A new commission appointed by Norway will investigate ways of putting a stop to the huge flows of money into tax havens. Tax evasion and corruption are believed to cost poor countries at least $50 billion a year (according to an estimate by Oxfam International). The commission, launched last week, includes Eva Joly, a special adviser on corruption for the Norwegian development agency Norad. Among the areas that have been labeled as tax havens are Andorra, Monaco, Gibraltar, Jersey, the Cayman Islands, Luxembourg, the Netherlands, as well as some parts of the financial system in London." (June 30, 2008) … Norway, which now has the highest, or closest to the highest, per capita income on the planet due to its immense oil reserves and relatively small population, has decided to beat up on a number of poorer countries that do not have the luck to sit on a vast pool of oil. Smaller-resourced, poor countries need to find goods and services they can provide to the rest of world so their citizens can also prosper. The Norwegians have been particularly hypocritical. Despite their enormous wealth, they still maintain very high tax rates that discourage productive activity within the country and encourage citizens and companies to move funds to lower-tax jurisdictions. And even the Norwegian government-controlled massive pension fund, the recipient of much of the oil revenue, has been investing in companies registered in tax havens. The Norwegian socialists put themselves on a slippery slope when they argue for investing only in high-tax countries. Poor countries never get rich when they have high taxes. The rich, high-tax countries became rich before they had high taxes. Will the Norwegians agree to share their oil wealth with low-tax countries if these countries agree to increase their taxes? … Most so-called tax havens are actually huge global money funnels into the United States. Were the havens to be shut down, capital investment would become more expensive in the United States, and less investment means fewer U.S. jobs. The problem is that many politicians do not understand (or perhaps do not wish to) how their previous actions caused many of the current problems and how their proposed "solutions" will make things worse. One simple example: The United States has the highest corporate income tax rate in the world (about 40 percent). Thus, other things being equal, if you were to start a business with customers in many countries, would you choose to incorporate in the U.S. or elsewhere? (Note: the average corporate tax rate of the EU countries is now less than 25 percent, and some countries have their corporate tax rate as low as 10 percent.) … To his credit, John McCain has at least partially recognized the real problem and has proposed lowering the corporate tax rate to 25 percent instead of proposing measures that will only make the problem worse. – Washington Times
Dominant Social Theme: Pretty terrible. Maybe America will learn? At least John McCain?
Free-Market Analysis: You can bet Switzerland will be pulled into this Norwegian commission analysis-paralysis before it's all over. Why not? Switzerland seems in the congenital apology mode, with UBS apologizing all over the place. The spectacle of UBS apologizing to the US Congress was especially rich. But that's the tack that UBS seems to want to take. It's not going to make the issue go away, of course, though something else might – the world economy itself which is daily proving rottener and rottener.
Meanwhile, enter the terrible tax-haven! Norway isn't the only one showing great concern. The United States Congress' also has the intention to do something about this "global scourge." The article makes mention of that as well, as follows:
"Senators declare war on offshore havens. Congressional scrutiny of the offshore vehicles used by companies, investment funds and wealthy individuals is increasing. A study by a separate Senate panel last week calculated that offshore abuses cost the U.S. government $100 billion a year in lost tax revenue. 'We're going to find a way to make a huge dent in this problem,' said Sen. Max Baucus, Montana Democrat and chairman of the Senate Finance Committee."
This is a problem? A mere $100 billion? These days the American Congress seems to burn that much every morning, before it collectively rises from bed. One gets the feeling that the outrage over tax havens is a bit pre-planned, pre-coordinated, pre-mediated …
Yet also, it is obviously being overtaken by other events. It may not be what some hoped it would become – a bellwether issue of the latest downturn. Why not? Maybe it's because things are just turning down too far and too fast. So why try? Probably because tax havens are deeply unpopular with the Western political class – and those who stand behind it. Certainly it's important that everyone should play by the same rules. But, please!
Read about Fannie Mae and Freddie Mac (below) and how Congress aided and abetted the business practices that allowed these two American enterprises to create a boom and bust scenario that will cost trillions, worldwide, and perhaps even tens or hundred of trillions. The Congressional response? They can't be bothered with pointing fingers when the meltdown is so stupendous. Instead they've nationalized the problem and ultimately the taxpayers will foot the bill, once they're finished digging out of the wreckage of what's left of the American economy.
No, the news is not good. Merrill is seeking additional billions in capital. Citicorp seems insolvent despite the infusions of billions. The list of trouble banks is at least 90 and growing longer. But Congress is hot on the trail of what? … Tax havens that cost the hard-working taxpayer up to $100 billion year. Wow! Before the latest financial meltdown is over, that number may just look like "chickenfeed."
The ideas that have come out from the European Union especially about taxes and "fairness" boggle the mind. One idea, still popular, is that it's not fair for one country to tax its citizens fewer dollars than another. And what does that portend but a race not to the bottom, but to the top. Logically, then, the most profligate countries with the highest tax rates would set the pace for the rest. This concept was actually one of the main ideas that animated the anti-Libson Irish vote that has thrown much of the Socialist EU into a tizzy.
The idea now popular in Norway that investment only ought to invest only in "high tax" countries is equally loony. Socialists are like any other group of people: They put their pants on one leg at a time and after a certain point in their lives they understand the meaning of hard work and how capital flows operate. That they choose to be so untruthful about these economic mechanisms brings no credit upon them; it is the rankest kind of hypocrisy to argue for higher and higher taxes when, over and over, history shows us the lighter the tax burden the more prosperous the people.
It is impossible to be grateful for what is coming around the corner – genuinely grim financial times. But if one were able to be grateful for any part of it, well, it probably would be that the magnitude of the crisis will likely place the latest campaign against "tax havens" at least somewhat on the back burner. There is going to be plenty of blame to go around and the finger-pointing is about to get pretty heated. Getting Europeans and Americans hotted up about Andora is going to be considerably harder given that the Western world's entire banking structure seems enmeshed in a slow motion collapse.
The best laid schemes o' Mice an' Men,
Gang aft agley,
An' lea'e us nought but grief an' pain,
For promis'd joy!
-Robert Burns, 1785