Tax havens undermine democracy. They do this through their promotion of a process called tax competition. As one of the proponents of tax competition, Richard Teather, a lecturer at Bournemouth University has said:
Tax competition acts as a check on governments’ ability to raise taxes; it ensures that governments have more limited
funds and thus provides incentives for governments to spend more wisely.By preventing taxes becoming too high, tax competition boosts economic welfare, productive investment and
employment. Low-tax jurisdictions also make global capital markets more efficient.
There are many more quotes of this sort put out by those who support tax havens. There are a number of assumptions implicit in such statements:
- That it is appropriate for one government to deliberately set out to interfere in another government's ability to raise taxes.
- That because a government does have a reduced capacity to raise taxation it is necessarily more efficient.
- That taxation reduces economic welfare and well-being.
- That flows of unregulated capital through tax havens without cost being incurred result in efficient financial markets.
Each of these has extremely dubious foundation. No group has protested more strongly that another state does not have the right to interfere in the setting of tax rates than the tax haven jurisdictions. By definition this undermines their argument that they can be used to influence tax rates in other nations.
If, as a matter of fact, low tax rates in tax havens are intended to reduce the capacity of other governments to tax then they are hopelessly inefficient at the task. Over the last decade or so average rates of government spending in OECD states have risen. Tax competition is a miserable failure on that score.
It is also widely known that the countries with the highest level of recognised well-being in the world are the Nordics states, where levels of taxation are high. At the same time, the countries with the lowest rates of overall taxation are to be found in Africa. It would be a brave person who argued that they have the highest levels of well-being.
As for the argument that the flows of hot money through tax havens in unregulated fashion have produced economic well-being - the current world financial crisis proves just how untrue this is, and that they contributed to that outcome.
And yet, each of these arguments ignores an even more fundamental issue. That is that tax rates, levels of spending and the allocation of reward within a society should be determined by the people of each state in free and democratic elections. If the people of a state wish to have a high rate of tax, and resulting high levels of public service, or even of income redistribution, then that is their choice. No one, especially a small group of financiers who have taken effective possession and control of the legislature of a small jurisdiction should be allowed to try to undermine that democratic process being undertaken elsewhere. Those who demand that these financiers have such power through such locations are in effect saying that the democratic process is one to which they do not subscribe.
The message is simple: tax havens are being used to undermine democracy. They are a threat to fundamental part of our way of life.
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What a load of BS
It looks like you are becoming out numbered Richard.
I don’t know about that, Matt. Merely because the tax havens’ hirelings do a lot of blustering on this site does not prove that most people are against democracy, in favour of tax privileges for the elite and against any improvement in the lot of the third world poor.
[…] Here. […]
I support Richard and agree entirely with the post.
Looks like the Tax Haven Apologists are now in the minority.
Maggie
Why is it BS?
Counter the argument.
Being from Guernsey, I’m fed up to the back teeth with the industry leaders saying how fluffy and clean it is. OK, so it’s better than ten/fifteen years ago, but so what?
The structures that have been in place for decades are still there with fancier names and more lawyers building more complicated webs.
Tax competition between jurisdiction leads to embracing domestic policy that harms the inhabitants of that jurisdiction. Guernsey is a prime example with the introduction of zero-ten corporate tax. Even the accountants in the big banks shook their heads at the moral decriptitude of this shifting the domestic tax burden away from the wealthy multinats and all their shells to the people of Guernsey. They were paying little tax on profits as it was what with the off the shelf schemes you pay your lawyers to enable inter jurisdiction shenanigans. The idea that it was suppose to hoover up any available business was a joke. The GFSC reported no new banking licences.
Meanwhile back in the real world Guernsey faces an approx £60M deficit this year, rising the next.
The reality of the introduction of this policy was that it was railroaded through with a pretence of constructive debate and the public and the politicians had little idea of the consequences, except for the various Institutes and usual vested interests to say that it will bring long term prosperity etc.
They are now seriously considering bringing in a raft of regressive taxes to try and plug the deficit. This at a time when the local infrastructure is crumbling after decades of neglect in order to appease the wealthy on the island.
This shows how undemocratic these places become in microcosm. Policies that severely affect the well being and standard of living for locals in these jurisdictions are being utterly influenced by the industry. The ultimate aims of all these small states is to turn them into a ‘Monaco’. A rich elite in cosy secrecy.
They don’t give a damn about the consequences, as can be seen on expanding to the macro view.
Change is needed. Saying ‘That’s BS’ perpetuates injustice around the world. If you think it doesn’t, show me your evidence. I’ve been looking at Daniel J Mitchell’s various exploits, and I’m sorry, if you think that Richard Murphy is off kilter, that other guy sounds certifiable.
Take a look around you.
Richard, you subscribe to a strange definition of democracy!
Alastair:
I could NOT agree with you more. Democracy goes hand in hand with competition, freedom of capital movement; as well as sovereignty. Some supposedly “Tax Havens” are sovereign nations.
What a very strange conceptual position! Very very strange.
There are in fact DEMOCRACIES outside of the G20 countries! What an incestual perspective…
SN
NS
It is interesting how none of the people here who disagree with Richard put up arguments of their own to counter it. They just say “no”. Richard is, quite simply, right, and it’s how to see how one might construct an argument against this. See more here.
http://www.taxjustice.net/cms/front_content.php?idcat=102
What does “incestual perspective” mean?
Nicholas, I wonder if you have spotted the logical absurdity in your comment? But to pick up your first point…
Richard’s thesis is that tax havens are bad, and in this instance that “Tax havens undermine democracy. They do this through their promotion of a process called tax competition.” The nub of his argument is in the last paragraph, and seems to be suggesting that the undermining is achieved by allowing a small state to subvert the intentions of government in other states, by providing taxpayers in those other states with a means of paying less tax than those states would prefer.
He does not indicate directly how this undermines democracy, but I think his position is clear from the many posts on this blog, which is that democracy rests with the state, whereas I contend that democracy rests with the individual. Or marx vs liberty.
The other issue I have with this argument is the logical absurdity that an individual can comply with (tax) law but still be guilty.
One man’s ‘logical absurdity’ is another man’s stuck-in-the-craw revulsion.
Make money, by all means, be comfortable and status-rich by all means. CONSIDER YOURSELF ONE OF THE FAMILY sometime soon. hmm.
[…] unreconstructed views are well known. You can read Richard Murphy ripping his analysis apart here. Related posts (automatically generated):Tax cuts and tax havens: What Brown needs to learn from […]
[…] Why? Because they’re talking tax havens and his guest is my old flat tax sparring partner, Richard Teather. As Adam lent at the TUC says: I have no idea what Graham Brady thinks of tax havens – he may be very progressive. But Richard Teather’s unreconstructed views are well known. You can read Richard Murphy ripping his analysis apart here. […]