I spoke at the United Nations back in May, explaining that more government was the wrong way to help the global economy. But I guess I’m not very persuasive. The bureaucrats have just released a new report entitled, “In Search of New Development Finance.” As you can probably guess, what they’re really searching for is more money for global redistribution. But here’s the most worrisome part of their proposal: they want the UN to be in charge of collecting the taxes, sort of a permanent international bureaucracy entitlement. I’ve written before about the UN’s desire for tax authority (on more than one occasion), but this new report is noteworthy for the size and scope of taxes that have been proposed. Here’s the wish list of potential global taxes, pulled from page vi of the preface:
Back in April, responding to an article written by Ann Hollingshead for the Task Force on Financial Integrity and Economic Development, I wrote a long post defending so‐called tax havens.
I went through the trouble of a point‐by‐point response because her article was quite reasonable and focused on some key moral and philosophical issues (rather than the demagoguery I normally have to deal with when people on the left reflexively condemn low‐tax jurisdictions).
She responded to my response, and she raised additional points that deserve to be answered.
So here we go again. Let’s go through Ann’s article and see where we agree and disagree.
A couple of weeks ago, I wrote a blog post criticizing the philosophies of Dan Mitchell, a libertarian scholar from the Cato Institute. I asked for a “thoughtful discussion” and I got it — both from the comments section of our blog and from Dan himself. On his own blog, Dan replied with a thought‐provoking point‐by‐point critique of my piece.
It has been a polite discussion, which is good because readers get to see that we don’t really disagree on facts. Our differences are a matter of philosophy, as Ann also acknowledges.
Dan made several interesting points in his rebuttal. As much as I’d like to take on the whole post right now, my reply would be far too long and I don’t think our readers would appreciate a blog post that approaches a novella. Rather I’ll focus on a couple of his comments that I find interesting on a philosophical level (there were many) and which demand a continued conversation because, I believe, they are the basis of our differences. We’ll start with a rather offhand remark in which Dan indirectly refers to financial privacy as a human right. This is an argument we’ve heard before. And it is worth some exploration.Unless I am very much mistaken, Dan’s belief that financial privacy is a human right arises out of his fundamental value of freedom. My disagreement with Dan, therefore, does not arise from a difference in the desire to promote human rights (I believe we both do), but rather in the different relative weights we each place on the value of privacy, which Dan (I’m supposing) would call an extension of freedom.
I wouldn’t argue with her outline, though I think it is incomplete. I’m a big fan of privacy as a principle of a civil and just society, but I also specifically support financial privacy as a means to an end of encouraging better tax policy. Simply stated, politicians are much more likely to reduce or eliminate double taxation if they feel such taxes can’t be enforced and simply put a country in a much less competitive position.
Okay, so on to [my] answer of the subject of this post. Privacy — and financial privacy by extension — is important. But is it a human right? That’s a big phrase; one which humanity has no business throwing around, lest it go the way of “[fill in blank]-gate” or “war on [whatever].” And as Dan himself points out, governments have a way of fabricating human rights — apparently some European courts have ruled that free soccer broadcasts and owning a satellite dish are a human rights — so it’s important that we get back to [philosophical] basics and define the term properly. The nearly universally accepted definition of “human rights” was established by the Universal Declaration of Human Rights, which the United Nations adopted in 1948. According to the UN, “human rights” are those “rights inherent to all human beings,” regardless of “nationality, place of residence, sex, national or ethnic origin, colour, religion, language, or any other status.” The Declaration includes 30 Articles which describe each of those rights in detail. “Financial privacy” per se is not explicitly a human right in this document, but “privacy” is, and I think it’s reasonable to include financial privacy by extension. But privacy is defined as a fundamental, not an absolute, human right. Absolute rights are those that there is never any justification for violating. Fundamental freedoms, including privacy and freedom from detention, can be ethically breached by the government, as long as they authorized by law and not arbitrary in practice. The government therefore has the right to regulate fundamental freedoms when necessary.
I’m not sure how to react. There are plenty of admirable provisions in the U.N.‘s Universal Declaration of Human Rights, but there are also some nonsensical passages — some of which completely contradict others.
Everyone hopefully agrees with the provisions against slavery and in favor of equality under law, but Article 25 of the U.N. Declaration also includes “the right to a standard of living adequate for the health and well‐being of himself and of his family, including food, clothing, housing and medical care and necessary social services.”
