According to Washington Post Exposé, People Who Utilize Tax Havens Are Far More Honest than Politicians
Daniel J. Mitchell
Since I’m the self-appointed defender of low-tax jurisdictions in Washington, this caught my attention. Thomas Jefferson wasn’t joking when he warned that “eternal vigilance is the price of liberty.” I’m constantly fighting against anti-tax haven schemes that would undermine tax competition, financial privacy, and fiscal sovereignty.
Even if it means a bunch of international bureaucrats threaten to toss me in a Mexican jail or a Treasury Department official says I’m being disloyal to America. Or, in this case, if it simply means I’m debunking demagoguery.
The supposedly earth-shattering highlight of the article is that some Americans linked to offshore companies and trusts have run afoul of the legal system.
Among the 4,000 U.S. individuals listed in the records, at least 30 are American citizens accused in lawsuits or criminal cases of fraud, money laundering or other serious financial misconduct.
But the real revelation is that people in the offshore world must be unusually honest. Fewer than 1 percent of them have been named in a lawsuit, much less been involved with a criminal case.
This is just a wild guess, but I’m quite confident that you would find far more evidence of misbehavior if you took a random sample of 4,000 Americans from just about any cross-section of the population.
We know we would find a greater propensity for bad behavior if we examined 4,000 politicians. And I assume that would be true for journalists as well. And folks on Wall Street. And realtors. And plumbers. Perhaps even think tank employees. Anyhow, you get the point.
Citing a couple of anecdotes, the reporter then tries to imply that low-tax jurisdictions somehow lend themselves to criminal activity.
Fraud experts say offshore bank accounts and companies are vital to the operation of complex financial crimes. Allen Stanford, who ran a $7 billion Ponzi scheme, used a bank he controlled in Antigua. Bernard Madoff, who ran the largest Ponzi scheme in U.S. history, used a series of offshore “feeder funds” to fuel the growth of his multibillion-dollar house of cards.
The Allen Stanford case was a genuine black eye for the offshore world, but it’s absurd to link Madoff’s criminality to tax havens. The offshore funds that invested with Madoff were victimized in the same way that many onshore funds lost money.
Moreover, there’s no evidence in this article – or from any other source to my knowledge – suggesting that financial impropriety is more likely in low-tax jurisdictions.
We then get some “hard” numbers.
Today, there are between 50 and 60 offshore financial centers around the world holding untold billions of dollars at a time of historic U.S. deficits and forced budget cuts. Groups that monitor tax issues estimate that between $8 trillion and $32 trillion in private global wealth is parked offshore.
So we have offshore wealth of somewhere “between $8 trillion and $32 trillion”? With that level of precision, or lack thereof, perhaps you now understand why the make-believe numbers about alleged tax evasion are about as credible as a revenue estimate from the Joint Committee on Taxation.
Speaking of make-believe numbers, the article mentions one of Washington’s worst lawmakers, a Senator who pushed through a law that has united the world against the United States.
Sen. Carl M. Levin (D-Mich.) has been holding hearings and conducting investigations into the offshore world for nearly three decades. In 2010, Congress passed the Foreign Account Tax Compliance Act requiring that U.S. taxpayers report foreign assets to the government and foreign institutions alert the IRS when Americans open accounts.
He justifies bad policy by claiming that there’s a pot of gold at the end of the tax haven rainbow.
“We can’t afford to lose tens of billions of dollars a year to tax-avoidance schemes,” Levin said. “And many of these schemes involve the shift of U.S. corporate tax revenues earned here in the U.S. to offshore tax havens.”
But FATCA is predicted to collected less than $1 billion per year, and it probably will lose revenue once you include Laffer Curve effects such as lower investment in the American economy from overseas.
The most interesting part of the article, as least from a personal perspective, is that the Center for Freedom and Prosperity is listed as one of the “powerful lobbying interests” fighting to preserve tax competition.
The efforts by Levin and other lawmakers have been opposed by powerful lobbying interests, including the banking and accounting industries and a little-known nonprofit group called the Center for Freedom and Prosperity. CF&P was founded by Daniel J. Mitchell, a former Senate Finance Committee staffer who works as a tax expert for the Cato Institute, and Andrew Quinlan, who was a senior economic analyst for the Republican National Committee before helping start the center. …The center argues that unfettered access to offshore havens leads to lower taxes and more prosperity.
