In a rational world, Switzerland would be a role model for other nations. It is quite prosperous thanks largely to a modest burden of government. There is remarkable ethnic and religoius diversity, but virtually no tension because power is decentralized (sort of what America’s Founders envisioned for the United States). Yet despite these – and many other – attractive features, Switzerland is being persecuted because of strong human rights laws that protect financial privacy. Money-hungry politicians from other nations resent Swtizerland’s attractive policies, and they would rather trample Swiss sovereignty rather than fix their own oppressive tax laws. An official from the Swiss Bankers Association provides some background in a New York Times column:

In Switzerland, this tradition of treating a client’s financial affairs in confidence became law in 1934 when it was codified in Article 47 of the country’s first-ever federal banking act as a contemporary reaction to the economic crisis, various domestic political considerations and well-publicized cases of espionage involving France and Germany. …Banking secrecy…reflects the very high degree of trust that exists between the Swiss state and its citizens and it has strong democratic foundations. …The Swiss are proud of their system and they reward it with a high level of taxpayer honesty. It works because the Swiss vote their own taxes, they have a high degree of control over the way tax revenues are spent and over all they believe their tax system to be reasonable, comprehensible, transparent and fair. …Doesn’t Switzerland hear the snapping jaws and cracking whips of foreign finance ministers, tax collectors, O.E.C.D. bureaucrats, cash-dispensing government agents and other denizens of the encroaching real world as they circle round Mother Helvetia intent on biting huge chunks out of her banking secrecy, if not swallowing it whole? …In March last year the Swiss announced they would give up the evasion-fraud distinction for foreign bank clients and adopt the O.E.C.D. standards on information exchange in tax matters. …However, requests for assistance must be made with regard to a specific individual, and “fishing expeditions” — any indiscriminate trawling through bank accounts in the hope of finding something interesting — remain ruled out. …Switzerland demonstrates to the world that it is possible for a state to collect taxes with a high degree of taxpayer honesty and without the authorities being corroded with suspicion about the financial activities of their citizens. Citizens in a democracy would never allow their police force to have an automatic right of forced entry into their homes just on the off-chance of finding some stolen goods, so why on earth should the state have an automatic right of forced entry into citizens’ banks accounts just on the off-chance of discovering some tax evasion? There must be a limit to the extent to which respect for an individual’s privacy is sacrificed on the altar of international cooperation in tax matters.

Sadly, the United States is part of the effort to create a global tax cartel. An “OPEC for politicians” would be terrible news for taxpayers, though, much as a cartel of gas stations would be bad for driviers. So-called tax havens play a valuable role in curtailing the greed of the political class. Ask yourself a simple question: Would politicians be more likely or less likely to raise tax rates if they knew taxpayers had no escape options?

Regular readers of this blog are familiar with the tax competition battle, which largely revolves around high-tax governments attempting to track – and tax – economic activity that migrates to lower-tax jurisdictions. But this is not just a global fight between decrepit welfare states such as France and fiscal havens such as the Cayman Islands. American states also compete with each other, and there are numerous examples of high-tax states such as California and New York trying to grab money from people who escape to zero-income tax states such as Nevada and Florida. The fight even exists at the local level, and a good example is the attempt by politicians to tax faraway online travel agencies. The Orange County Register opines about these extraterritorial tax grabs:

A recent legal victory for some Texas cities against online travel companies over hotel taxes may have given Anaheim officials hope for their own case, but they shouldn’t start celebrating just yet. Other cities have not fared as well in similar lawsuits. …Here’s what Fairview Heights, Anaheim and other cities wanted to change: In a typical transaction, a traveler picks a hotel and books a room, stays there, and pays the hotel a room charge plus a local occupancy tax based on the room charge. The hotel keeps the room charge and forwards the tax money to the government. Enter online travel companies like Expedia, Hotels.com, Orbitz, Priceline and Travelocity, which allow travelers to sort through hotels and book a room on a central Web site. These companies do not reserve or resell hotel rooms, but act as intermediaries to facilitate the transaction between hotel and traveler. The hotel receives an amount for the room, on which the city’s hotel tax is based. Let’s say I search a Web site and book a $100 hotel room. The online company charges me $10 for their service. Anaheim argues that hotel occupancy tax should be paid not only on the $100 room charge, but also on the $10 service fee. …A federal bill is pending to limit hotel taxes to amounts collected by a hotel for occupancy purposes, excluding service fees and markups by intermediaries. The Constitution permits Congress to pass such laws if there is a danger that state and city laws are interfering with interstate commerce. Hotel taxes are attractive to local politicians because they are a way to shift the tax burden to “outsiders.” But because every U.S. city has a hotel tax, we’re all somebody else’s “outsider.” The net result is that everyone is taxing everyone else in an unaccountable way, and unless the cities and their lawyers are stopped, in an unpredictable way, too.

Politicians exaggerate as a routine matter and have well-deserved reputations for stretching the truth. But when they repeatedly make assertions that they (or their aides) know to be false, they surely deserve to be criticized. That is the purpose of my new video. Entitled “President Obama’s Dishonest Demagoguery on So-Called Tax Havens,” the four-minute presentation looks at the two sound bites that the President uses to demonize low-tax jurisdictions.