A few days ago, I explained why I’m a big fan of tax competition. Simply stated, we need to subject governments to competitive pressure to at least partially offset the tendency of politicians to over‐tax and over‐spend.
Tax havens play an important role in this liberalizing process, largely because they do not put themselves under any obligation to enforce the bad tax laws of other jurisdictions. They also use privacy laws to protect their sovereign control of what gets taxed inside their borders (this is what separates a “tax haven” from a more conventional low‐tax jurisdiction). This means they are fiscal safe zones, particularly for people who want to protect their assets from the pervasive double taxation that exists in so many nations.
Not everybody agrees with my analysis (gee, what a surprise). To cite one example, the petty bureaucrats at the OECD got so agitated at me in 2009 (when I was offering advice to representatives of so‐called tax havens while standing in a public lobby of a public hotel) that they threatened to have me thrown in a Mexican jail.
Now I have a new critic, though hopefully someone who would never consider thuggish tactics to suppress dissent. Ann Hollingshead writes for the Task Force on Financial Integrity and Economic Development, which (notwithstanding the name of the organization) seems to favor bigger government.
Anyhow, she wrote an article specifically criticizing my work on tax havens. So I figured it was time for a fisking, which means a point‐by‐point rebuttal. Here’s how she begins, and I’ll follow up her points with my responses.
Officially Dan Mitchell is a Senior Fellow at the Cato Institute, a conservative public policy research organization, and a researcher on tax reform. Unofficially, he has (perhaps ironically?) called himself the “world’s self‐appointed defender of so‐called tax havens.”
No irony on my part. As I have openly stated, tax havens are a key part of tax competition, which is a necessary (though sadly not sufficient) process to restrain the greed of the political class.
Oddly enough, Mitchell and I agree on many of the facts about these havens. We both have observed, for example, that there are buildings in Delaware and the Cayman Islands that house thousands of corporations. Mitchell concludes there is nothing wrong with either; I conclude there is something wrong with both. Mitchell also agrees that the United States“could be considered the world’s largest tax haven.” On that topic, he’s even cited my paper on non‐resident deposits in secrecy jurisdictions. In his comment, he does not take issue with my methodology or my results, but rather concludes that my finding that the United States is the largest holder of non‐resident deposits “makes the case for pro‐market policies.” I, on the other hand, have argued that these findings support across the board reform, rather than that limited to traditional offshore financial centers.
Fair enough. We both recognize that the United States is a big tax haven. But we have different conclusions. I think it is unfortunate that only non‐resident foreigners can benefit from these policies, while Ann wants to crack down on small low‐tax jurisdictions such as Monaco, Bermuda, Liechtenstein, and the Cayman Islands, as well as big nations such as the United States. Sadly, Ann’s side has somewhat prevailed, and many of the havens have agreed to become deputy tax collectors for nations with bad tax law.
So how is it that two (relatively intelligent?) people can draw such different conclusions? I would argue our differences lie not in our facts, or perhaps even our economics, but in our underlying philosophical and theoretical differences.
I guess I should be happy that she holds out the possibility that I’m “relatively intelligent.”