That sounds like a blank check for redistributionism, similar to the statism that I experienced when I spoke at the U.N. last month, and it definitely seems inconsistent with the right of property in Article 17.
I guess what I’m trying to say is that I don’t care that the U.N. Universal Declaration of Human Rights includes a “right to privacy” because I don’t view that document as having any legal or moral validity. I don’t know whether it’s as bad as the European Union’s pseudo‐constitution, but I do know that my support for privacy is not based on or dependent on a document from the United Nations.
As an aside, I can’t help noting that Articles 13 and 15 of the U.N. Declaration guarantee the right to emigrate and the right to change nationality, somethings leftists should keep in mind when they demonize successful people who want to move to nations with better tax law.
Getting back to Ann’s column, she confirms my point that you can’t protect property rights for some people while simultaneously giving other people a claim on their output.
That’s important because it means, that when it comes to freedom and privacy, we need to make choices. We can’t always have them all at once. To use a hideously crude example that gets back to the issue of tax evasion, in a developing country, a rich person’s right to financial privacy might be at odds with a poor person’s right to “a standard of living adequate for the health and well‐being of himself and of his family.”
For those who are not familiar with the type of discussion, it is the difference between “negative rights” promoted by classical liberals, which are designed to protect life, liberty, and property from aggression, and the “positive rights” promoted by the left, which are designed to legitimize the redistributionist state.
Tom Palmer has a good discussion of the topic here, and he notes that “positive rights” create conflict, writing that, “…classical liberal ‘negative’ rights do not conflict with each other, whereas ‘positive’ rights to be provided with things produce many conflicts. If my ‘right to health care’ conflicts with a doctor’s ‘right to liberty,’ which one wins out?”
Continuing with Ann’s article, she says values conflict with one another, though that’s only if true if one believes in positive rights.
I started this post with a discussion of values, because at the core that’s what we’re talking about. Values are relative, individual, and often in conflict with one another. And they define how we rank our choices between human rights. Dan values freedom, perhaps above most else. He might argue that economic freedom would lead to an enrichment of human rights at all levels, but he probably wouldn’t disagree that that thesis remains untested. My views are a little more complicated because I don’t get to enjoy the (albeit appealing and consistent) simplicity of libertarianism.
I’m tempted to say, “C’mon in, Ann, the water’s fine. Libertarianism is lots of fun.” To be a bit more serious, libertarianism is simple, but it’s not simplistic. You get to promote freedom and there’s no pressure to harass, oppress, or pester other people.
As my colleague David Boaz has stated, “You could say that you learn the essence of libertarianism — which is also the essence of civilization – in kindergarten: don’t hit other people, don’t take their stuff, keep your promises.”
The world would be a lot better if more people rallied to this non‐coercive system.
One more point. Dan mentioned he does “fully comply” with the “onerous demands imposed on [him] by the government.” But as Dan insinuates, irrespective of an individual’s personal values, those demands are not optional. In the United States, we have the luxury of electing a group of individuals to represent our collective values. Together those people make a vision for the country that reflects our ideals. And then, we all accept it. If our country got together and decided to value freedom above all else, we would live in a world that looks a lot like Dan’s utopia. But, frankly, it hasn’t. So we respect our tax code out of a respect for the vision of our country. Dan has the right to try to shape that vision, as do I. Neither of us has the right to violate it.
What Ann writes is true, but not persuasive. Libertarians don’t like untrammeled majoritarianism. We don’t think two wolves and a sheep should vote on what’s for lunch.
We like what our Founding Fathers devised, a constitutional republic where certain rights were inalienable and protected by the judicial system, regardless of whether 90 percent of voters want to curtail our freedoms.
Ann, as you can see from her final passage, does not agree.
That, at is heart, is my problem with both tax evasion and tax avoidance. Neither lines up with the spirit of our collective compact; although the latter is not necessarily reflected in the official laws on the books. I’m not saying tax avoiders should be thrown in jail; they’ve done nothing illegal. I’m saying the regulations that confine us should line up with the vision we’ve created and the values we’ve agreed upon. If that vision is Dan’s, I’ll accept it. But I’m glad he’ll (begrudgingly) accept ours too.
