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Monday, May 12, 2008

Tax Haven Debate

High tax countries – and the umbrella groups that represent them – do not like low-tax nations.

After all, it is sooo inconvenient that people might want to keep more of their own money, rather than handing over big chunks of their earnings to wasteful politicians, and that some nation’s recognize this fact. This is really irritating as it tends to act as a restraint on how high tax rates can go. Man, talk about bumming out politicians!

Groups like the OECD, of course, have scolded low-tax countries – calling them “uncooperative tax havens.”

The online edition of the Wall Street Journal recently featured a debate on the topic of tax havens between the Cato Institute’s Dan Mitchell and Raymond Baker at the Brookings Institution.

Check it out. It’s well worth reading.

For anyone thinking clearly about the economics of the issue, Mitchell wins this exchange hands down. Here’s one point made by Mitchell that perhaps U.S. politicians should take note of when they start flirting with the idea of global tax harmonization and trying to punish certain tax havens:

Efforts by bureaucracies such as the OECD to create a tax cartel -- an "OPEC for politicians" -- should be rejected. Such policies would be a threat to the U.S. economy. Foreigners have more than $12 trillion invested in America in part because we also are a tax haven. Foreigners generally don't have to pay tax on interest and capital gains, and the IRS generally doesn't collect information on those payments, so there is no information to share with foreign tax collectors. Moreover, states such as Delaware have incorporation rules that are popular for foreigners seeking to protect themselves from confiscatory taxation in their home countries.

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