By Mark Skousen
"There are no tax havens without tax hells." -- Old Swiss banker saying
First, the Economist magazine endorses Barack Obama rather than the pro-market and pro-business Mitt Romney. The magazine now publishes a cover story attacking tax havens. Walter Bagehot must be turning over in his grave! (Although I hear the Financial Times is worse!)
The Economist attacks tax-haven countries (more than 50 of them, from the Cayman Islands to Liechtenstein) as "sunny places for shady people" -- for allegedly financing terrorism, laundering money, hiding illegal activities and scams, and evading taxes. The magazine addresses but downplays their legitimate functions, such as protecting assets from corrupt regimes, self-insuring liability, registering companies and ships inexpensively and efficiently, and diversifying one's investment assets.
Unfortunately, the Economist seems to endorse this new "war on harmful tax competition" and the new draconian rules imposed by the Obama administration going after tax havens specifically and foreign investing in general. Starting next month, all foreign banks doing business in the United States (to trade stocks, transfer money, etc.) will be forced to identify all account holders. A new IRS rule forces U.S. banks to report interest payments to non-residents. That requirement will damage the United States severely as a tax haven for Latin Americans who have sent billions to Miami banks.
What the Economist and critics of tax havens seem to forget is that the popularity of tax havens is in direct correlation with draconian tax policies in the major industrial countries. As the Economist reports, "Some offshore champions [like the Cato Institute] consider tax competition [and tax havens] a good thing because it discourages countries from trying to tax their way out of trouble."
Just as the answer to black markets is to deregulate markets, the answer to tax havens is to simplify tax policies and lower tax rates. Fight the cause, not the symptoms.
So, this July 10-13 at FreedomFest in Las Vegas, we are going to have a big debate on "Tax Havens, Good or Bad?" with Richard Rahn and Dan Mitchell from the Cato Institute defending the tax havens and James S. Henry, Esq., a former director of McKinsey & Co., criticizing tax havens. The sparks will fly. To register, go to www.freedomfest.com.
Mark Skousen, Ph. D., is a professional economist, investment expert, university professor, and author of more than 25 books.