Big Government, Budget, Capitalism, Corruption, Crime, Issues, Socialism

Another Attack on Tax Competition: “Panama Papers” Is a Non-Controversy Controversy


Three years ago, thieves stole a bunch of information from “offshore” service providers in the Cook Islands and British Virgin Islands. This was supposed to be a ground-breaking exposé with huge ramifications, but it turned out to be a tempest in a teapot. As I pointed out at the time, all that we really learned is that people who use offshore services are generally honest and law-abiding. And they definitely had far more integrity than the politicians who routinely attack the offshore world.taxes-646512_960_720

Well, here we go again. We’ve learned that thieves have now obtained client data from a global law firm based in Panama, and leftists once again are making this seem like a giant story.

But here’s what you really need to know. This is simply another chapter in the never-ending war by high-tax governments against tax competition, fiscal sovereignty, and financial privacy.

Here’s some of what I wrote for Caribbean News on the issue, starting with the big picture.

Many nations in Western Europe can no longer afford their big welfare states. Countries such as Greece, Spain, and Italy already have needed bailouts, while it’s just a matter of time before several other European nations face a fiscal day of reckoning. …rather than fix their own fiscal problems, many of these nations are working through international bureaucracies such as the G-20 and the Organization for Economic Cooperation and Development to rewrite the rules and traditions of global commerce in an attempt to extract more tax revenue. This is why there’s been a major attack against so-called tax havens as part of a coordinated campaign to undermine fiscal sovereignty and restrict the human right of financial privacy.

In other words, welfare states are going bankrupt and they hope to somehow prop up their unaffordable entitlements with a money grab.

And they’re more than happy to rely on stolen data.

One of the more bizarre chapters in this story is the way the pro-welfare state crowd is now trying to demonize financial service providers such as law firms that are hired to fill out paperwork by investors and entrepreneurs who are setting up trusts, companies, and other entities. Consider, for instance, the plight of Mossack Fonseca, a professional services firm based in Panama. …this collection of legal practitioners and egghead trust advisors is suddenly being portrayed as an international crime syndicate that’s corrupting Western civilization one business incorporation at a time.

But it makes no sense to attack service providers.

The controversy, in large part, derives from a basic and arguably willful misunderstanding of what firms like Mossack Fonseca do – and don’t do – for their clients. In basic terms, these firms help people create new businesses and trusts. …unlike banks, these law firms don’t take possession of their clients’ money. So the notion that they are involved in “money laundering” is laughable. Once incorporation papers are filed, the law firms don’t direct in any way the operation of the businesses.

Besides, the real target isn’t the Panamanian law firm. Activists on the left, working in concert with international bureaucracies and uncompetitive governments, want to create a global tax cartel (sort of an “OPEC for politicians“) in hopes of enabling higher tax burdens.

Firms like Mossack Fonseca are merely just the latest stand-ins and proxies for a much wider campaign being waged by left-wing governments and their various allies and interest groups. This campaign is built around aggressive attacks on anyone who, for any reason, seeks to legally protect their hard-earned assets from confiscatory tax policies. …a cabal of governments…has decided not to compete…instead simply seeking to malign and destroy any entity, individual or jurisdiction that exists that deprives them of tax revenue to which politicians greedily believe they are entitled. As usual, the media outlets running these perennial “exposés,” usually at the bidding of OECD bureaucrats (who ironically get tax-free salaries).

Let’s close with a couple of points about the broader issue.

  • It is hardly a surprise that wealthy people with cross-border investments use instruments (such as foundations, trusts, and companies) designed for such purposes.
  • Like everyone, wealthy people value privacy (even more so because they have to worry more about kidnapping and other crimes), so these structures are designed to protect their confidentiality.
  • Some of these clients may not have complied with the tax laws of their countries. That is generally a function of excessive tax rates and home-country corruption.
  • A few end-user clients may be unsavory (Putin’s cronies, for instance), but should businesses be prohibited from dealing with people who are viewed as sketchy (but otherwise are not under investigation and haven’t been convicted of crimes)?
  • Cross-border economic activity and structures play a valuable role in the global economy and should not be demonized, just as GM shouldn’t be demonized if some crooks use a Chevy as their getaway vehicle.
  • Low-tax jurisdictions have stronger laws against dirty money than high-tax nations.

So at the risk of stating the obvious, I’m on the side of low-tax jurisdictions and the service providers in those jurisdictions. And I’ll defend them (here, here, here, here, and here) 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 explaining why it’s a non-story that internationally active investors use international structures.

P.S. Why is it okay for rich leftists to utilize “tax havens” but not okay for people in the economy’s productive sector?

P.P.S. We should be very thankful that Senator Rand Paul is standing tall in the fight against nosy and destructive governments on this issue.

