It’s only fair to let your opponents have a crack of the whip sometimes. Richard Rahn, a senior fellow at the far-right US Cato Institute, and a former board member of the Cayman Islands Monetary Authority, which regulates the world's largest offshore financial centre (an interesting association, don’t you think?) has written in the Wall Street Journal under the above title. He has said amongst a great deal else:
In addition to charges of tax evasion [levied at tax havens], some members of Congress -- echoing European politicians including France's President Nicolas Sarkozy and British Prime Minister Gordon Brown -- have even tried to scapegoat the low-tax jurisdictions as somehow being responsible for the global recession. They are demanding that the G-20 countries come up with action proposals against them at their meeting next month.
This is nonsense. The so-called tax havens are for the most part no more than way-stations to temporarily collect savings from around the world until they are invested in productive projects, such as building a new shopping center or semi-conductor plant in the U.S. This enables a better allocation of world capital, leading to higher, not lower, global growth rates.
Indeed, to the extent tax competition between jurisdictions holds down the increase in the growth of governments, citizens of all countries experience more job opportunities and higher standards of living. And to the extent that businesses and individuals are discouraged by taxes or regulations from investing outside their own jurisdictions, they may simply choose to work and save less, period.
It’s pretty extraordinary that Rahn dismisses all talk of tax evasion as if it just does not happen, and that gives some evidence of his objectivity, but the above is just plain wrong.
Tax havens — or secrecy jurisdictions — exist to provide the largest corporations and the wealthiest people in the world with opportunity to hide their wealth from regulation and tax, as the Barclays case is proving very clearly at this moment. They have no other purpose. As Rahn correctly admits — they are mere depositories.
But mere depositories cannot in this case add value — except for their clients - who secure an unfair competitive advantage over the ordinary, less wealthy, people of the world who have to pay their taxes on their income as it arises. That is most of us.
In fact it is very clear that tax havens exist to produce market imperfections. I explain why here. In that case it is impossible for them to increase the net stock of human well-being if you have any faith in market economics at all. All I can do is increase the gap between the richest and poorest and the overall sum of human well-being. That is what we actually observe. That is what Rahn does, no doubt, wants and that is precisely what those bankers, lawyers and accountants who populate these secrecy jurisdictions want for themselves and for their clients.
But Rahn moves on into even greater realms of fantasy in his next section:
Those who demand increased taxes on global capital often rail against financial privacy and bank secrecy -- forgetting they are necessary for civil society. It is true that not all people are saintly. But it is also true that not all governments are free from tyranny and corruption, and not all people are fully protected against criminal elements, even within their own governments. Without some jurisdictions in the world enforcing reasonable rights of financial privacy, those living in un-free and corrupt jurisdictions would have no place to protect their financial assets from kidnappers, extortionists, blackmailers and assorted government and nongovernment thugs.
This is blatantly absurd. Unless the person with wealth who might be subject to kidnapping, extortion or blackmail is willing to hide all their wealth from view, live in a modest abode and drive a very small car (or better still, a bicycle) then there is no hope that they will hide their wealth from those who might target them. To suggest that offshore banking secrecy prevents this human rights abuse is a simple, straightforward abuse of the human rights argument. I assure you, blackmailers, kidnappers and extortionists do not choose their targets on the basis of the financial interrogation of their net worth. They choose them because of their extravagant lifestyles, purchase of absurdly expensive cars, and the amount of bling that they wear. None of this is hidden offshore. Nor is there any evidence that has ever been produced to show that the benefit Rahn claims have ever arisen in practice.
So let us be realistic: there is no defence for tax havens unless you wish to argue that the rich must be favoured by society, that those who steal public property by undertaking tax invasion should be granted immunity, and that the democratic ordering of our governments should be undermined by the world's bankers, accountants and lawyers.
Some do think that, but I leave it to you to decide whether it is a credible basis for progress.
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Richard,
The discussion over “tax havens” can be boiled down to a rather simple starting point:
Who owns the wealth/income of economic activities carried out by individuals?
