ARKANSAS, July 27, 2012 — The most powerful weapon in the world is ignorance. Politicians exploit it to achieve almost anything they want. Perhaps the desire to keep people ignorant is one reason economics isn’t taught in most high schools.
The latest blatant example of economic ignorance is the news story ranted about by almost every major news organization and political talking head over the last week: The super rich allegedly have $32 trillion in cash stored in offshore banks.
At least, that’s what the news agencies are reporting. And the “source” for the “fact” is a lobbyist organization that admits it wants to shut down international finance and raise taxes worldwide. But sure, let’s give them the benefit of the doubt and actually analyze their claims and see what’s really going on.
The truth about the money.
First, the assets in overseas accounts aren’t just cash. There isn’t $32 trillion in cash in the world. For the most part, the “assets” include corporations based overseas, investment funds which handle evil little things like “pensions” for the middle class, and other assets like bonds, stocks, and even real estate.
Even the biased report itself admits that only about a third of the money is owned by actual individuals storing individual assets, and even that still doesn’t include just cash. They also admit that this is an “estimate” based on speculation.
Even after all of the above disclaimers, most of the money held in tax havens is still taxed. That’s right, it’s still taxed. An example would be the fact that regular people keep money in places like Switzerland just for the financial security. It’s not about not paying taxes – it’s about having money in another country because you never know what happens in your own country. This is an age-old strategy that was even mentioned in the Bible in Ecclesiastes 11:1.
You can read about regular people putting money into “tax havens” for financial security all over the internet, for instance, here:
“[T]he Swiss government has historically not taken sides and will usually just mind its own business when it comes to dealing with other people from other lands. Plus, they’ve at least traditionally kept their Swiss francs backed by at least 40% gold.
While much of this has drastically changed in the last few years (especially for money laundering and tax evasion), the Swiss franc is still often seen as a currency safehaven, and is a much, much safer currency than the US dollar.”
Plenty of people, including those running middle-class retirement investment funds, keep money overseas and pay taxes on that money. The amount of taxes they pay depends on how their money is actually invested. The reason they have the money there isn’t to evade taxes – it’s to find security. That includes regular middle class people, because you don’t have to be rich to have a foreign bank account at all. That’s just stuff found in cheap Hollywood action movies.
Even after all of the above, most of the money being used for tax-evasion purposes isn’t from American businessmen who are demonized by those reporting on this “story.” Most of it is actually foreigners who are in bed with government. Here’s an article that explains this, even though it makes the same goofy mistakes we’re responding to in this article. Some people just don’t get it. African warlords are probably not paying taxes on money they have stashed somewhere. No kidding. That doesn’t mean we should make life more miserable and increase regulations on American pensions and retirement funds.
In addition, a lot of international companies are storing money in international financial centers, both because they’re trying to expand internationally and for tax purposes. And that’s actually a good thing. People who think we could all get rich by taxing corporations completely miss the point – corporations like Coca-Cola are the foundation of retirement portfolios and are the job creators in our economy. Allowing them to become even more profitable while they try to compete against the rising Chinese competition is a great thing.
If you think Coca-Cola is going to make money from these low taxes, then by all means, put your money into the stock. They don’t have an unfair advantage over anyone because a small portion of their money is held overseas where anyone can do it, especially not when they’re paying billions in taxes every year. Some people will never be satisfied until profits just vanish completely.
If you don’t like rich people getting rich, then be honest and support increasing personal taxes – but not corporate taxes. Taxing corporations is the dumbest thing we can possibly do during a recession and during a time when China is beginning to really look like competition to us for the long haul.
The truth about tax havens.
Tax havens get a hilariously negative rap from pretty much all people who view international finance with irrational outrage. Daniel Mitchell was right:
“When we think of tax havens, we tend to imagine yacht-besotted enclaves of shadowy international dilettantes, dripping with jewelry and laughing about the latest tax loophole their accountants have found. This popular image—and the fact that few of us have million-dollar private bank accounts in Monaco or Andorra—makes it all the easier for many to cheer German Chancellor Angela Merkel along in her crusade. Why should the superwealthy get off the hook, the usual logic goes, while the rest of us pay our fair share? Yet the conventional wisdom could not be more wrong. We are all beneficiaries of tax havens in ways you might not expect.”
Believe it or not, the United States is seen as a tax haven for the rest of the world, because we don’t tax foreign investors who invest in our country. That means that we’re actually benefiting from tax havens existing, and heck no, we don’t want to stop foreigners from dumping money in America. That’s the absolute last thing we should do.
You see, leftists hate competition. They hate the free market. The moment the market begins to compete, it freaks them out because they’re worried someone might “win.” They don’t seem to understand that in a free market, everyone involved wins more than alternatively because that’s the nature of trade – people only trade when they have something to gain. The more trade there is, the more wealth is being created. That’s just basic microeconomics. That’s why even people like liberal George Soros supports global trade.
The international tax competition encourages countries to make a choice. They can increase taxes and push more people to invest somewhere else, or they can lower taxes and attract investments in their country. And that’s a choice America has to face. And that’s a choice that should be clear – we should compete with the world, not for who can tax the most, but for who can tax the least. We should lead the world with low taxes, low regulations, and try to reclaim the reputation we once had for economic liberty.
Tax havens are attacked by almost everyone because they sound evil, as if they’re exclusively for people we can’t relate to because they’re so rich. They sound like something some bad guy in a cheap B-movie action flick uses to store cash he robbed stole from the good guys. This is sheer ignorance, and isn’t how the system operates at all.
In the end, the assets “hidden” overseas aren’t just cash for the Gordon Gekkos of the world, but also include investment funds that help the middle class retire. The money is still taxed when the money leaves the bank to go to the person who wants to actually spend the money back home.
Safe havens are used for just that – safety. And they’re not just for the rich. Anyone can open up a foreign bank account for his family’s security, and heck no, the government shouldn’t outlaw that in the slightest.
And in the end, the best way to hurt tax havens isn’t to raise taxes on our rich – it’s to lower taxes and to compete. The lower taxes are, the more we benefit from our own wealth, the more we attract foreign investors, and the faster we can get out of the recession and create jobs for American who need more wealth in their lives, not less.
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