Asset Protection Strategies, STAFF NEWS & ANALYSIS
IRS Ponders Offshore Tax Shelters
By - December 04, 2008

The Internal Revenue Service is debating how best to collect potentially billions of dollars in unpaid taxes that wealthy Americans have squirreled away in offshore bank accounts, according to the New York Times. One of the options being discussed is a "global settlement," which provides a kind of amnesty. The Times describes it as "a take-it-or-leave-it deal that allows clients to settle their tax debts in exchange for reduced penalties and possibly reduced tax payments." … The Justice Department is investigating banks UBS, Credit Suisse and HSBC. There is a separate investigation involving Deutsche Bank, which got wrapped up in a tax shelter scheme orchestrated by a then-employee of Bank One, which was later acquired by JP Morgan Chase. That scheme was called Homer and is estimated to have cost taxpayers about $100 million. – Pro Publica

Dominant Social Theme: The IRS is on the case.

Free-Market Analysis: It certainly seems true that offshore tax havens redirect funds that would otherwise go to American and European Union coffers. But from a free-market standpoint, taxes are methodology of control in a central-banking economy more than a necessity (as the central bank can print almost any amount of money necessary). So why the drive to collect offshore tax revenue? It may be seen as part of a larger, troubling authoritarian trend that is overtaking Western governments in general.

We will not as a matter of prudence, encourage any reader to embark on any sort of tax evasion, domestic or international. But we also believe firmly that in eras where government authority is less severe, the concern over taxes that do not find their way into government coffers is likely less pronounced as well. Thus, the focus on extra-regional fund flows provides us with a kind of "canary in a coal-mine" early-warning as regards increasingly active and aggressive government enforcement efforts at all levels of society.

Is this true? When one examines Western society today, given the preoccupation with the war on terror and manifold levels of security at all levels of society, one comes away with a distinct impression that Western government has become increasingly omnipresent. In both America and Europe, government activism is portrayed by media and bureaucratic apologists as an increasingly effective methodology in counteracting the various ills that supposedly afflict capitalism. That these ills are caused by government involvement in the marketplace to begin with is glossed over or not mentioned at all.

What is the state of governmental activism? In America, a steady parade of industries are beginning to appear before Congress asking for bail outs in the billions. Each one of these bail outs will be supplied with strings attached that integrate the Federal government deeper into the mechanics of the marketplace. In Europe, the stress of the economic downturn has renewed calls by those states that are not integrated from a currency standpoint to become so. These include Britain chiefly, among others – even though there is no love lost among many EU-oriented citizens for the bureaucratic aspects of the EU, or it's over-reaching as regards various invasive policies and regulations.

Taxes are indeed a useful weapon in the bureaucratic arsenal, but not because of their revenues. The income tax, especially, is an invasive mechanism that virtually demands the individual citizen reveal almost every professional and personal relationship of consequence in his or her life. Given this state of affairs, and the endless ratcheting up of tax rates in general throughout the Western world, it is no wonder that some seek the relief of what is euphemistically described as a tax haven.

What is somewhat wondrous however is that tax havens such as Liechtenstein make no effort to justify their status or tax strategy resources but meekly acquiesce to Western arguments regarding taxes and the "cost to taxpayers" of such tax havens. There are perfectly good arguments to be made about the efficacy of taxes, the centrality of their enforcement within the lives of citizens and the need to lessen their burden.

Additionally, arguments could be made regarding the relationship between central banking and taxation. None of these arguments would make the case for unlawful avoidance of taxes, but they would provide a rhetoric that is little heard these days among political and business leaders.

After Thoughts

From a free-market standpoint, the ratcheting up of attacks on tax havens presages other sorts of Western intolerance when it comes to accumulating wealth not aligned with the Western power structure. Attacks on so-called tax havens may eventually give way to attacks on gold and silver and the "hoarders" who have acquired sizeable investments in precious metals. It is a trend that is to be watched carefully. Rhetoric, too often, anticipates reality.

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