There is the TR-UK view: The wealth/income of economic activities carried out by individuals is first owned by the state. After the state takes their cut of the wealth/income the remainder is allowed to fall into the hands of the individual.
There is the more rational view: The wealth/income of economic activities carried out by individuals is first owned by the individuals themselves. After the individual takes their cut of their own wealth/income the state can then be allowed to have a small portion.
If one subscribes to the TR-UK view, anything that stands between the state and the wealth/income generated by the individual is of course seen as “bad” (eg. “tax havens”).
Btw, CATO is a libertarian think-tank not a “far-right” one.
Georges
There is another line of argument. The wealth/income can only be generated within the context of a civilised society. Maintaining this is not cheap. It is therefore resonable for the state to take a cut and maybe a sizeable one to meet its costs which enable the individuals to make their profit. Of course, some folk would like (I typed this word as “lie” before I checked it!)to have all the benefits of a civilized society without paying their due share of the bills….. Funnily enough those who are paying there share get a bit hot under the collar. Strange that you don’t understand this, Georges?
I will never understand why people are attracted to “secrecy” when there are many statutory gateways that can be used to restructure ones assets and income streams and thus legitimately enjoy greater tax efficiency or even a tax free existence altogether.
I guess the purveyors of evasion sell their wares in a way that appeals to the greedy and self importance of those who use them… maybe it is just the fact that they generally operate from the top floors of imposing edifices in “the right part of town”…?
There’s nowt so queer as folk 🙂
Major countries ‘passing the buck’ by blaming offshore financial centres
By David Marchant
Sir Ronald Sanders
Major countries such as the US and the UK are simply “passing the buck” by blaming offshore financial centres for the global economic crisis and taking steps to close them down.
That is the view of Sir Ronald Sanders, a former High Commissioner to the UK for Antigua and Barbuda and currently a business consultant, specialising in the Caribbean.
“Lax regulation” by OECD member countries is to blame for the economic mess, yet it is OFCs who are being made to suffer as new legislation targeting them is prepared by the world’s biggest countries, Sanders told OffshoreAlert.
“Britain’s Prime Minister, Gordon Brown, and the US Senate and Congress have both now shown their intention to close down offshore financial services which they call ‘tax havens’,” he said.
“Speaking on March 4 to the US Congress, Brown asked: ‘But how much safer would everybody’s savings be if the whole world finally came together to outlaw shadow banking systems and outlaw offshore tax havens?’ Implicit in what he said is that so-called ‘tax havens’ are a threat to people’s savings even though it is poor banking and investment practices and inefficient regulation in the US and UK in particular that led to the present global financial crisis.
“So, Mr. Brown has passed the buck and has fingered jurisdictions that offer offshore financial services as the culprits.
“Equally, as I predicted some weeks ago, the “Stop the Tax Havens Abuse Act” introduced in the US Senate two years ago by then Senator Barack Obama and Senator Carl Levin, was reintroduced in the US Congress the day before Brown made his statement.
“I had hoped that the re-introduced Act would have removed the names of countries that were listed as ‘tax havens’. No such luck. Not only did the Act retain all the countries, it added three new very onerous sections for liability. The intention is clear — if banks and other financial institutions in these jurisdictions are going to continue to operate, they will do so only at great expense. Few will be able to afford the additional costs of compliance.”
Bermuda is named in the US Act. Caribbean jurisdictions named are Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, British Virgin Islands, Cayman Islands, Dominica, Grenada, St Kitts & Nevis, St. Lucia, St Vincent & The Grenadines and Turks and Caicos Islands. It appeared “irrelevant” to Congress that some of these countries have passed Tax Information Exchange Agreements under which the US can request and obtain information for tax investigations, stated Sanders.
If the Stop Tax Haven abuse Act is passed in its present form, the US Treasury Secretary will be given “extreme powers” to act against jurisdictions that he deems to have “ineffective information exchange practices”, explained Sanders.
