high taxation and cartels

A Primer on Tax Havens (Dan Mitchell)

What we’re seeing throughout the world today are international bureaucracies and politicians from high-tax nations launching a very coordinated attack against these jurisdictions. In effect, what’s happening is that the high-tax nations of the world want to set up something equivalent to OPEC. But instead of a cartel to keep energy prices high on behalf of oil producing countries, it’s an effort by politicians in high-tax nations to create a cartel that will keep taxes high.

Most economists recognize that cartels are a bad idea. And if it’s a bad idea for there to be cartels in the private sector, it’s a horrible idea to have cartels among governments; and yet that’s what the Organization for Economic Cooperation and Development (OECD), the European Commission, and various politicians from high-tax nations are trying to do.

The problem is, politicians for the most part don’t like low-tax policies. How do politicians win elections, how do they reward contributors, how do they steer money to their supporters? They do it by imposing high tax rates and then using the money to divvy up among those that are on their side. So why are they trying to attack tax havens? Because tax havens are the most powerful instrument of tax competition. (...)

Today, labor and capital are a lot more mobile, which means that taxpayers around the world have options to move either themselves or their money across borders if governments are trying to impose high tax rates. (...)

The number-one thing on the OECD’s list is no or nominal taxes. So if you are a free-market, laissez-faire jurisdiction with a low tax burden, the OECD wants to punish you. There is no blacklist from the OECD of high-tax countries—the countries that are actually punishing growth and impoverishing people with bad policy. No, there’s only a blacklist of jurisdictions that are doing the right thing. But it’s not just the OECD. The European Commission has all sorts of various anti-tax competition, pro-tax harmonization schemes.

By the way, I can’t resist pointing out the irony of something. If you work for the OECD, you get a very generous salary, and you work in an elaborate chateau over in Paris. And guess what? By international treaty, you pay no tax. So we have these well-fed bureaucrats working at the OECD in the nice chateau—with its own private wine cellar—and they fly around the world in business class telling jurisdictions with low taxes that they’re doing something wrong and should be blacklisted, and yet these bureaucrats pay zero tax. (...)

When you listen to the politicians, what do they always say? “We’re trying to stamp out tax evasion.” Well, all the academic evidence out there says one thing: tax evasion is linked to one variable—tax rates. You can shut down all the low-tax jurisdictions, but it’s not going to affect tax compliance so long as tax rates are high.