The State and Civil Society

The Attack on Tax Havens

by Pater Tenebrarum

Ever since the 2008 crisis, there has been an intensifying attack on so-called tax havens. We recall that one of the instigators of this debate was former UK prime minister Gordon Brown. Brown is a socialist who has often been conspicuous for his inimical stance toward gold. Not only did he sell the bulk of the UK's gold at the very bottom of a 20 year bear market, he later urged the IMF several times to sell its gold as well. Nothing seemed to qualify him for this self-appointment to the role of international gold reserves adviser, but there it was anyway. His reasoning was denounced by the very countries he was ostensibly trying to help. Officially, the IMF was supposed to sell gold so it could forgive loans made to poor countries by means of the profits that it was going to book (due to the difference between the valuation of gold on its balance sheet and its market price). Unfortunately most of the countries concerned are major gold producers and are therefore not at all interested in any activities that might pressure the gold price. And yet, even knowing that, Brown carried on and on, which suggests that there were ulterior motives. We were not at all surprised when Brown of all politicians was at the forefront of those vehemently denouncing tax havens after 2008 – which happened out of the blue, and apropos of nothing (what do tax havens have to do with 'crisis prevention'? Nothing at all). The connection between Brown's hostility toward gold and toward tax havens can however be easily established by considering the closing paragraph of Alan Greenspan's late 1960's essay entitled 'Gold and Economic Freedom': 

“This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.” 

So what does the term 'tax haven' actually mean? It simply means a country the government of which has decided to leave its citizens largely alone in deciding their affairs. Instead of taxing and regulating anything that moves to death, people are left to their own devices and allowed to employ their wealth as they see fit. A radical concept, we know. A government that decides not act like a highway robber is considered a striking anomaly nowadays.

Naturally such 'tax havens' represent competition for high tax nations. Their existence forces high tax nations to be more careful with how far they go in squeezing their subjects – as those subjects always have the option of removing all or part of their wealth to a 'tax haven'. In other words, from an economic point of view, the existence of tax havens is highly beneficial. It is of course not beneficial to the governments of high tax countries, but it is beneficial to their civil societies.

It is important to make that distinction: government and civil society are not 'the same thing'. They are polar opposites. The former makes its living by obtaining resources by political means, this is to say by coercion and force. The latter obtains its wealth by economic means – peaceful production and voluntary exchange. These two institutions are not only not the same, they are sharply at odds with each other – they are predator and prey.

And yet, even governments should be aware – and some undoubtedly are – that it is not beneficial to install what one might term 'unlimited government'. To paraphrase Bob Hoye on this topic: “Unlimited government requires unlimited funding”. Any government going down this path will soon find out that when the parasite sickens its host beyond a certain threshold, the parasite itself will soon be in danger of expiring.

Demonizing Tax Havens

However, a great many apologists and supporters of unfettered Statism believe that there is a better solution to the competition provided by low tax jurisdictions than reining in their own rapaciousness. Instead they have decided it would be best to simply kill the competition. After all, most low tax countries are fairly small and therefore powerless. They are not backed up by giant military forces. They exist at the sufferance of the more powerful nations. These nations in turn however try to be 'civilized' about it, and so there is a concerted campaign underway to demonize low tax jurisdictions as money laundering centers, supporters of organized crime, and sanctuaries of tax cheats who refuse to surrender their 'fair share' to the coffers of the bureaucracies in high tax countries. At the same time – and probably not by coincidence – there is a concerted campaign underway to demonize the 'rich' more generally (as an aside, there actually have been a few instances when military attacks against tax havens have indeed been proposed!).

With regard to 'tax cheats' it should be rather obvious that the main reason for their prevalence are the unreasonably high taxes many countries impose. Countries that have low or medium high tax rates, such as Switzerland, have almost no problems whatsoever with tax evasion. People are in fact prepared to surrender what they deem a 'fair' share of their income in return for certain functions government fulfills. It is only when fairness is no longer perceived that they are tempted to react.

Readers may recall that we have often mentioned that within the EU, the 'centralizers' and 'harmonizers' are striving to force the low tax jurisdictions in the EU to hike their taxes in order to lower tax and regulatory competition. This betrays not only their authoritarian tendencies, it also proves without a doubt that they are economically ignorant. This is because low tax jurisdictions actually improve prosperity in high tax nations as well (see the videos further below why that is so).