Sanders also criticised the fact that, when the G20 countries meet in London on April 2 to discuss so-called “tax havens”, the “discussion and its conclusions will take place without the benefit of any of the affected jurisdictions at the table”.
“It a curious kind of international democracy that allows rules and punishment to be created by a few — and imposed on the many — simply because the few have the power to do so,” said Sanders.
“It is even worse that the few are yet to admit that it is lax supervision and regulation in their own jurisdictions that has caused the present global financial crisis. They are also yet to demonstrate that they are taking effective action within their own systems to correct and improve their deficiencies.”
Mr. Sanders acknowledged that, in the light of recent financial collapses such as the CLICO insurance and financial services group in Trinidad and Tobago and the empire of Allen Stanford in Antigua, there was clearly a need to “tighten up rules for banks” in the Caribbean. However, the regulatory systems in the US and the UK were also “sorely in need of improvement”.
Sanders criticised Caribbean jurisdictions for “making no attempt to meet to devise an appropriate response” to what will take place when the G20 meets in April to discuss OFCs.
“The countries of the Caribbean Community and Common Market have no excuse for not doing so, and if there are any among them who feel that they are capable of stopping this juggernaut alone, they should think again,” he stated. “Caribbean countries should act on this now and together or see their offshore financial services wither.”
Mr. Sanders will outline his vision of the role that offshore financial centres can play in the modern global economy in a special session on “The Politics of Offshore” at the 7th Annual OffshoreAlert Financial Due Diligence Conference in Miami Beach on April 27.
Mr. Sanders will speak immediately after an address by Jeffrey Owens, who is the Director of the Centre for Tax Policy and Administration at the OECD in France.
David Marchant, who runs and publishes the OffshoreAlert online newsletter
This is deeply ironic:
“Without some jurisdictions in the world enforcing reasonable rights of financial privacy, those living in un-free and corrupt jurisdictions would have no place to protect their financial assets from kidnappers, extortionists, blackmailers and assorted government and nongovernment thugs.”
In fact without secrecry jurisdictions “kidnappers, extortionists, blackmailers and assorted government and nongovernment thugs” could not thrive.
James,
Your description falls squarely under the TR-UK view, state first – individual last. Intellectually there is nothing wrong with arguing this point of view, just be honest about it in the first place.
The pooled basic services for a civilised society are relatively not that costly: external security (military), internal security (police, fire), basic education and a basic social safety net for the truly needy. There are undoubtedly a few more basics but you get the gist.
Indeed, James from Durham
It never ceases to amaze me that people can argue that tax is theft when they are coming from a position where they are able to afford to forget that there is a public infrastructure supporting them.
It is an argument based on a rich person’s fantasy view of the real world.
If we all had access to these instruments, no taxes anywhere would get paid. What would happen then Cato, hmm?
Sirfon
What a load of twaddle, all of which can be answered with one word: Stanford
If Antigua was so well regulated how did that happen?
And what was Sir Ronald Sanders role?
Richard
PS I was one of last year’s star turns at the Offshore Watch conference….
All
Georges was banned from this blog for some time because of comments I considered highly offensive made off blog
I regret letting him back on. It is clear that he shares the ultra-right wing view that the law is a pick and mix. It is to be used to support the property rights of the wealthy but when exactly the same legal procedure is used to secure an exactly equivalent property right for the state it is to be considered theft.
This shows the sheer hypocrisy and irrationality of his position
This is abuse of the democratic process and the majority by the minority at its worst
I’m not interested in providing a platform for it
Richard
I always assume nothing has ever gone wrong in such people’s lives. I always think of the situation of a friend of mine. His son is just three. He’s a fantastic kid. He probably won’t make 5. He’s spent a lot of his life in hospital. You can imagine the struggle. Quite literally without massive state spending ans support the whole family would be in the workhouse Georges no doubt believes in.
I loath his contempt for humanity
Georges, I object to your characterisation of my argument as implying “state first, individual last”. It is precisely because I beleive in individuals that I take the position on this that I do. Richard’s example is a good one demonstrating why taxes are necessary for people. The situation he describes could happen to anyone. I could give other examples, of families who would be ruined without the support that is provided in a social democratic state, but would not be available in your minimum state.
