Chasing the rainbow: On tax, toothpaste and private bankers
Various financial centers with an orientation to guarding dynastic wealth have signed up to more tax information treaty sharing. Tax chasing governments have simply fuelled another accounting arms race.
Money is perhaps the most hyper-emotive, "uber-thorny" issue of everyday life. Discussion is further impeded by the economic incoherence of western politicians who have erroneously preached a doctrine of milk and honey for all through odd government wheezes, confiscation and sleights of hand. Any taxation discussions are marked by delusional debates promoting ever more tax from anybody who has risen above the mean. That is not to dismiss welfarism - a decent society finds a means to provide a safety net of support. Alas, things like welfare spending ends up being organized by governments - who are singularly ill-suited to handle any cash at all, and certainly have little, if any role to play in generating wealth through innovation.
Western governments have spent indiscriminately for 60 years and the ‘blob’ needs more cash, (as prudent management appears anathema to the public sector) leading to ever more aggressive ways to steal your money. The problem remains that, despite the political cant, high taxes simply don’t work. Even President “Custard Pie” Hollande has somewhat realized this, as France teeters on the brink of implosion. Remove the incentive to earn more and people just don’t bother. Hence Britain kills economic growth at both ends of the scale: aspiring earners reach top rate tax so quickly it dissolves their motivation, while at the bottom it can be much more cost effective to stay at home and bleed the system through benefits. Meanwhile the vast bulk of (heavily taxed) workers and unemployed are stuck somewhere in between.
In a desperate quest for more cash to feed Jabba the Hutt-sized government, offshore banking has come under repeated fire. Facts are routinely ignored as economic illiterates led by President Obama rail against the inequity of cash kept offshore beyond national tax frontiers. A mistaken belief peddled by deranged ‘hopesters’ like Mr Obama remains that somebody else will solve government’s chronic overspending. True, the leprechauns / elves / gnomes of the private banking world have a big pot of cash at the end of the offshore rainbow compared to ordinary citizens but it is a droplet in the big government ocean. Arch-taxer Democratic Senator Carl Levin notes that the entire amount of tax being evaded by US citizens in offshore accounts amounts to $100 million annually. The US government borrows more every single hour, 24/7, 365 days a year!
Many economic illiterates make an elementary economic mistake. Confusing the amount of tax liable (the tax due on interest accrued) with the total account balance. Whatever way you look at it, simply closing offshore banking only buys profligate governments a few minutes more to indulge their spending follies. (Unless you confiscate the cash of course, at which stage you become an economic pariah akin to North Korea).
Which brings us neatly to ongoing tax arrangements between various governments encompassing the west and many major financial centers. With even Switzerland and Singapore signing up to share data with American and other authorities, the mainstream media is happily calling an end to the era of offshore banking. As always, they are abjectly wrong. True the glamorous tales of private bankers smuggling diamonds in toothpaste tubes may be a Manhattan legend now, but private bankers will not die as a result of high taxes - rather crackdowns provide new revenue opportunities!
Higher taxation creates an economically nebulous "rentier" class of advisors and accountants, whose job is not to produce any wealth but merely to use the law to protect those who don’t feel inclined to give their money back to serially incompetent politicians. Raise taxes as France did and capital spews across borders, closely followed by the wealth creators themselves. Likewise, create more barriers to individuals having offshore bank accounts and the rich will spend more on specialist structures such as trusts. Finally, it ought to be noted that America, in cocooning itself with all manner of spurious laws to keep tax tabs on its citizens (FATCA et al) across the world, has only served to further encourage cooperation from Swiss and Singaporean bankers et al. They see the economic shift, and thus are orienting their services to the new world in the east where economic growth is key to improving prosperity, not spending more of other people’s money on unaffordable central government.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.