Caribbean banking centers invest nearly $2 trillion in America’s economy. In other words, no matter how you examine the issue, America is a big winner when tax haven policies are allowed to flourish. So what’s the moral of this story? The answer is simple. If Obama succeeds in joining with high-tax nations such as France to undermine tax competition and tax havens, the American economy will suffer as capital is withdrwan from our financial system. Less jobs, less growth, and more dependency. That almost seems to be the goal in Washington.
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