Of course, so-called 'progressives' and socialists don't really believe in even the most basic economic laws. In their minds economies are static zero sum games, in which one man's gain is automatically another man's loss. They are not really interested in a progressing economy. It has been this way since Marx, whose ideas are based on this very misconception. Socialism and central planning always fail, inter alia precisely because the economy is not static and never will be. However, there is good reason to believe that the most strongly committed socialists actually want a static economy. They long for the 'end of history', for a fixed pie of wealth that is to be distributed according to their preferences. In other words, it may not only be economic ignorance, but also malicious intent that is motivating their actions.

What the EU's high tax nations are pining for is the erection of a kind of 'Tax Cartel' – so to speak an OPEC of high tax countries that will be able to impose oppressive tax rates all over the world. This is a declaration of war against civil society everywhere. 

Tax Havens Benefit the Global Economy

If one more closely examines the arguments brought forward against low tax jurisdictions and the financial privacy they offer, it turns out that these arguments have actually no merit whatsoever. Why this is so, is excellently explained in a three part video series by the Cato Institute's Dan Mitchell, who looks at the economic and moral case in favor of tax havens, as well as the myths informing the anti-tax haven demagoguery of their detractors. These videos are eye openers. 

1. The Economic Case: 

“Statist politicians and international bureaucracies such as the OECD and UN routinely attack tax havens, claiming that they lead to "harmful tax competition." Yet at no point do critics bother to provide any evidence for this claim. This mini-documentary from the Center for Freedom and Prosperity looks at the empirical data and scholarly research and reports that tax havens actually have a very positive impact on the global economy.” 

(emphasis added)

Tax havens promote good policy around the world by forcing high tax nations to lower their taxes; tax havens boost living standards; tax havens improve governance; and lastly, tax havens actually increase prosperity in high tax nations as well 

2. The Moral Case

Here Mitchell explains why there is in fact a strong moral case for preserving tax havens as well. 

“This Center for Freedom and Prosperity Foundation video demonstrates that low-tax jurisdictions offer millions of people around the world a safe haven from tyrannical and oppressive government. For this, and many other reasons, there is a powerful moral case for preserving and promoting tax havens. In addition to showing how tax havens promote human rights and individual liberty, the video exposes the hypocritical anti-tax competition efforts of statist international bureaucracies such as the Organization for Economic Cooperation and Development.” 

(emphasis added)  

Tax havens provide members of politically unpopular groups valuable protection against tyrannical governments

3. Myths About Tax Havens

In this video Mitchell explains why the demagoguery against tax havens is based on myths that have no basis in reality. In fact, the fault is not with low tax jurisdictions, but with the nations imposing oppressive tax rates. Some of the arguments forwarded by the statists are downright absurd and not surprisingly, zero evidence is offered to buttress them (this is because such evidence doesn't exist). In fact, as a rule tax havens have the most stringent regulations against money laundering, as they are very concerned about risks to their reputation. Thus one of the most often dragged up arguments against tax havens is simply a malicious invention of the statists.

“This final video in the three-part series addresses some of the most common myths put forth by politicians from high-tax nations. Using academic research and data from international organizations, the video shows that the most common attacks made against low-tax jurisdictions are empty demagoguery.” 

The attacks on tax havens are based on myths that have no basis in reality and cannot be supported by evidence.

The 'Scoop'

Recently the attack on low tax jurisdictions has gone into high gear. Der Spiegel breathlessly reports “Global Resistance Against Tax Havens Grows”, regurgitating the anti-low tax jurisdictions propaganda put out by high tax nations as though it were indisputable holy writ that brooks no dissent whatsoever.

The trigger for this recent flurry of propaganda was an alleged 'journalistic scoop'. Previously it was reported that: 

 “An international network of journalists has obtained some 2.5 million records from tax havens detailing shell companies, offshore accounts and dubious financial deals. The unprecedented leaks include the names of 130,000 people who at one time or other moved their money offshore” 

In their eagerness to get their faux moral outrage against tax havens out of the door as quickly as possible, it turns out that many 'journalists' in the mainstream media failed to hew to the most basic journalistic standards. They failed to ask a single question, but there are actually a great many questions that need to be asked.

