Misinformation from the Center for Freedom and Prosperity

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I’m amused to note that on Friday the Center for Freedom and Prosperity issued a press release saying:

The Center for Freedom and Prosperity Foundation, joined by 31 of the country’s most influential free-market groups, has sent a letter urging the World Bank “to stand on the side of tax competition and fiscal sovereignty and not for bigger and more intrusive governments.”

They added:

The Coalition for Tax Competition is sending a strong message to the World Bank explaining why tax competition is important and why the Bank should reject the anti-free market agenda advocated by ideological groups like the Tax Justice Network and statist bureaucracies such as the OECD

I find this amusing because this morning I debated this with Dan Mitchell of the CF&P and it was me, not Dan, who argued for free markets without the distortions that tax havens introduce.

Let’s be clear: although Dan claims to be an economist he did not even try to engage with the issues of economic theory that I raised that show that tax havens as currently structured behind a wall of secrecy must undermine the effective operation of world markets. He did not even recognise that I had raised the point. He did however suggest that people should use tax havens to undermine their ‘large state’ governments. Not once do I recall him condemning tax evasion, and nor did he respond to the fact that it was pointed out that any US citizen who uses a tax haven to reduce their tax bill by depositing their funds offshore is breaking US law.

Why did he do that? Simply because he did not, as I said in the debate, address the issue we were asked to debate. Not once. What he actually did was promote a libertarian attitude and he promoted flat taxes, including its strict territorial basis which would mean that anyone who could relocate an income stream to a tax haven would not pay tax on it – which is, of course something labour could never do. His reason for opposing information exchange is based on the same agenda – if governments have information they can create fiscal policy and progressive taxation.

What Mitchell was actually promoting had nothing to do with tax haven reform, which was an issue with which he could not even engage. What he was promoting was a view of the world where there is very little government indeed; where the state does not do anything but law enforcement, defence and the protection of property rights, and those who suffer as a result can simply go to the wall.

As Jack Blum put it, this simply ignored the social contract which underpins any civilised society.

TJN supports the social contract, civilised society, and the operation of effective, fair markets which are taxed appropriately. So, I think it’s fair to say, do the OECD and so do the World Bank, although that is not to say I’ll always agree with them about how to achieve the objectives for the poorest, in particular , and the countries in which many of them live. But we all reject is a world in which the rich get richer and the rest can go the wall. That’s why we’ll agree to oppose what Mitchell was promoting.

Despite that I know there’s an extreme who buy his argument (and let’s be honest, many who work in the offshore finance industry have chosen to work outside the mainstream and so might be considered in an extreme, and so he definitely had support in the room) but amongst the electorates of the world his argument is never going to win.

And what he can’t understand is that the governments who support the OECD have a democratic mandate to maintain the structure he is opposing, and that mandate is repeatedly renewed. That’s because people support it.

In which case I suggest, as Jack and I did this morning, that those governments with that democratic mandate must now seize the opportunity of the current credit crunch to reform the current unstructured world of offshore. That means it must be made transparent or these problems will recur, and recur, as they have because the FATF and others did not learn the lessons from the Asian credit crisis and the Long Term Capital Management crisis of the 1990s.

I firmly believe that this reform will happen now. The prospects for radical reform of the offshore world, making it open and accountable to the point that tax havens have little role left to play are better now than at any time, ever. We have to grab that opportunity.

In saying that I acknowledge that it’s undeniable that in the early part of this decade the Center for Freedom and Prosperity inflicted real blows on the OECD in the early skirmishes relating to this issue. But there is now no prospect that they will win this argument. One reason why is that TJN is in the debate, and it wasn’t then. And having heard Dan Mitchell debate today my confidence is increased. They might have won a skirmish, but they have no chance of winning this argument now; none at all. In fact I’ve never been more convinced than today that this debate is not just winnable, but winnable soon. Tax haven reform will be on the agenda much earlier than most in the room I addressed this morning realise. And I, for one, am looking forward to that.