I never thought I would wind up in Costco’s monthly magazine, but I was asked to take part in a pro-con debate on “Should offshore tax havens be illegal?”
Given my fervent (and sometimes risky) support of tax competition, financial privacy, and fiscal sovereignty, regular readers won’t be surprised to learn that I jumped at the opportunity.
After all, if I’m willing to take part in a debate on tax havens for the upper-income folks who read the New York Times, I should do the same thing for the middle-class folks who patronize big-box stores.
My main argument was that we need tax havens to help control the greed of the political elite. Simply stated, politicians rarely think past the next election, so they’ll tax and spend until we suffer a catastrophic Greek-style fiscal collapse unless there’s some sort of external check and balance.
…politicians have an unfortunate tendency to over-spend and over-tax. …And if they over-tax and over-spend for a long period, then you suffer the kind of fiscal crisis that we now see in so many European nations. That’s not what any of us want, but how can we restrain politicians? There’s no single answer, but “tax competition” is one of the most effective ways of controlling the greed of the political elite. …Nations with pro-growth tax systems, such as Switzerland and Singapore, attract jobs and investment from uncompetitive countries such as France and Germany. These “tax havens” force the politicians in Paris and Berlin to restrain their greed. Some complain that these low-tax jurisdictions make it hard for high-tax nations to enforce their punitive tax laws. But why should the jurisdictions with good policy, such as the Cayman Islands, be responsible for enforcing the tax law of governments that impose bad policy?
I also made the point that the best way to undermine tax havens is to make our tax system fair and reasonable with something like a flat tax.
…the best way to reduce tax evasion is lower tax rates and tax reform. If the United States had a flat tax, for instance, we would enjoy much faster growth and we would attract trillions of dollars of new investment.
And I concluded by pointing out that there are other very important moral reasons why people need financial privacy.
In addition to promoting good fiscal policy, tax havens also help protect human rights. …To cite just a few examples, tax havens offer secure financial services to political dissidents in Russia, ethnic Chinese in Indonesia and the Philippines, Jews in North Africa, gays in Iran, and farmers in Zimbabwe. The moral of the story is that tax havens should be celebrated, not persecuted.
And what did my opponent, Chye-Ching Huang from the Center for Budget and Policy Priorities, have to say about the issue? To her credit, she was open and honest about wanting to finance bigger government. And she recognizes that tax competition is an obstacle to the statist agenda.
It drains the United States of tax revenues that could be used to reduce deficits or invested in critical needs, including education, healthcare, and infrastructure.
She also didn’t shy away from wanting to give the scandal-plagued IRS more power and money.
U.S. policymakers could and should act… Policymakers could provide the Internal Revenue Service (IRS) with the funding it needs to ensure that people pay the taxes they owe, including sufficient funds to detect filers who are using offshore accounts to avoid paying their taxes.
Her other big point was to argue against corporate tax reforms.
…a “territorial” tax system…would further drain revenues, and domestic businesses and individual taxpayers could end up shouldering the burden of making up the difference.
Given that the United States has the highest statutory tax rate for companies in the industrialized world and ranks only 94 out of 100 nations for business “tax attractiveness,” I obviously disagree with her views.
And I think she’s wildly wrong to think that tax havens lead to higher taxes for ordinary citizens. Heck, even the New York Times inadvertently admitted that’s not true.
In any event, I think both of us had a good opportunity to make our points, so kudos to Costco for exposing shoppers to the type of public finance discussion that normally is limited to pointy-headed policy wonks in sparsely attended Washington conferences.
That’s the good news.