The difference between your position and mine, Georges, is that you only believe in certain (wealthy, fortunate) individuals.
Sirron
The opinions of High Commissioner “Sir” Ronald Sanders can, I thnk be taken with a pinch of salt. It is clear that he has a personal interest in the maintenance of Secrecy jurisdictions. It is after all the life blood of his business. His comments can probably be answered with the immortal phrase “Well, he would, wouldn’t he”.
James
Richard makes an excellent point about the hypocrisy of the econmoic libertarians and their ilk, for whom the law, and the role of the state, is something they think of purely in terms of self-interest. They’re very keen on the state when it enforces property law or provides law and order or corporate welfare for their corporations, but when it comes to paying for all thi via taxes, they don’t want to know, and are happy for the rest of us to do so whilst taking the benefits of living in a civilised society.
I’ve got a suggestion for the Cato Institute, and people like Georges. If you hate paying tax so much, go and live in those countries where there are no pesky tax men or governments to “bleed you dry” or “restrict your freedoms”. How about the Congo, or Sudan, or Somalia?
@Fast Robert
It may shock you to find out that there are some things out there such as Cato that are not funded by government.
Looking at the arguments made here from a distance, I’m sadenned by the ease with which some people will accept the dissolution of soverignty, something entirely necessary to “solve” the problem that heavy-tax prone states have with states that tax less.
I say saddened, because as someone who had the misfortune of living in the German Democratic Republic in my youth, I find the insular and rather innocent view that the largest possible government is a good thing. It isn’t.
More to the point, Richard’s example which assumes that only governments can manage medical care is as wrong as the example he used – to say that all the ill children will die if you don’t agree with him is a kind of emotional hostage-taking, but one founded on the exclusion of real-world examples to the contrary.
The most sickening part of the view is that for all of this to work under the model promoted on this blog, it must be universal – in other words, societies with very different view of the role and power of the state have to abide by one held by some percetage of Britons to arrest the flow of wealth out of Britain. It would have to be imposed against the will of those people which by definition is totalitarian.
Funny thing is Joe, people vote for the model
They know your alternative is corrupt and does not work
Now, what’s your problem in accepting that?
Richard
I am curious to know what real-world examples Joe could point to suggesting that there is a free market solution to healthcare. The USA perhaps? Oh, can I make it clear that I am only interested in examples of universal healthcare. I am not interested in examples of good healthcare for those who can afford it.
I recollect recently reading Justin Webb’s BBC blog. He had just got back from hospital where his son had been daignosed with diabetes to find the bill already lying on his doorstep. Thank goodnes he has insurance.
For those who don’t know, Justin Webb is living and working in the USA.
[…] blog. I’ve never met or spoken to him. He comments as ‘James from Durham’. He provides a voice of sane reason in the face of the offshore onslaught defending the indefensible that most comments […]
[…] blog. I’ve never met or spoken to him. He comments as ‘James from Durham’. He provides a voice of sane reason in the face of the offshore onslaught defending the indefensible that most comments […]
@Richard Murphy
Hardly – and yes, James, there are numerous free-market solutions to health care. The Lebanese have always done it that way with near 1st world results, and Europe’s privitizing systems are trending in that direction.
As to your previous line of thought about what you grade as an “inhumanity” I found something quite telling – the notion that only the government, an entity employing law and other forcable instruments can be the only entity in a society who can dispense humanity. This shows either a world view limited to the society you live in, or an acute contempt of people.
Moreover, I find that the promotion of -as large as possible a tax vuptake-, and -as complicated as possible- a tax system is directly beneficial to those who advise on it to government and business. It especially explains the desire to see the engine creating that business, the biggest, most far reaching, and invasive government to grow perpetually. Not only that, it’s the enforcer of that de-facto syndicate.
So to employ any expression of humanism or socially good action as a tool in that effort, and a rather mercinary use of other peoples’ assets and effort as a claim to ones’ own ‘generosity’.
It isn’t. It isn’t a matter of giving the unshodden your shoes. It’s a matter of taking away someone elses’ shoes to give someone else, and claim a sort of generous divinity in it for oneself.
By the way, I’ve had numerous conversations with Webb. He was reluctant to mention one thing on FOOC that he knows quite well: it is unlawful for a hospital not to treat a patient, and the costs of the services provided those patients who cannot pay or have no insurance is sorted out in many ways.
A trained Chimpanzee, much less a taxation advocate could explain to you that just because you don’t get a bill, or get an un-enumerated summary of services doesn’t mean that the service was free, even if it came from that mythical “other person somewhere,” the taxpayer.
Joe
You are a fantasist
In the US 25% of children have no healthcare insurance
The spend per head on medicine is the highest per capita in the world
Half goes on admin
So much for efficient markets
The state is perfectly capable of being the most efficient supplier of a service. Despite your assumption to the contrary, the profit motive has absolutely no impact whatsoever on the efficiency of organisations – as the US medical service proves. And as banks are proving a day in and day out. In fact it is only the mutual banks in the Uk that are doing alright at present.
So, a state run medical service may not be as efficient as we would desire – and given that my wife works in the UK state-run medical service she would entirely agree with that. but her experience of the UK private medical service is that it is considerably less efficient than the inefficient UK state-run medical service. We therefore have a simple problem of the inefficiency of large-scale organisations – and any organisation supplying medical services to a large population is going to be a large-scale organisation
So let’s deal with reality shall we and leave your own fantasies behind?
Richard
Richard
I am amazed that you are prepared to make a sweeping generalisation about the relative qualities of healthcare in the UK based on a sample of one – your wife’s experience working in the NHS. I suggest you ask a greater number of people across the various stratta of roles within the NHS to get a more accurate picture. I bet you will also encounter a huge difference between the clinical staff and administrative people. The latter will usually say it is better – they have their jobs to protect.
As for your arguemnts about state run services and the necessaity for a lot of tax, your articles NEVER seem to mention the abuse of taxpayers’ contributions by the very people who run your admired organisations – I refer to the politicians abusing housing allowances, taxi fares for personal shopping trips, jaunts in the Carribean to say goodbye to people who did not vote you in, John Lewis lists etc.
James from Durham:
I agree with your stance that people should be required to pay their fair share… “fair” being the operative word.
If you feel society is taking too much from you, and giving little back in return, it’s well within the individual’s right to seek out a better deal. I moved from one European country because I paid millions of Euros worth of tax every year, and received less back in return than would be awarded to a welfare recipient.
I agree with the fundamentals of taxation, and understand why – economically – it’s a necessity. But why should I pay millions more because I had the smarts to take a risk, learn a skill and go out and work hard for my money? The lazy SOBs that make up the populace are not my concern… I wonder how many welfare cheques the government was able to write with my money.
In my case, I did the one thing that all people should have the power, as free individuals, to do: I moved to somewhere that offered me a far better deal.
Is that wrong?
Re:
“I am curious to know what real-world examples Joe could point to suggesting that there is a free market solution to healthcare. The USA perhaps? Oh, can I make it clear that I am only interested in examples of universal healthcare. I am not interested in examples of good healthcare for those who can afford it.”
How about Switzerland?
“It a curious kind of international democracy that allows rules and punishment to be created by a few — and imposed on the many — simply because the few have the power to do so,” said Sanders.
Get used to it (I can’t believe you already are not). This is how it is for most humans. Including most Americans. This planet is heading for a large scale revolution. I hope.
Thomson
I think your reference to SOBs says all we need to know about your contempt for humanity
Some of us believe in community
You just choose to free-ride off the back of it.