Obviously, no 'network of journalists' has actually 'unearthed' the information in question in the course of mundane journalistic work. Instead, persons unknown dumped a 260 GB hard disk full of allegedly incriminating data on the doorstep of an organization they full well knew would present it as a 'scoop' to a world eagerly awaiting the next titillation.

Let us list the questions that should have been asked, but weren't (we have to thank the Austrian newspaper 'Der Standard' for the formulation of some of them. An independent editorial published there finally resolved to actually ask them, but they are only questions so far. The answers remain elusive):

1.    Where did the information actually come from? Who has access to such a treasure trove of data?

2.    Flowing logically from the first question: Cui bono? Who profits from the publication of this information? It is certainly not we average citizens.

3.    How did 86 journalists from 46 countries work' on these data for 15 months without a single leak? How were they selected, and why were no journalists of the major mainstream media included (including, as it were, Der Spiegel, which was kept in the dark together with the New York Times, El Pais, and other papers known for engaging in just this type of investigative journalism)?

4.    Why were only certain tax havens included, but not others? Why were only certain names included, but not others? What caused the odd paucity of names of prominent people from all walks of life, especially Western politicians? 

Obviously, to get all these data into one place is no easy task. They were distributed on hundreds of servers all over the world, and were undoubtedly heavily encrypted. We can actually rule out an aggrieved employee or a lone data thief trying to make a mint. The only organizations that one can imagine to have had access to such data are States, respectively their secret services.

As to the 'cui bono' question, it was immediately answered by the reaction of politicians from predominantly high tax nations to the 'scoop'. It is an opportunity they have been waiting for: now financial privacy can be attacked full blast wherever it is still practiced to some degree.

Some of the intended victims are already meekly surrendering: 

“In an interview published Sunday in the Frankfurter Allegemeine Sonntagszeitung, Luxembourg Finance Minister Luc Frieden said his country was considering easing its banking secrecy rules. "We want an intensified cooperation with foreign tax authorities," he said, noting that there is a clear trend towards the automatic exchange of information. "In contrast to the past, we no longer strictly reject this," he added. Until now, the country has blocked any strict EU directive on taxation of foreign-held savings that would require such automatic exchange of data, ensuring favorable advantages for investors in the country.

On Friday, German Finance Minister Wolfgang Schäuble said there are two EU countries that "make use of special rules for themselves," a clear reference to Austria and Luxembourg. "I assume that will now change, also through such developments." 

The above are just a handful of examples, readers can easily confirm for themselves that many politicians from the countries with the highest tax rates are almost beside themselves with glee at the moment.

Most people probably think: 'So what? I have no account or company registered in a tax haven, and will probably never have one. It will only hit the rich and their evil bankers anyway'. What they don't realize is that all members of civil society profit greatly from the existence of tax havens and the tax competition they create (as Dan Mitchell's videos above hopefully make abundantly clear).

They also forget that when governments force their citizens to give up all financial privacy (for instance, in Mr. Schäuble's Germany, it has simply ceased to exist entirely; the government can snoop in its citizens bank accounts to its heart's content without needing to obtain a warrant), a decisive step toward the imposition of tyranny is taken. It is not relevant, as the statists insist, whether one feels one has anything to 'hide'. After all, no-one really wants faceless bureaucrats to know everything about their private activities. To give an example: what if someone orders a dildo by mail and pays for it by bank wire? In Germany he must expect that people from the government are in a position to learn about it at any time and he wouldn't even know that they have done so. In many other countries where this is not yet possible, it probably soon will be if recent trends are any indication. 

Conclusion:

Governments all over the developed world are teetering on the brink of bankruptcy, as they have for decades callously spent money they didn't have  in order to bribe voters. These very same governments now seemingly intend to make their citizens pay for their mistakes. The attack on tax havens and financial privacy, as well as the recent decision to make the confiscation of deposits easier in the event of bank failures, all point in the same direction: they probably know, or at least suspect, that an even bigger crisis is coming than the one in 2008 or the euro debt crisis to date. They are therefore preparing the ground for dealing with this emergency by cutting off all the avenues that remain for their citizens to protect themselves from the coming predations. So-called 'financial repression' is slowly but surely moving from covert to overt methods. A multi-pronged attack of the State against civil society appears to be underway.  Everyone in favor of peace and civilization should reject and resist these developments.