Excellent Story Shows Benefits of Tax Havens

Reporting from London, The Business notes that so-called tax havens are among the world’s richest jurisdictions. But rather than emulating success, high-tax nations attack these free-market outposts — with the Paris-based Organization for Economic Cooperation and Development leading the charge:

Of the 20 wealthiest nations, 13 of them are low-tax territories. …In the past few years, politicians from the developed world have led a determined assault on tax havens. …The Paris-based Organisation for Economic Co-operation and Development has led a series of attacks on the world’s tax havens, accusing them of complicity in money laundering and of lacking transparency. At one point the French government advocated an international boycott of tax havens, arguing that EU banks should refuse to deal with them. …Even the Vatican has joined the campaign. Pope Benedict XVI was reported last month to be working on a doctrinal pronouncement that will condemn tax evasion as “socially unjust”, while the planned encyclical — the most authoritative statement a pope can issue — will denounce the use of tax havens and offshore bank accounts by wealthy individuals, on the grounds that they reduce the tax revenues raised for the benefit of society as a whole (although curiously the Vatican hasn’t reacted so well to proposals by the Italian government to curb the Catholic church’s own tax break). But instead of attacking tax havens, other countries should be trying to learn from them. The way they lead the global wealth rankings is testament to the power of lower taxes to raise overall living standards. 

The story explains that the demagoguery against low-tax jurisdictions — particularly regarding charges of money laundering — is false (something that is confirmed by both international bureaucracies and U.S. government sources):

[T]hough money laundering through the Cayman Islands may be a staple of popular fiction, there isn’t much evidence for it in the real world. Most criminals launder the proceeds of the crimes domestically, since they are well aware that moving their money across borders only increases the chances of detection. Terrorists use traditional networks of money changers — not banks in Jersey.

The article closes with an excellent summary of the key issues. Tax competition constrains politicians and it encourages policies that make ordinary people richer, and tax havens play a key role in this process:

Low-tax territories provide an alternative to the high-tax world. They impose some discipline on governments elsewhere, restricting the amount they can raise in taxes by providing an escape route. But more importantly, they demonstrate the ability of lower taxes to consistently raise living standards, even in the most unpromising locations. Maybe it is time to stop hammering the tax havens — and start trying to learn from them instead.