Financial Privacy Facing Major Assault from High‐Tax Nations
An article from Der Spiegel in Germany analyzes the aggressive campaign against nations like Switzerland that have strong human‐rights policies on financial privacy. High‐tax nations are opposed to privacy, of course, because that makes it more difficult for them to enforce bad tax law.
After fighting Switzerland’s banking secrecy laws for decades, European finance ministers are about to receive support from the United States. Investigations into major Swiss bank UBS and a proposed law against tax havens are ratcheting up pressure against the system.
…[T]he United States is by no means the only place where Swiss high finance and the country’s banking secrecy laws are coming under growing pressure. Foreign authorities around the globe are increasingly taking sharper action against tax evaders. Swiss financial institutions, often in tandem with partners in Liechtenstein, play a central role in helping the ultra‐rich avoid paying billions in taxes. An almost unimaginable fortune of more than €3 trillion ($4.7 trillion) is currently sitting in Swiss bank accounts. The discreet Swiss allow vast amounts of money to disappear into trusts, offshore companies and bank accounts, money that is often protected by Switzerland’s banking secrecy laws.
…Political conflict is also on the horizon. An aggressive bill to combat tax evasion, the “Stop Tax Haven Abuse Act,” was introduced in the US Congress last year. The legislation provides for tough measures against 34 tax havens, including Liechtenstein, Luxembourg and Switzerland. The bill has stood little chance of becoming law until now. But that could quickly change after the presidential election in November. Once of the bill’s three sponsors is Senator Barack Obama, who is currently favored to win the White House.
But the campaign against financial privacy extends beyond Europe. As a report from the Wall Street Journal indicates, the United States also is putting pressure on Swtizerland and other jurisdictions with financial privacy laws:
As government officials intensify a multinational crackdown on offshore bank accounts, many wealthy Americans who use them to illegally shield income are facing a difficult decision: whether to turn themselves in — and if so, how. …Tax dodgers are facing these stark choices as major cracks emerge in what once appeared to be an impenetrable wall of secrecy surrounding bank accounts in such well‐known havens as Liechtenstein and Switzerland. While officials have launched many similar campaigns in the past, their latest efforts are attracting widespread attention because they are coming from so many different directions.
Supporters of the attack say privacy must be sacrificed to reduce tax evasion, but this sidesteps the more relevant discussion of how best to improve tax compliance. Fundamental tax reform solves the problem since most tax evasion occurs because of high tax rates and double taxation of income that is saved and invested. This means that pro‐growth policy not only generates more prosperity, but it eliminates any impulse to attack the sovereigny of other nations.
