June 5, 2013 4:35PM

Moral of the Story: Tax Havens Are Okay if You’re a Politically Connnected Statist

Earlier this year, I had some fun when it was revealed that the president's new Treasury Secretary had a lot of money in the Cayman Islands.

After all, leftists want us to believe tax havens are rogue regimes that should be eliminated. Some of them even want military intervention against these low-tax jurisdictions!

Much to my amusement, Mr. Lew even pretended he was financially illiterate to justify making sensible decisions to invest via the Cayman Islands.

And unlike the president's first Treasury Secretary, Mr. Lew didn't break the law and cheat on his tax return.

You probably won't be surprised to learn that Secretary Lew wasn't the first Democrat to utilize tax havens. Lawmakers such as John Kerry, Bill Clinton, John Edwards, and others on the left also have utilized tax havens to boost their own personal finances.

And it appears that Mr. Lew won't be the last Democrat to be caught with his hands in the cookie jar.

Here's some of what's being reported by the New York Times in regard to the president's nominee to be U.S. Trade Representative:

Michael Froman, a longtime White House economic aide nominated to be President Obama’s trade representative, has nearly half a million dollars in a fund based in the Cayman Islands, according to financial documents provided to the Senate Finance Committee. ...White House officials said Mr. Froman played no role in creating, managing or operating the investment funds and had done nothing wrong. “Mike Froman has paid every penny of his taxes and reported all of the income, gains and losses from the investment on his tax returns,” Mr. Whithorne said.

I don't remember that compliance with the tax law mattered when Obama and the media were going after Romney in 2012 for legally investing in the Cayman Islands.

Could it be that tax havens are okay, but only if you support big government?

What makes this story particularly amusing is that Mr. Froman's Cayman investments were domiciled in Ugland House, which is infamous in leftist circles for being the legal home for thousands of entities:

According to a 2011 financial document, Mr. Froman held $490,845 in a fund managed by Citigroup and based in Grand Cayman’s Ugland House, a modest whitewashed building that has been widely cited as a symbol of tax avoidance since it is home to nearly 19,000 business entities seeking favorable tax treatment. In answers to Finance Committee questions, Mr. Froman said on May 17 that he still held those assets but would sell them off within 90 days of confirmation as trade representative. Mr. Grassley said the president once called the Ugland House “the biggest tax scam in the world.”

You may be thinking that you've heard of Ugland House before. Perhaps that's because you were paying attention during the 2008 campaign.

To refresh your memory, pay attention beginning at the 1:13 mark of this video.

But I guess it's okay that Mr. Froman invests via Ugland House. After all, he's willing to endorse higher taxes for other people, so that's sort of like getting an indulgence for supposed sins.

The president must really like people who invest in tax havens because his nominee to be Commerce Secretary also is "guilty" of having a sensible approach with regards to her personal finances.

Here are some relevant details from a Reuters report.

Chicago billionaire Penny Pritzker on Thursday appeared on her way to becoming U.S. commerce secretary, after a top Republican lawmaker said she had answered most of his questions about her role in...her family's use of an offshore tax haven. ...A 184-page financial disclosure form released by the White House provided a detailed view of Pritzker's wealth. It includes $54 million in consulting fees she received from the Canadian Imperial Bank of Commerce Trust Co, which manages an offshore trust for the Pritzker family in the Bahamas. ...Pritzker acknowledged being a beneficiary of an offshore trust set up when she was "a little girl" and told the panel she has asked the current trustee to step aside and appoint a U.S. trustee.

How convenient that she waited until age 54—and being nominated to a high-level political appointment—before addressing the issue.

In a logical world, of course, she wouldn't have to pretend there's something wrong with utilizing the superior laws that exist in the Bahamas, any more than she should have to justify selecting a restaurant that gives her better food and quality service at a lower price.

In other words, the real moral of the story is that so-called tax havens play a very valuable role in the global economy. As explained in this video, they are very good platforms for economic activity and they encourage less punitive fiscal policy in high-tax nations.

Here are additional reasons why tax havens are a huge plus for the global economy:

Unfortunately, good economic policy doesn't seem to count for much. Politicians for high-tax nations have been somewhat successful in badgering tax havens into surrendering some of their fiscal policy and agreeing to act as deputy tax collectors for foreign governments.

What does this mean? Well, as Professor Greg Mankiw of Harvard University explains, politicians will raise taxes even higher when they don't have to worry about competition from low-tax jurisdictions.