Having helped to start the organization, I wish CF&P was powerful. The Center has never had a budget of more than $250,000 per year, so it truly is a David vs. Goliath battle when we go up against bloated and over-funded bureaucracies such as the IRS and the Paris-based Organization for Economic Cooperation and Development.
The reporter somehow thinks it is big news that the Center has tried to raise money from the business community in low-tax jurisdictions.
According to records reviewed by The Post and ICIJ, the organization’s fundraising pleas have been circulated to offshore entities that make millions by providing anonymity for wealthy clients, many of them U.S. citizens.
Unfortunately, even though these offshore entities supposedly “make millions,” I’m embarrassed to say that CF&P has not been able to convince them that it makes sense to support an organization dedicated to protecting tax competition, financial privacy, and fiscal sovereignty.
But maybe that will change now that the OECD has launched a new attack on tax planning by multinational firms.
Let’s close by returning to the policy issue. The article quotes me defending the right of jurisdictions to determine their own fiscal affairs.
Mitchell, the co-founder of CF&P, added that nations shouldn’t be telling other countries how to conduct their affairs and noted that the United States is one of the worst offenders in the world when it comes to corporate secrecy.
My only gripe is that the reporter mischaracterizes my position. Yes, there are several states that are “tax havens” because of their efficient and confidential incorporation laws, but that means America is “one of the best providers,” not “one of the worst offenders.”
This is something to celebrate. I’m glad the United States is a safe haven for the oppressed people of the world. That’s great news for our economy. I just wish we also were a tax haven for American citizens.
“The United States is one of the biggest tax havens in the world,” Mitchell said. “In general, the United States is impervious to fishing expeditions here, and then the United States turns around and says, ‘Allow us to do fishing expeditions in your country.’”
But I’m not a hypocrite. Other nations should have the sovereign right to maintain pro-growth tax and privacy laws as well.
Other nations shouldn’t feel obliged to enforce bad American tax law, any more than we should feel obliged to enforce any of their bad laws.
P.S. You probably won’t be surprised to learn that “onshore” nations are much more susceptible to dirty money than “offshore” jurisdictions. Which is why you have a hard time finding any tax havens on this map showing the nations with the most money laundering.
P.P.S. On the topic of tax havens, you won’t be surprised to learn that Senator Levin is not the only dishonest demagogue in Washington. If you pay close attention around 1:25 and 2:25 of this video, you’ll see that the current resident of 1600 Pennsylvania Avenue also has an unfortunate tendency to play fast and loose with the truth.
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Super Rich Stash At Least $21 Trillion In Secret Tax Havens
SUNDAY, JULY 22, 2012
Image: Secret Safe BooksThe Tax Justice Network just issued a report that shines a revealing light on secret funds of the earth’s wealthiest. Indeed, if these funds were added to the official wealth of the 139 countries investigated, these would turn from debtors (to the tune of $4.1 trillion) to creditors (worth $10.1-13.1 trillion).
Revealed: global super rich has at least $21 trillion hidden in secret tax havens
At least $21 trillion of unreported private financial wealth was owned by wealthy individuals via tax havens at the end of 2010. This sum is equivalent to the size of the United States and Japanese economies combined.
There may be as much as $32 trillion of hidden financial assets held offshore by high net worth individuals (HNWIs), according to our report The Price of Offshore Revisited, which is thought to be the most detailed and rigorous study ever made of financial assets held in offshore financial centres and secrecy structures.
We consider these numbers to be conservative. This is only financial wealth and excludes a welter of real estate, yachts and other non-financial assets owned via offshore structures.
The research for the Tax Justice Network (TJN) by former McKinsey & Co Chief Economist James Henry comes amid growing concerns about an enormous and growing gulf between rich and poor in countries around the globe. Accompanying this research is another study by TJN, entitled "Inequality:You Don’t Know the Half of It, which demonstrates that all studies of economic inequality to date have failed to account properly for this missing wealth. It concludes that inequality is far worse than we think.