This is a guest post by Dan Mitchell “a high priest of light tax small state libertarianism”
  • Robert

    They are greedy and want to keep all they make, they know they are better than the people who made them the money.. If they were not trying to evade their fair share of taxes then they would not need off shore accounts. They want to live in what they consider the best country in the world but they do not want to pay their fair share of taxes based on income.

    • AccountableForAll

      The article did not state that they did not want to pay their “fair share”. What is “fair share”? Is it “the more I earn the more taxes I pay” or is it “the the more I earn the more I am taxed”?

      • Robert

        The only fair way to tax is a progressive percentage based on income, the persons making the least pay the least percentage and the persons making the most pay the highest percentage.
        It seems like that two of the richest in America agree with that Bill Gates and Warren Buffet says the rich do not pay enough in taxes because of loop holes in the tax laws that let them be exempt for many different things.

        • AccountableForAll

          They pay less because the average Joe just pays on income whereas the wealthy are taxed at a lower rate on investments.

          Is that HAVE A NICE DAY a drum roll or sincere screaming intent?

          • Robert

            The persons invested in investments pay an additional 3.5% above the threshold for their filing status, I am not sure but I think the Maximum threshold is $250,000. That is not how most rich avoid taxes.
            The so called working rich take their pay in Deferred Stock which they do not have to pay anything on until they withdraw the money, if a Company executive receives a $2.5 million salary and takes $2 million in deferred stock then he only pays tax on the $500,000 less his deductions which is formed into a company including his homes, cars, and travel for business. which are all deductible, why do you think we have LLC, which means if his company goes under they can not take his house, cars and a certain amount of money in his accounts.
            It is not the private person so much with the investments it is the ones that form companies with use them as shell companies for their investments to avoid taxes. these shell companies do nothing but create a large tax deduction for the individual. That is the primary reason they are called shell companies like the old shell con game.
            HAVE A NICE DAY

        • AccountableForAll

          In your opinion. Why to a flat tax? A person who earns 10K/yr would pay the same percentage as a person who earns 100K.yr but the amounts differ significantly. Why would you penalize those whose hard work garnishes them more while the person who chooses not to push themselves, gets more of a break.

          Folks who drop out of school, or don’t pay attention to school, or chose to take a minimum wage job as their livelihood should not be rewarded for inaction while you choose to penalize those of us who further our prospects.

          Who in their right mind would see hamburger flipping or pizza delivery as a career? Why should they be rewarded for not furthering their interests and leave those jobs to youngsters part-time employment.

          Geez, just a few months on the production line was enough to convince me to push for something better. Why increase my tax for others’ poor choices?

          • Robert

            There is a problem with what you say, there is the pyramid of life that is taught in any Social Studies. There is all ways got to be those on the bottom of the pile so someone can be on the top. In most cases the ones on the bottom are the reason the ones that are on top are there. Life is no different than the Military structure, it is not the one on top that wins anything, it is the lowly foot soldier that makes it so that the person on top is there.
            Any one who thinks that everyone can get to the top of the pile is no at all educated in life as it is.
            I am on the top of the pile, I am in at least the top 10% in the world, and I think that anyone who chooses not to help the unfortunate is not looking at the whole picture. There are many reasons why persons can not get above worker class. I did not work hard it was my companies workers that made me as wealthy as I am and I in no way would have been this wealthy with out them. Now if everyone was top of the pile as you suggest then who would do the work that has to be done.
            You said you wanted to move on to make more money, that is nice because not everyone has that opportunity.
            When our plant burned, every worker got their same pay every week until we were rebuilt and up running again, about 11 months later, would you have done this, I also gave all my workers free to them Medical coverage for their whole family, would you have done this, when someone or someones wife had a baby the person or her spouse got paid maternity leave, for up to 6 months, would you have done that. Money has never meant a lot to me, I graciously give to the charities that I know are real.
            Why is it that the richest in the world have no problem with the taxes and in most cases think that they do not pay enough income tax. It is those that think that with money they can be someone. If the only reason some one wanted to know me is because of my money then I would not want to know them. I have never bought a new car in my life, my wife has bought two, the company bought lots of new cars because it was company business. I do not fly first class, when I go alone I travel coach, when the family is there we travel business. None of the money I have made me any hapier than when I was dirt poor working on the family farm.
            HAVE A GOOD DAY

          • AccountableForAll

            Not having to live paycheck to paycheck and having the ability to help others both directly and through charities is what my climb has brought. I said nothing of happiness. A great spouse and family have allowed me that happiness.

            I also head a corporation, don’t buy new cars, and fly coach. I may be in the top 15% but so what. Life has brought me in direct contact with folks from all income levels, ethnicity, and education levels. There are those who seek opportunity, those who simply talk about it, and those who cannot take advantage for reasons that we would both would probably agree that they need support. Again, the ethics and mindset that allows those with drive to progress should not be hampered by redistribution of their efforts to others via government oversight.

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