Nonsensical–but Convenient!–Arguments in Support of Tax Havens

October 23rd, 2009

On Tuesday I attended an event hosted by the Cato Institute, a Libertarian think tank, called The Case for Tax Competition, Fiscal Sovereignty, and Financial Privacy.  After attending, however, I think the following title would have been more suitable: Nonsensical–but Convenient!–Arguments in Support of Tax Havens. I had rather hoped to find the conference intellectually challenging.  I was disappointed.

The theme of the conference was that tax competition is good for governments, for business, and for growth.  From this assumption, the speakers concluded that tax havens must provide a net benefit to the world through tax competition, by pressuring larger countries into keeping rates low.  Keeping with this, they argued tax havens are the world’s last restraint on power hungry, tax crazed developed-country governments.  Apparently tax havens (and tax evasion) are the real checks on western democracies.  And here I thought the checks on democracy should be the nation’s voters, not other countries.  Silly me.

But it’s a moot point.  The Task Force isn’t arguing that tax havens can’t have an income tax rate of 0%.  They can all have tax rates of -50% for all we care.  What these countries can’t do is accept foreigners’ money, hide it from the foreigners’ governments, and then cower behind their constitutions when those governments request banking information.

It was actually sort of cute.  When arguing tax havens should have the right to banking secrecy and their own sovereignty, the speakers became suddenly emotionally invested in the sanctity of rule of law.  They argued quite forcibly that tax havens have a right to their own constitutions and that their laws cannot be superseded by other governments, even if it means abetting tax evaders from abroad.  But only a few minutes before the same speakers had argued that tax evasion (a criminal act) is moral.  And no one had seemed to pay much attention to the “sanctity of the rule of law” then.  So, I think what we can take from this, is that no one is above the law.  Except Libertarians.  How convenient for them.

Unfortunately, the convenient arguments were not the worst of the conference.  Quite a few of them were downright nonsense.  The epitome of this was a graph that was intended to prove that lower tax rates lead to economic growth.  The graph plotted the per capita GDP of both Hong Kong and the United Kingdom against time (1950s to 2000s).  The graph showed the UK’s average income has risen steadily from 1950 to the current day, whereas Hong Kong’s rate of growth was low until the 1970s when it sharply increased and then eventually overtook the UK in the early 2000s.  The presenter smugly noted that the sharp increase in growth coincided with the year Hong Kong lowered its income tax rates.  And this was supposed to be overwhelming evidence that lower tax rates lead to economic growth.


If we are to accept this statement, it would imply that Hong Kong’s growth in the 1970s couldn’t have had anything to do with its economy moving from a manufacturing base to a financial center.  It definitely wasn’t a result of the 200+ emerging businesses that replaced traditional stores in the mid-decade.  It couldn’t have possibly been related to the massive infrastructure investments which the government implemented throughout that decade.  Oh no.  Hong Kong’s economy started expanding rapidly in the 1970s because its government lowered personal income taxes and nothing else.

That is quite convenient if you ask me.  It’s also complete nonsense.

Written by Ann Hollingshead

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