Other main findings of this wide-ranging research include:
• Our analysis finds that at the end of 2010 the Top 50 private banks alone collectively managed more than $12.1 trillion in cross-border invested assets for private clients, including their trusts and foundations. This is up from $5.4 trillion in 2005, representing an average annual growth rate of more than 16%.
• The three private banks handling the most assets offshore on behalf of the global super-rich are UBS, Credit Suisse and Goldman Sachs. The top ten banks alone commanded over half the top fifty’s asset total – an increased share since 2005.
• The number of the global super-rich who have amassed a $21 trillion offshore fortune is fewer than 10 million people. Of these, less than 100,000 people worldwide own $9.8 trillion of wealth held offshore.
• If this unreported $21-32 trillion, conservatively estimated, earned a modest rate of return of just 3%, and that income was taxed at just 30%, this would have generated income tax revenues of between $190-280 bn – roughly twice the amount OECD countries spend on all overseas development assistance around the world. Inheritance, capital gains and other taxes would boost this figure considerably.
• For our focus subgroup of 139 mostly low-middle income countries, traditional data shows aggregate external debts of $4.1 trillion at the end of 2010. But take their foreign reserves and unrecorded offshore private wealth into account, and the picture reverses: they had aggregate net debts of minus $10.1-13.1 trillion. In other words, these countries are big net creditors, not debtors. Unfortunately, their assets are held by a few wealthy individuals, while their debts are shouldered by their ordinary people through their governments.
Read more here:
Revealed: global super rich has at least $21 trillion hidden in secret tax havens
Statistics: Posted by yoda — Mon Jul 23, 2012 1:08 pm
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Last week brought worrying signs, though, that while the eurozone’s woes are not easing, ongoing concerns about monetary union are now having an impact on alternative growth centres, too, imposing real damage on commercial activity in other parts of the globe.
For most of the past year, of course, the eurozone has been on the verge of a full-blown economic collapse.
Investor angst has further intensified in recent weeks, since inconclusive Greek elections on May 6. It is now widely accepted that Greece could be thrown out of the euro if it keeps thumbing its nose at the austerity measures imposed by the member states bankrolling Athens’s continued sovereign bail-out.
The possibility of a Greek exit, and the related contagion if investors lost faith in the solvency and future membership of other single currency “peripherals”, is taking its toll on the region’s real economy. The eurozone’s manufacturing purchasing managers’ index plummeted to 45.1 in May, well below the 50-point level that indicates growth. After 10 straight months of contraction, this marked a three-year low.
The French manufacturing PMI slid from 46.9 to 44.7 last month, its Spanish equivalent from 43.5 to 42. Even Germany’s index faded to 45.2 from 46.2 in April, its lowest level since June 2009, the trough of the post-Lehman doldrums.
Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs, on how the UK would suffer if Greece left the eurozone
Little wonder, then, that eurozone unemployment just hit 11pc, a euro-era high. Spanish unemployment is an intolerable 24pc — the kind of level that could spark not just protests but serious civil unrest.
As the economic and political pressure mounts, financial markets are showing signs of acute strain. Spain’s 10-year sovereign bond yield is once again approaching an unsustainable 7pc, its Italian equivalent back above 6pc.
As the Eurocrats toy with “Grexit”, Spain is trying to plug holes in regional budgets, while defusing the incendiary off-balance sheet liabilities of its rancid banking sector.
For now, Madrid needs a quick €19bn to recapitalise Spain’s fourth biggest bank. But investors are starting to realise that when it comes to the eurozone’s fourth-biggest economy, an economy perhaps “too big to bail”, Bankia is just the tip of the liability iceberg. As such, the euro tumbled below $1.23 last week, to a 23-month low, with the Stoxx Europe 600 equity index giving up all its 2012 gains.
What also happened last week, though, was that the macro-data alarm bells began ringing so loudly elsewhere — particularly in the US and China — that they can no longer be ignored.
So global investors are now focusing not just on the potential financial impact of Europe’s troubles — via contagion if there’s another “Minsky moment” — but on the real economic damage already being caused elsewhere by the eurozone’s current paralysis.
