Stop Demonizing Tax Havens

With the release of the Panama papers, progressives flocked social media to vent their hatred towards those who hide their money from the government. They assumed these were evil bankers, investors, and Wall Street entrepreneurs who were trying to avoid paying all taxes. Pretty evil, right?

Well, no, it’s actually a good thing. Everyone should chill out for two reasons:

First, offshore accounts do not pose much of a threat to the United States, and, secondly, tax havens serve a legitimate economic purpose that make us all better off.

  1. Tax Havens Are Not Even an Issue

Michael Tanner of the Cato Institute debunks liberal arguments that a large number of American citizens were found on the list. In fact, very few American citizens were “exposed” by the Panama paper leaks. According to Tanner,

[T]he consortium of journalists studying the papers has identified only 211 people with U.S. addresses, and not all of these people are American citizens. … [E]ven if you cast a wider net, looking at offshore financial assets worldwide, U.S. citizens and companies keep only about 4 percent of their wealth offshore, tying us with Asia for the lowest percentage. By comparison, Europeans stash 10 percent of their wealth offshore, Latin Americans move 22 percent out of their countries, and Russians keep an overwhelming 52 percent in overseas accounts. Even Canadians hold more than twice as much of their financial assets offshore as Americans.

Many may still worry that 4% of wealth stored offshore is a lot of money, and it is money the U.S. government should have in order to reduce the deficit, fix crumbling infrastructure, or fund the newest pet project of the left. However, according to Tanner, even if 80% of the wealth stored offshore was done so in order to avoid paying taxes—likely a generous number considering storing wealth in other countries makes sense for businesses that operate abroad—the U.S. only loses out on about $28 billion dollars, or one percent of current revenue.

Even assuming the worst case scenario, the revenue lost due to greedy businessmen hiding their money is not even significant! Sorry, leftists, you will have to find another way to pay for your utopian society.

Oh, and I almost forgot: That means Sanders’s prediction that free trade with panama would lead to massive a mounts of tax evasion never came true! That hasn’t stopped his sycophants from thinking he is clairvoyant, though…

  1. Tax Havens Serve a Legitimate Economic Purpose

Economist Daniel Mitchell has a new fascinating blog post up about the “necessary economic role of tax havens.” According to Mitchell, economists have come to the following consensus regarding taxation:

1) Lower tax rates promote more work and entrepreneurship; higher taxes discourage work and entrepreneurship.

2) Reducing the current tax bias against capital investment—currently it is taxed twice—will increase economic growth by encouraging saving and investment.

Mitchell argues that tax havens force governments to reduce the rates and the progressivity of their tax codes because, if politicians have to worry about wealth leaving their country in order to avoid taxation, they have to set reasonable tax rates or else they risk losing a substantial source of revenue.

In fact, this already happens between high tax and low tax states. One multibillionaire, David Tepper, moved his assets from high tax New Jersey to no tax Florida. As a result, New Jersey is expected to lose $50 million—and he’s just one man.

So, with bureaucrats worried about disappearing sources of revenue, they have been forced to reduce rates around the world. This began in the 1980s during the Reagan revolution; indeed, nowadays everyone is trying to cut their corporate and income tax rates as much as possible in order to attract investors. Mitchell, quoting the OECD, notes that tax havens “hamper the application of progressive tax rates.”

Now, many will think that is a bad thing. That’s fine. You’re allowed to ignore the research proving that higher progressivity is bad for economic growth. (Oh, and here and here too). But the simple fact is, tax havens have led to reductions in progressivity and marginal tax rates for decades now. And that’s a good thing.

Now, if you really want to bring wealth back to this country so we can tax it, I have a simple solution: Stop complaining and cut those tax rates!

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One thought on “Stop Demonizing Tax Havens

  1. Pingback: The Need For The X-Tax | Rekonomics

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