I’m not automatically against having a “collective compact.” After all, that’s one way of describing the American Constitution. But I will return to my point about America’s founders setting up that system precisely because they rejected majoritarianism.
So what does all this mean? Probably nothing, other than the less‐than‐remarkable revelation that Ann and I have different views on the legitimate role(s) of the federal government.
Since I want to restrain the size and scope of government (not only in America, but elsewhere in the world) and avert future Greek‐style fiscal nightmares, that means I want tax competition. And, to be truly effective, that means tax havens.
If that appeals to you (or at least seems like a reasonably hypothesis), I invite you to read some writings by Allister Heath of the United Kingdom and Pierre Bessard of Switzerland.
Over the years, I've strenuously objected to schemes that would enable international bureaucracies to levy taxes. That's why I've criticized "direct funding" proposals, most of which seem to emanate from the United Nations.
- A scheme to let the United Nations tax services such as air travel.
- A proposal, pushed by George Soros and other statists, for U.N. taxes on things such as energy use.
- And, of course, the favorite of the big-government crowd, a global tax on financial transactions.
Interestingly, the American left is somewhat divided on these schemes. House Democrats have expressed sympathy for global taxes, but the Obama administration has come out against at least certain worldwide tax proposals.
Unfortunately, proponents of global taxes are like the Energizer Bunny of big government, relentlessly pushing a statist agenda. If the world economy is growing, it's time for a global tax. If the world economy is stagnant, it's time for a global tax. If it's hot outside or cold outside, it's time for a global tax (since "global warming" is one of the justifications for global taxation, I'm not joking).
Given this ongoing threat, I'm glad that Brian Garst of the Center for Freedom and Prosperity has put together a two-page Libertas explaining why international bureaucracies should not get taxing powers or direct funding.
...it would be imprudent to give international bureaucracies an independent source of revenue. Not only would this augment the already considerable risk of imprudent budgetary practices, it would exacerbate the pro-statism bias in these organizations. ...The issue of taxing powers and direct funding has become an important issue because international organizations are challenging the contribution model and pushing for independent sources of revenue. The United Nations has been particularly aggressive in pushing for global taxes, seeking to expand its budget with levies on everything from carbon to financial transactions.
He then highlights one of the most dangerous proposals, a scheme by the World Health Organization to impose a "Solidarity Tobacco Contribution."
Another subsidiary of the United Nations, the World Health Organization (WHO), is also looking to self-fund through global taxes. The WHO in 2010 publicly considered asking for global consumer taxes on internet activity, online bill paying, or the always popular financial transaction tax. Currently the WHO is pushing for increased excise taxes on cigarettes, but with an important condition that they get a slice of the added revenue. The so-called Solidarity Tobacco Contribution would provide billions of dollars to the WHO, but with no ability for taxpayers or national governments to monitor how the money is spent.
I have to give the left credit. They understand that few people are willing to defend tobacco, so proposing a global tax on cigarettes sounds noble, even though the real goal is to give the WHO a permanent stream of revenue.
Every few years, the Law of the Sea Treaty rears its head as a one-size-fits-all solution to a host of current maritime problems. This time, Secretary of Defense Leon Panetta and General Martin Dempsey, chairman of the Join Chiefs of Staff, are urging the Senate to ratify the treaty. The officials claim it will act as a tool to deal with aggressive actions by Iran, China, and Russia. But as I have long argued, no matter the current rationale for the treaty, it represents a bad deal for the United States.
Panetta and Dempsey rolled out three hot issues to make their case:
- Iran is threatening the world economy in the Strait of Hormuz? The Law of the Sea Treaty (LOST) will help solve this.
- China is threatening the Philippines in the South China Sea? LOST is a crucial tool to prevent war.
- Russia is claiming land in the Arctic region to extract natural resources? LOST will put the screws to Moscow.
These international controversies will be magically resolved if only the Senate ratifies the convention.
If this sounds too good to be true, it is. It is not clear the treaty would do much at all to alleviate these flashpoints. Especially since the two most important potential antagonists, China and Russia, already have ratified LOST. And it is certainly not the best option policy-wise for the United States with each issue: Iran’s bluster in the Strait of Hormuz may prove its weakness. U.S. policy in the South China Sea suffers from a far more serious flaw: encouraging free-riding by allied states. Russia’s move into the Arctic has nothing to do with Washington’s absence from LOST.