I call that theft
Richard
Harry
My wife is a GP with more than 20 years experience. She is also qualified to be a hospital consultant
Like me she sees a major inefficiency in the NHS – that caused by people who imposed a massive admin burden on it by making it pretend it was a market, so reproducing market inefficiencies in the health sector. It would be enormously more efficient without this burden
And the biggest cause of ill health she sees daily – inequality. Almost all depression and anxiety can be laid at its door, let alone much physical illness
Richard
As for your comments on abuse – or course they exist – they do in all human systems – but very definitely no more, and probably less in the state sector.
Not excusable – but so much better than the corruption we are seeing in our banks, don’t you think?
“I am curious to know what real-world examples Joe could point to suggesting that there is a free market solution to healthcare.”
Not quite free market but I might point to what is generally rated as the best health system in the world. The French….yes, reguarly rated by such as the WHO as the best in the world.
Provision is through the market. There are many providers, some state owned, some charitable, some not for profit and others for profit. This is of course markedly different from the structure of the NHS which is state provision of health care.
So, we can point to a place which has market provision of health care and it’s very good indeed.
The provision of health insurance however is not free market. Or at least not totally. Through your wages (and general tax revenues are used to pay this for those who have no wages) you are compelled to purchase health insurance. This insurance covers 70-85% of the costs of your treatment. It depends upon the exact treatment and some, such as cancer treatments, are 100% covered.
Most then take out further insurance policies to cover that residual payment from free market insurers.
Please note that I do not claim that this is an entirely free market in health care. But I would say that it is more free market than the NHS system….and it’s a system which is consistently proclaimed to be the best in the world.
Which brings us to a truth which is all too infrequently acknowledged. There is no such thing as a “free market”, all are constrained by some mixture of societal boundaries, regulation, legislation. Even anarchy is constrained by the private agreements over how property will be exchanged for example.
So the argument is never whether to have a phantasmal “free market” or not. It is over what legislation and regulation will apply….should we have a freer market or a less free one if you wish.
The French example seems to be showing that in the UK we should be having a freer market in the provision of health care. After all, the NHS is such a Wonder of the World that absolutely no one has tried to copy it.
Joe
I did a bit of research about the Lebanese Healthcare system. Yes, it is apparently a lot better than I had expected given the country’s difficult recent history. However:
1) A very high proportion of the cost is in fact paid by the state
2) Due to the lack of regulation, the cost per patient has increased dramatically over the past three years and a lack of coordination among health providers has led to an oversupply of advanced medical services, a large number of specialised doctors, inflated billing, and lengthy waiting lists
3) The system is still inaccessible to many.
As to most of your other comments, all I can say is, does everyone who disagrees with you have unworthy motives? I wonder…
I am interested in what you say about the French and wouldn’t write it off, but I have always understood that the French system costs more per capita than ours. That’s not a criticism of the French. But, whilst money isn’t everything, if properly spent (!!) it should increase the quality of the healthcare outcomes.
Tim
I have to challenge your comments
The French medical system costs 2% more of GDP than the UK’s
And it is true that it does apparently deliver better outcome for those with an identifiable disease. But let us be clear why: it allocates enormous resources to secondary medicine where outcomes tend to be easier to measure.
But this assumes that disease is the only criteria of sickness. It is not. Most people in the UK (unlike France) see a GP for their entire treatment through an episode of care. At least 30% of these people will never receive a diagnosis. That is not a failure of the system: it is a measure of the fact that the medical model cannot as yet identify a label to describe the conditions these people have.
In France these people will be referred to secondary care, or be prescribed drugs for a disease they do not have – from which they will then be declared either cured, or to not have. This helps the French stats.
In the more efficient UK system where the patient does admittedly have less power they do not a) get inappropriate drugs or b) inappropriate and often invasive examinations because a medical practitioner is empowered to say they do not need them – saving the UK 2% of GDP.
So which is the better model? The one that says some people have illnesses but a disease, and drugs are not needed as a result – or one where prescribing is at way above safe levels of drug tolerance is to be prevented and which costs significantly more?
I think the answer is obvious.
And what is more – GPs have the highest approval rating of just about any professional group in the UK. That’s because their judgement is trusted. Hard to price that, but incredibly valuable, even if not within the market, don’t you think?
Richard