Tax Heaven? : Tax Havens

This week, while exploring the blogosphere, I discovered the topic of tax havens. Tax havens are areas where taxes are very light or not administered at all (see right). These “havens” specifically target wealthy individuals and corporations in their tax policy and aim to exploit the global demand for opportunities for tax avoidance. The Organization for Economic Co-operation and Development uses three criteria for determining tax havens: no or nominal taxes and offer themselves as a place to be used by non-residents to escape taxes in their country of residence, a lack of effective exchange of information which allows for the privacy of those who use tax havens, and a lack of transparency in the operation of the legislative or administrative provisions. These three factors make tax havens a lucrative and secure place to avoid taxation. This week I posted comments on two blogs that both revolved around an article in the London based magazine The Business. The article touts the wealth generated by tax havens and how they occupy the highest slots on the list of the world’s wealthiest nations above what most would consider economic powerhouses. The first blog is called That’s The Way It Looks From Here and is written by Bob Bauman. He is a former Member of the United States House of Representatives from Maryland, a member of the Washington, DC Bar, graduate of Georgetown University Law Center and the School of Foreign Service. He has written several books including Where to Stash Your Cash: Tax Havens of the World and several articles for the Cato Institute. The second blog is called The Liberal Journal, and though the author is anonymous, the site seems to hold up to Webby Award winning criteria with good, frequently updated content, good organization, and transparency in its navigation and setup. Read my posts on theses blogs or on my site down below.

Comment 1
I was interested to find out that a majority of the top twenty wealthiest jurisdictions of the world was composed of tax havens. As a student of economics, I believe little government interference is best when concerning economics, and tax havens seem to be ideal to maximize wealth. However, though tax havens may be considered some of the wealthiest nations in the world, the wealth seems like it would be stratified and confined mostly to the wealthy foreigners who use them to avoid taxes in their own countries. Your stance that these tax havens raise the standard of living seems fundamentally flawed as the local peoples of these tax havens are molded into the servant class of wealthy foreigners. Little real wealth is being accumulated and held by the local peoples and the massive increase in the GDP’s of these countries are not the result of everyone’s standard of living increasing, but of the appearance of a few astronomically wealthy companies or individuals. In a search on this topic in the blogosphere, I also learned that many of these tax havens rely on others for their national defense, and EU countries have such high taxes to ensure many of their social and medical policies. How would these models hold up in a tax haven like policy model?

Comment 2
I have also read the Cato Institute’s blog on tax havens, and I believe that it would indeed be absurd for the United States or all countries to become tax haven like jurisdictions. Maintaining national defense and certain programs like Medicaid and Medicare are needed and along with these programs, a certain level of taxation is necessary. However, I also believe that tax havens have a plus side to them and not just for the tax evaders. In a larger context, tax havens give an alternative route to countries with legitimately exorbitant tax rates providing a check against countries wanting to raise their taxes. This ensures there is no governmental monopoly and maintains choice. Tax havens also demonstrate the economic benefits of low taxation. Lower taxation means more money for consumers to spend and more money for companies to use on R&D and growth, and in response to your note about how much taxes Americans pay, I do not think we’d have to pay as much in tax if our government could keep its debt under control.