The treaty itself, not substantially altered since 1994, is still plagued by the same problems that have halted its ratification for decades. Primarily, it will cede decisionmaking on seabed and maritime issues to a large, complex, unwieldy bureaucracy that will be funded heavily by---wait for it---the Untied States.
I fight to preserve tax competition, fiscal sovereignty, and financial privacy for the simple reason that politicians are less likely to impose destructive tax policy if they know that labor and capital can escape to jurisdictions with more responsible fiscal climates.
My opponents in this battle are high-tax governments, statist international bureaucracies such as the Organisation for Economic Co-operation and Development (OECD), and left-wing pressure groups, all of which want to impose some sort of global tax cartel---sort of an "OPEC for politicians."
In my years of fighting this battle, I've has some strange experiences, most notably in 2008 when the OECD threatened to have me thrown in a Mexican jail for the supposed crime of standing in a public area of a hotel and advising representatives of low-tax jurisdictions on how best to resist fiscal imperialism.
A few other bizarre episodes occurred in Barbados, back when I was first getting involved in the issue. Here's a summary of that adventure.
I'm not a fan of international bureaucracies.
I've criticized the United Nations for wanting global taxes. I've condemned the International Monetary Fund for promoting bigger government. I've even excoriated the largely unknown Basel Committee on Banking Supervision for misguided regulations that contributed to the financial crisis.
But the worse international bureaucracy, at least when measured on a per-dollar-spent basis, has to be the Paris-based Organization for Economic Cooperation and Development.
OECD Headquarters: Living the good life at US expense[/caption]
American taxpayers finance nearly one-fourth of the OECD's budget, at a cost of more than $100 million per year, and in exchange we get a never-ending stream of bad policy recommendations.
This Center for Freedom and Prosperity study has all the gory details. The OECD bureaucrats (who get tax-free salaries, by the way) endorsed Obamacare, supported the failed stimulus, and are big advocates of a value-added tax for America.
What's especially frustrating is that the OECD initially was designed to be a relatively innocuous bureaucracy that focused on statistics. Indeed, it was even viewed as a free-market counterpart to the Soviet Bloc's Council for Mutual Economic Assistance.
My, how things change.
Perhaps the most odious example of bad OECD policy is the campaign against tax competition. Beginning during the 1990s, the OECD has attacked low-tax jurisdiction for the supposed crime of having good tax laws that attract jobs and capital from high-tax nations such as France and Greece.
So why did the OECD launch this project to prop up Europe's welfare states? The answer can be found in an excellent new study from Professor Andrew Morriss at the University of Alabama Law School and Lotta Moberg, a Ph.D student in economics at George Mason University.
Being the world's self-appointed defender of so-called tax havens has led to some rather bizarre episodes.
For instance, the bureaucrats at the Organization for Economic Cooperation and Development threatened to have me thrown in a Mexican jail for the horrible crime of standing in the public lobby of a hotel and giving advice to low-tax jurisdictions.
On a more amusing note, my efforts to defend tax havens made me the beneficiary of grade inflation and I was listed as the 244th most important person in the world of global finance — even higher than George Soros and Paul Krugman.
But if that makes it seem as if the battle is full of drama and (exaggerated) glory, that would be a gross exaggeration. More than 99 percent of my time on this issue is consumed by the difficult task of trying to convince policymakers that tax competition, fiscal sovereignty, and financial privacy should be celebrated rather than persecuted.
Sort of like convincing thieves that it's a good idea for houses to have alarm systems.
And it means I'm also condemned to the never-ending chore of debunking left-wing attacks on tax havens. The big-government crowd viscerally despises these jurisdictions because tax competition threatens the ability of politicians to engage in class warfare/redistribution policies.
Here's a typical example. Paul Vallely has a column, entitled "There is no moral case for tax havens," in the UK-based Independent.
To determine whether tax havens are immoral, let's peruse Mr. Vallely's column. It begins with an attack on Ugland House in the Cayman Islands.
There is a building in the Cayman Islands that is home to 12,000 corporations. It must be a very big building. Or a very big tax scam.
As I've already explained in a post about a certain senator from North Dakota, a company’s home is merely the place where it is chartered for legal purposes. A firm’s legal domicile has nothing to do with where it does business or where it is headquartered.