British PM Attacks Tax Competition

The problem with tax evasion is the tax, not the evasion. Never forget that.

Desperate European politicians, pushed against the wall by an insatiable welfare state, lash out in every direction, at every square inch of remaining economic freedom in order to satisfy the fiscal monster they have created, bred and fed at ever growing costs to the private sector of the economy. They keep pushing taxes upward, and when they can’t raise them anymore they cut spending while maintaining maxed-out taxes.

Not even this helps, though, because people still have the opportunity to move to countries and territories with lower taxes. A recent and well-known example is the French actor Gerard Depardieu who left France and its hate tax on high incomes to take refuge in Belgium. (Someone said he bought a house so close to the French border that he can go out in his back yard and pee on France. I am not going to vouch for the truth in that, but it’s a good story…) But it is not just the French that want to evade – or avoid – high taxes. Many other Europeans do the same, and some of their favorite places to go to are within the jurisdiction of the British government.

This has led Prime Minister David Cameron to issue an edict against British-affiliated low-tax jurisdictions The EU Observer reports:

EU leaders will make another bid to agree rules on tax evasion after UK Prime Minister David Cameron called on 10 British tax havens to “get their house in order” on secret bank accounts. In a letter released Monday (20 May) to the leaders of the British islands, including the Channel and Cayman islands, Cameron urged them to disclose details of accounts used for company ownership.

This is all ridiculous:

The islands should “provide for fully resourced and properly managed centralised registries, that are freely available to law enforcement and tax collectors, and contain full and accurate details on the true ownership and control of every company,” he said “We need to know who really owns and controls each and every company,” he added.

Why? What business is it of the British government’s to know who owns what company where?

The reason, of course, is taxes. They do not want anyone to be able to organize their private finances in such a way that they can reduce their tax burden. In fact, what Cameron is trying to do is nothing short of creating a high-tax cartel where Europe’s welfare states can rob their citizens of the right to bring their property wherever they go.

EU Observer again:

He noted that the reforms were at “the heart of the ambition of Britain’s G8 to knock down the walls of company secrecy.” Cameron’s move is the latest attempt to break the deadlock on EU rules aimed at requiring the automatic exchange of data on tax cheats within the bloc.

And what is a “tax cheat”? It is very important to be mindful of what language these high-tax advocates use. By the use of the word “cheat” in the context of tax competition between high- and low-tax jurisdictions, Cameron wants us to believe that the only people who choose to invest in a low-tax jurisdiction are those who want to “cheat” on their taxes – i.e., do something immoral and even illegal.

The fact of the matter is that tax competition is almost always about entirely legal economic activity. The vast majority of people who open a bank account in a lower-taxed country or territory are lawful citizens who just want to keep more of their own property. But this is a fact that high-tax advocates like Prime Minister Cameron is unwilling to acknowledge.

Instead they ramp up their fight against legitimate tax competition, behaving like a pack of fiscally obese bullies, hungry for more and more of their citizens’ money:

EU finance ministers [have] … agreed to start talks with Switzerland, along with Liechtenstein, Monaco, Andorra and San Marino, on swapping bank account information. Tax avoidance and bank secrecy have leapt up the political agenda in Europe as cash-strapped governments bid to maximise their tax revenues. A paper prepared for the European Commission by tax expert Richard Murphy and his UK-based Tax Justice Network think tank claimed that up to 1 trillion of tax revenues are lost each year by EU countries.

This is a totally nonsensical number. A lot of that money would never have become taxable if it was forced to stay within the borders of EU’s high-tax states. To see why, consider this dirt-simple example (obviously too complicated for high-tax advocates). Suppose I am given a business opportunity that will allow me to earn $100,000. To do the job I will hire four people and pay them $10,000 each. I will walk away with $60,000.

Suppose now that government wants a 50-percent tax on my income. That would net me $30,000.

I have worked hard, built a reputation as a professional and invested enormously in building my skills, and now I am beginning to see a chance to reap the harvest of those investments. If I move the company’s headquarters across the border into a lower-tax jurisdiction I will only have to pay, say, ten percent in taxes. The difference to me is $24,000, money that I can invest in the future of the company.

My employees would still live under the oppressive tax system, but at least they would all have a job. But suppose now that my government strikes a deal with the neighboring country under which I as a citizen of Hightaxia have to pay the 50-percent tax after all.

What do I do? One option is to not start my business at all, and instead go do something much more trivial (perhaps even collect entitlements from my high-taxing government). Another option is to move across the border to Lowtaxia and set up both business and residence there. I can still export my intelligent product, but the people I hire will be Lowtaxians instead of my former neighbors in Hightaxia.

If I choose to not start the business, I am not really any worse off than I was before. The Hightaxian economy, on the other hand, is deprived of a couple of well-needed jobs. My fellow Hightaxians are also deprived of a good product that would have made life better for some of them.

If I emigrate, nothing changes for Hightaxia. Lowtaxia on the other hand gets a new taxpayer and a few new jobs.

This is what tax competition is really all about. Yet the leaders of Europe’s insanely taxed welfare states continue to try to say that “avoiding taxes, like eating children, is wrong”. The EU Observer again:

At a time when most Europeans are facing tax hikes to fund deficit reduction, governments are also anxious to demonstrate that the super-rich will pay their share.

This is such an idiotic statement that it really does not belong in the English language. Nowhere in the industrialized world (Europe can still be counted as part of that) does a lawful billionaire pay less taxes than a regular, middle-class worker. But do note how those who are greedy for more taxes do everything they can to castigate the wealthy as borderline criminals just because they don’t give up even more of their property to government.

Can anyone who thinks that the wealthy, in Europe or in America, don’t pay their fair share of taxes please define the term “fair share”. For the most part, people with six-figure incomes in dollars or in euros bankroll the lion share of government. Is that unfair?

Of course it is. It is unfair because a very minimum requirement for tax fairness is that every dollar earned pays the same percentage in taxes. That is not the case in America and it is not the case in Europe. The higher up on the income ladder that the dollar is earned, the more of it government will grab.

High-tax statists refuse to discuss this point. To them, “fair share” is just a talking point. They have no regard for the economic consequences of high taxes and think instead of people who move money abroad as some sort of criminals who steal government property.

Again: the problem with tax evasion is the tax, not the evasion.