The US is spluttering badly. The country’s bellwether “payrolls report” showed only 69,000 new jobs in May, well below market expectations of 150,000-plus. The figure for April was revised down from 115,000 to 77,000. America’s first-quarter GDP growth, meanwhile, having been marked at 2.2pc, was downgraded to 1.9pc. The Dow Jones Industrial Average, like its eurozone equivalent, is now at its lowest point this year.
So that leaves China, although the People’s Republic is suffering too because the eurozone is its biggest market, buying a fifth of all Chinese goods exports.
In May, China’s manufacturing PMI fell from 53.3 to 50.4 — its seventh successive monthly contraction. Real estate prices, the store of wealth for much of China’s middle-class, are now at a 16-month low. China grew by 7.9pc during the first three months of 2012, but this marked the sixth successive quarterly deceleration. Full-year GDP growth is on course to hit its lowest level since 1999.
Last month, China’s central bank lowered reserve ratios by 50 basis points, the third cut in six months, in a bid to boost the economy.
But investors have lately been spooked by signs that Beijing is reluctant to really whack the “stimulus button”.
In 2008, the Chinese government rushed to spend its way out of trouble, using reserves rather than more borrowing of course, in stark contrast to the Western world.
The massive four trillion yuan package, then equivalent to $590bn, did the trick in terms of growth. Yet the lending boom it unleashed has raised fears of a bad-loan crisis, with China, uniquely among the large emerging markets, now seen as a candidate for a subprime crisis of its own.
“Current efforts for stabilising growth will not repeat the old way of three years ago,” boomed the state-run Xinhua newspaper last week. The fact that even China, with its $1.5 trillion of reserves, is worried about launching another mega bail-out should focus the minds of even the most determined optimists.
Back in the 1970s, the eurozone economies, then among the most dynamic on earth, generated 20pc of global growth. Over the past decade, this growth share has fallen to 5pc. Yet the single currency area still accounts for more than a fifth of the global economy.
More fundamentally, the region’s banking sector is so distressed, and many of its governments so close to insolvency, that “eurogeddon” could spark a worldwide shockwave every bit as damaging as Lehman. And this time, of course, there is far less scope for fiscal and monetary bail-outs – not only in Europe, but in the US and elsewhere, too.
Of course, the UK, already in recession and reliant on the eurozone to buy more than half its exports, is among the most seriously exposed. In May, Britain’s manufacturing PMI index nosedived to 45.9, the weakest reading since May 2009, down from 50.2 the month before. This marked the second biggest one-month drop in 20 years.
Global markets are clearly skittish. The only thing that has stopped asset prices falling further, perhaps, is the belief that escalating market turmoil could push central banks into action – not just the ECB, but the Bank of England and Federal Reserve, too. That’s why gold prices are firming up once again. It’s also why the dollar index, typically inversely correlated with investor risk appetite, has lately shown signs of reversal.
While the prospect of more QE has helped some “risk assets” in recent days, most investors are scrambling for “safety”. So 10-year US sovereign borrowing costs have fallen to a record low and gilt yields are at rock bottom, too. On some two-year German government bonds, yields went negative last week, with investors so desperate for a perceived “haven” that they’re willing to pay for the privilege of lending Berlin money.
We must ask ourselves though, as the global macro data deteriorates and the Eurocrats keep squabbling, are the “safe havens” really safe? The US and Germany, as well as the UK, have government debt-to-GDP ratios approaching 100pc, even more including off-balance sheets liabilities.
With the Fed now poised to unleash QE3, more Bank of England money-printing on the cards and even Germany now openly calling for more inflation, real-terms losses, even on relatively short-term “safe” government paper, are practically guaranteed. And that’s assuming that the US, Germany and UK can manage to limit the damage to relatively low-impact “soft default” over the coming months and years, avoiding the horrors of an all-out creditors’ strike.
When the safe havens are no longer seen as safe, that is the moment when genuine panic ensues. A question worth pondering, perhaps, as we approach the pivotal Greek election rerun on June 17.
Statistics: Posted by yoda — Sun Jun 03, 2012 12:31 am
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