Taxes are a fact of life but that is about all that most people can agree upon when it comes to this issue. Even the vocabulary is controversial. Terms have had to be created to make a distinction between the legal and illegal.
Tax avoidance is the legal part of paying minimal taxes. The idea is to pay as little as possible while staying on the right side of the law. This is also known as tax mitigation.
Tax evasion is the illegal part, with those charged with enforcing taxation making a determination that the individual or group has moved beyond tax avoidance into an area which the laws prohibit.
The trouble with taxes generally is that they rely on force and thus there is always bound to be a gray area between tax evasion and tax avoidance – an area that constantly causes controversy and disquiet.
This gray area can give rise to tax resistance – either because the tax levies are seen as unfair and unworkable or because the system itself is ultimately seen as contentious, discriminatory and corrupt. Tax protest may be part of tax resistance as well, when individuals withhold taxes as a result of practices they believe are unjust or misguided.
Worldwide, taxes are likely on the upswing, especially in the West, due to a variety of factors including the long financial crisis and the resultant diminishment of tax revenues. This has led to increased pressure on local tax collection. It has also led to international friction, especially between various Western countries and Switzerland, which has acted as a haven for those who want to shelter their money – legally or not – against additional tax depredations.
Switzerland has been engaged in a few high-profile tax cases that have featured a couple of its international "private" banks fueling allegations that all Swiss private banks have actively recruited clients by promising to aid in tax evasion. With some six trillion in assets under control via its domestic private banking system, Switzerland is responsible for managing a goodly portion of the world's wealth. With its emphasis on free-market practicality, a republican style of government and general non-socialist environment, this tiny nation must serve as both a temptation and reprimand to Europe's socialist leaders and their high-tax policies.
The Swiss model is such a successful one that we wonder why more countries and leaders don't emulate it. The idea of higher taxes, especially during a financial downturn, is sure to fuel tax avoidance and outright tax evasion as well. There are limits to tax policies and these are well known to the political class.
Tax citizens more than a third and you enter an arena where you create controversy and begin to radically distort a marketplace system of supply and demand. Tax citizens by half or more and you have run the risk of strongly distorting the entire economy. The more taxes that are demanded, over perhaps 30 percent, the more tax avoidance turns to outright tax evasion and the more tax-sheltering services are going to be in demand.
It should be stated that most Swiss private banks are NOT in the business of assisting people to evade taxes. This is a myth that has been exaggerated by mainstream western media thanks to a few "bad apples" which have provided the fodder for their attacks. Like any business sector in any nation, there are always going to be those who employ practices that are not consistent with the rest of the industry. And the Swiss private banking industry is no different in that respect.
Ultimately, the solution to eliminating outright tax evasion is fiscal discipline on behalf of representative governments, and a determination to keep tax policies within the bounds of what historically is reasonable, just and effective.
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