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What tax havens teach us about the benefits of low-tax economies
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| Magnetonium |
What tax havens teach us about the benefits of low-tax economies
I found this article interesting ... hoping for some comments and clarifications. Can this really be true???
http://www.thebusiness.co.uk/the-ma...economies.thtml
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What are the three richest countries in the world? You might be tempted to answer America, maybe Switzerland, or perhaps even Ireland. The right answer, however, is Luxembourg, Bermuda and Jersey in that order.
The CIA, which as well as spying on people collects economic data, recently published its annual ranking of global wealth, measured by gross domestic product (GDP) per capita, adjusted for the purchasing powers of different currencies. There are few better ways of measuring, not total economic power, but how well-off on average each individual citizen is – which should, of course, be the main test of economic policy.
What is striking about the list is not only that none of the big economic powers are that near the top, but that so many of the leading places are taken up by tax havens or low-tax countries.
Of the 20 wealthiest nations, 13 of them are low-tax territories. Luxembourg, Bermuda and Jersey might lead the way, but the top 20 also includes: Equatorial Guinea, Guernsey, Ireland, the Cayman Islands, Andorra, Hong Kong, the British Virgin Islands, the Isle of Man, San Marino and Switzerland.
The wealth of some of those territories is striking. Luxembourg and Bermuda have a GDP per capita of $71,400 (£35,072, E50,250) and $69,000 respectively. By contrast, America, the wealthiest of the mainstream industrial economies, has a GDP per capita of $44,000. Even the worst-off low-tax nation, Switzerland, has a GDP per capita of $33,000. And Britain, despite the endless boasting from Gordon Brown about the brilliance of its economic record, ranks only 28th in the world, on $31,800, slightly below Germany, and just a tiny bit above France.
(London, Europe’s wealthiest city, would belong to the top 20 if it declared independence – and with 112,000 non-domiciled residents paying virtually no tax, it is a bigger haven than Monaco and Andorra combined.)
In the past few years, politicians from the developed world have led a determined assault on tax havens. Norway has just launched an investigation into their role in sheltering development aid stolen by corrupt dictators. The Paris-based Organisation for Economic Co-operation and Development has led a series of attacks on the world’s tax havens, accusing them of complicity in money laundering and of lacking transparency. At one point the French government advocated an international boycott of tax havens, arguing that EU banks should refuse to deal with them. As Chancellor, