Topic: International Economics and Development

England Becoming a Top-Flight Tax Haven

The UK-based Guardian reports that the number of “non-doms” has nearly doubled in three years. The phrase refers primarily to foreigners who move to the UK and are allowed to dodge any taxes on the income they earn in other jurisdictions. This policy is strongly opposed by leftists in the Labour Party, though Tony Blair obviously has chosen to leave it intact. And if the Guardian can be believed, Gordon Brown may decide to leave well enough alone when he moves into 10 Downing Street:

The number of people claiming non-domicile tax status has nearly doubled in three years, fuelling fears that Britain is becoming the world’s first onshore tax haven. …The tax break…is now increasingly used by City tycoons and overseas billionaires who are flocking to London to take advantage of a loophole that allows them to keep their vast fortunes intact. …Labour MP Stephen Pound has called on Sir Ronald Cohen, Gordon Brown’s closest ally in the City, to come clean over whether he benefits from non-domiciled tax status. Cohen, a substantial Labour donor who founded Apax Partners, Britain’s most successful private equity firm, exerts strong influence over the Chancellor. He has repeatedly refused to disclose his tax status.

The Flat Tax May Spread to Bulgaria

The global tax reform revolution may soon include Bulgaria. The Sofia Echo reports on the pressure - thanks to tax competition - for Bulgaria to hop on the flat tax bandwagon:

It won’t be surprising if in a couple of years Bulgaria introduces a flat 10-per cent tax on incomes, Georgi Angelov, senior economist at Open Society Institute, said, as quoted by Pari daily. Radical reforms are carried out more easily in countries with radical problems, such as those in Eastern Europe. A quarter of the countries in Europe levy a flat tax. The first to introduce a flat tax rate was Estonia – 26 per cent in 1994. The tax has been cut to 22 per cent already and the fashion has spread to neighbouring countries like Lithuania, Latvia, Russia and Ukraine. The example has been followed by Slovakia, Romania, Georgia, Serbia and Macedonia, with the Czech Republic and Albania expected to apply the lowest rate of 10 per cent from 2008. According to Angelov, one of the reasons for that is that Bulgaria has so far focused on reducing the corporate tax. Now that the tax has been cut to 10 per cent, the logical step is to reduce labour taxation by implementing a single rate. Just a few years ago, a 10 per cent tax was wishful thinking, but now it is a fact.

Bloated Salaries at the World Bank

The controversy involving Paul Wolfowitz  is seemingly devoid of any policy issues, but it has brought to light some of the exorbitant waste at the World Bank. Nearly 1,400 employees have salaries above the amount given to America’s secretary of state. But even that comparison is misleading, since World Bank bureaucrats get tax-free compensation.

The Wall Street Journal comments on the sweet deal — and virtual lifetime tenure — of the staff:

American taxpayers supply some 17% of the bank’s capital, and a new round of fund raising for the bank’s International Development Association is about to commence. If Congress is going to ante up the $7 billion or so the bank is expected to request, the least it can do is insist on more accountability….

Of its roughly 10,000 employees, no fewer than 1,396 have salaries higher than the U.S. Secretary of State; clearly “fighting poverty” does not mean taking a vow of poverty at “multilateral” institutions. At the time of Ms. Riza’s departure from the bank, she was a Grade “G” (senior professional) employee; the typical salary in that grade hovers around the $124,000 mark. For the next level, Grade “H”—the level to which Ms. Riza was due to be promoted—salaries average in the $170,000 range, with an upper band of $232,360. No fewer than 17% of bank employees are in this happy bracket.

Even sweeter, all of this is tax-free to non-Americans. U.S. employees have to pay U.S. tax but have their income taxes reimbursed by the bank. As with any public bureaucracy, these jobs are also impossible to lose for anything other than gross incompetence or venality.

Singapore Becoming One of the World’s Stellar Tax Havens

The New York Times has a thorough story detailing how officials in Singapore are taking advantage of globalization to diversify the nation’s economy. Bank secrecy and good tax law are particularly helpful in attracting capital from people suffering from fiscal oppression:

This affluent city-state of 4.5 million people is aiming to be a sanctuary for the world’s wealthy and their money, Asia’s answer to Geneva and Zurich. … Now the tiny enclave at the tip of the Malay peninsula is trying to carve out a new niche for itself in the global economy by bolstering banking secrecy laws and offering generous tax incentives. “I can’t think of any other place where private banking is growing so much as in Singapore,” said Henrik Mikkelsen, a private banker at Commerzbank in Singapore. “We want to be the Switzerland of Asia.” … Almost 40 private banks now have regional operations in Singapore, including Swiss stalwarts such as Bank Julius Baer. Citigroup’s headquarters for all private banking outside the United States is now in Singapore, as is the global banking headquarters of Standard Chartered Bank of Britain. …Robert Chandran, who emigrated to the US from India and made fortunes in California real estate and the fuel oil business. In 2005, contemplating retirement, he moved his company and family here, bought a luxury condominium downtown and space in a waterfront resort with parking for yachts. He traded in his American passport for one from Singapore. Chandran said he was lured by Singapore’s blend of Western conveniences with Asian values and by the Government’s zeal for keeping Singapore competitive. “They don’t have global taxation,” he said, which means that his capital gains and interest income from outside Singapore are not taxed here. …Tax rates are low as well. Singapore does not tax capital gains or interest income. Its top income tax rate is 20 per cent, and it does not tax income earned outside Singapore. … Singapore had already beefed up its banking secrecy laws in 2001. While many banks are moving their back offices to India, bankers here say Singapore’s secrecy rules are so tight, they are moving the data centres handling their private banking transactions from India to Singapore. … Singapore’s secrecy rules do not extend to anyone involved in terrorism or smuggling.

Rare Sighting of Pro-Trade Democrats Rumored, Unconfirmed

Just when it seemed that control over the direction of U.S. trade policy was hopelessly and totally in the grips of congressional forces of darkness, there is a faint glimmer of hope that some Democrats might remember the days when they weren’t forced to consider trade a dirty word.  Given where things stand today, that’s not a trivial matter.

In a letter (sorry, subscription required–see excerpt below) dated May 2, six members of the House Ways and Means Committee (five of whom are Democrats!) urged Commerce Secretary Carlos Gutierrez to abandon (or at least work to minimize the disruption to trade caused by) his Department’s Import Monitoring Program of Textile and Apparel Products from Vietnam.  The novelty alone of a letter from Congress urging the administration to tread lightly where imports are concerned warrants this post.

As you may recall from a previous post, the Bush Administration felt it had to buy off opposition to the bill that granted Permanent Normal Trade Relations (PNTR) status to Vietnam.  Prominent holdouts demanding compensation were Sen. Elizabeth Dole (R-NC) and Sen. Lindsey Graham (R-SC), and the price, ultimately, was a commitment from the administration to monitor imports and to self-initiate antidumping cases if the situation warranted. That commitment from the administration was unprecedented, unnecessary, and disappointing.  Today it is reported to be scaring away investment in the Vietnamese industry and deterring trade between Vietnamese producers and U.S. customers. On trade policy, Democrats have earned most of their scorn by marching to the tune of labor unions, which would just as soon permanently separate U.S. customers from their foreign sources.  But Democrats also count among their constituents importers, distributors, wholesalers, retailers, producers, truckers, warehouse operators, port employees, and consumers who suffer when supply chains get tangled and severed.  The authors of the letter acknowledge:

Congressional passage of [PNTR] for Vietnam was intended to provide benefits for both United States businesses and consumers, as well as strengthen the U.S.-Vietnam relationship and provide opportunities for economic growth that would benefit the Vietnamese people.  We are deeply concerned that the disruption in trade caused by the import monitoring program is cutting away at many of the benefits of granting PNTR status to Vietnam.

Well put, indeed! Hopefully, the congressional trade leadership was copied because its recently unveiled New Trade Policy for America reflects predominantly an antitrade perspective that has been allowed to fester and metastisize within the Democratic caucus.

Two Million French Have Escaped France

Anne Applebaum’s Washington Post column discusses the upcoming French election. But most relevant for fans of tax competition, she notes that two million French have fled the high taxes and economic stagnation of their home country. Not surprisingly, a poll reveals that the overwhelming majority of French expats are happy in countries with more opportunity. Applebaum also explains that Europe’s less competitive nations have been trying to export their anti-growth policies in an effort to “make life equally difficult everywhere.”

Standing in the heart of London’s financial district, Sarkozy heaped compliments upon his country’s historic enemy. The British capital was, he said, a “town that seems more and more prosperous and dynamic every time I come here.” More important, it had become “one of the great French cities.” He understood, furthermore, that hundreds of thousands of Frenchmen had moved to Britain because “they are risk-takers, and risk is a bad word” in France. … [E]ven a Sarkozy victory in the final round of voting on Sunday won’t persuade all of the 2 million-plus French exiles to go home. Asked by a French polling company, TNS Sofres, “Are you satisfied with your life abroad?” 93 percent of French emigres surveyed recently said “yes.” … [T]here is nothing odd about the fact that the French now vote with their feet. There are better-paying jobs in London, taxes are lower in London, the economy grows faster in London: C’est la vie – and tough luck for Paris. … For the past decade, French, German and other European leaders have tried to unify European tax laws and regulations, the better to “even out the playing field” – or (depending on your point of view) to make life equally difficult everywhere.

Fed Chairman Explains Benefits of Free Trade, Warns against Protectionism

Federal Reserve Board Chairman Ben Bernanke delivered an important speech Tuesday on the benefits of free trade to our economy and workers. Speaking to an audience in Butte, Montana, Bernanke explained why trade raises our standard of living and backed up his economic logic with up-to-date evidence.

He acknowledged that some workers and companies lose out, at least temporarily, from more vigorous global competition, but he warned that protectionism would be the worst possible policy response.

As the Fed chairman told his audience:

Restricting trade by imposing tariffs, quotas, or other barriers is exactly the wrong thing to do. Such solutions might temporarily slow job loss in affected industries, but the benefits would be outweighed, typically many times over, by the costs, which would include higher prices for consumers and increased costs (and thus reduced competitiveness) for U.S. firms. Indeed, studies of the effects of protectionist policies almost invariably find that the costs to the rest of society far exceed the benefits to the protected industry. In the long run, economic isolationism and retreat from international competition would inexorably lead to lower productivity for U.S. firms and lower living standards for U.S. consumers.

Rather than closing U.S. markets, Bernanke wisely recommends “policies and programs aimed at easing the transition of displaced workers into new jobs and increasing the adaptability and skills of the labor force more generally.”

If you want to understand what free trade really means for Americans, I recommend the full text of his illuminating speech.