Are Tax Havens Moral or Immoral?
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.
Take Your Stinking Paws Off My Benjamins You Damn Dirty Statist
Okay, perhaps the title of this post is not quite as memorable as Charlton Heston’s famous line from Planet of the Apes, but it certainly captures my sentiments after reading an article in Slate that calls for the elimination of the $100 bill. The author, Timothy Noah, says that large bills are only for “criminals and sociopaths.” Here’s the crux of his argument.
…why does the U.S. continue to print C-notes…? Technological change has reduced much further the plausible need of any law-abiding American to carry a C-note in his wallet or to stash a pile of C-notes in his mattress.
Noah’s argument is unconvincing for several reasons. First, he is underestimating the degree to which “law-abiding” Americans use “Benjamins.” And with higher inflation almost certainly around the corner, one can safely expect that $100 bills will become even more common in the future. Second, his entire argument rests on the statist assumption that government should restrict honest people because this will somehow make life more difficult for criminals. Yet he debunks his own anti-money laundering argument by noting that the government already has stopped printing larger bills, such as the $500 note. Has that stopped the drug trade? Hello? Anyone? Bueller?
Like much of what government does, the campaign against money laundering is a costly exercise with very few tangible benefits. This video examines the cost-benefit issues.
I actually think the moral arguments against anti-money laundering laws are even more powerful. As Americans, we should have a presumption of innocence in our daily lives. What business is it of government whether we want to carry $20 bills or $100 bills? And think about the implications of these laws. What if the government said we need to ban cars, or put government-monitored homing devices in all vehicles, because bank robbers occasionally use automobiles as getaway vehicles? In this case, there is a theoretical benefit to the policy, just like there is a somewhat plausible case for anti-money laundering laws, but presumably we would reject such a policy as too intrusive.
Anti-money laundering laws are a classic case of bad policy leading to more bad policy. The government passes drug laws that create huge profits for criminals. But rather than getting rid of victimless crimes, the government imposes policies that make life more difficult and costly for everyone else.
Government-Mandated Spying on Bank Customers Undermines both Privacy and Law Enforcement
I recently publicized an interesting map showing that so-called tax havens are not hotbeds of dirty money. A more fundamental question is whether anti-money laundering laws are an effective way of fighting crime — particularly since they substantially undermine privacy.
In this new six-minute video, I ask whether it’s time to radically rethink a system that costs billions of dollars each year, forces banks to snoop on their customers, and misallocates law enforcement resources.
Tax Havens Are Not Money Laundering Centers
Demagogues such as Sen. Carl Levin (D-MI), as well as many other politicians and journalists, often assert that low-tax jurisdictions are havens for dirty money and terrorist financing. From a theoretical perspective, this does not make sense. So-called tax havens have a big incentive to avoid scandal since they are much more vulnerable to reputational risk. Just imagine what would have happened, after all, if the 9-11 terrorists had used a bank in the Bahamas instead of a bank in Florida. Critics of low-tax jurisdictions automatically would have assumed that the bank was complicit and the entire financial services industry in the Bahamas would have been crippled — or even destroyed. But because the terrorists used American banks (as well as banks in high-tax European nations and the Middle East), there was no knee-jerk reaction. People understood that the bank tellers and managers had no way of knowing that the flight school students were actually lunatics.
But this does not stop the anti-tax haven smear campaign. Low-tax jurisdictions are viewed as a threat by politicians since it is much harder to impose bad tax policy in a world where tax competition is allowed to flourish. This is why tax havens are attacked whenever something bad happens. If there is a terrorist attack, blame tax havens. If there is a financial crisis, blame tax havens.
With this in mind, a new report from the University of Basel’s Institute of Governance did some real research and came up with a list of nations where there actually is a high risk of money laundering and terrorist financing. As the map below indicates, only one so-called tax haven is among the 28 countries listed, and that nation was in the lowest-risk category.
America Threatened as Never Before
The Justice Department is on the job. Perceiving a dire threat against the American republic, they have acted to keep America safe. As my colleague Sallie James noted yesterday, they are stealing confiscating the money of Internet gamblers.
Reports Richard Morrison of our friends at the Competitive Enterprise Institute:
Just when it seemed that those in power had begun to think about Internet poker in a positive light, the Department of Justice throws us back into the digital dark ages by seizing $34 million in funds rightfully owned by around 27,000 online poker players. The government is alleging that the funds are associated with illegal online gambling and money laundering.
In a letter sent to Alliance Bank, the prosecutor said accounts held by payment processor Allied Systems Inc. are subject to seizure and forfeiture “because they constitute property involved in money laundering transactions and illegal gambling offenses.” The letter was signed by Arlo Devlin-Brown, assistant U.S. attorney for the Southern District of New York.
Knowing that the federal government is busy violating our privacy and grabbing our money to save us from ourselves just makes one feel great to be an American
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