In Defense of Tax Havens; Competition among Nations Keeps Taxes Lower

The Washington Times (Washington, DC), April 7, 2009 | Go to article overview

In Defense of Tax Havens; Competition among Nations Keeps Taxes Lower


Byline: THE WASHINGTON TIMES

Last week's Group of 20 statement on strengthening the world financial system railed against risks that tax havens pose to the world economy. Contrary to what this group of the world's largest economies claims, ending so-called tax havens would not fix the world economic slump. The only impact that ending tax havens would have would be to raise tax rates around the world, thus reducing economic growth and making the world poorer.

The White House told this page that the existence of tax havens costs countries tens of billions of dollars every year in tax revenue. It also argues against tax havens because when businesses flee higher taxes, that distorts business decisions, encourages inefficient outcomes and undermines effective valuation.

What President Obama sees as problems, we see as benefits. High-tax countries face a problem - it is called competition. Wealthy and high-income people do not like giving the vast majority of their money to government, so they sometimes pick where they live based on tax rates. For this reason, competition keeps sensible countries from raising taxes too high because that can cause people and their resources to go elsewhere.

We see the same tax competition within our own shores. It is not surprising that someone such as Rush Limbaugh broadcasts from Florida, where there is no income tax, instead of New York, where his national career started but where taxes are high. The distortion decried by the White House isn't the move to live or work in low-tax states or countries. The distortion is created by onerous taxes that make individuals and businesses look for more favorable financial climates.

The very definition of a tax haven used by the G-20 gives pause. The Organization for Economic Cooperation and Development (OECD), which the G-20 references, defines a tax haven as a country that is characterized by low or zero taxation, a lack of transparency, and a refusal to provide information to foreign tax authorities. …

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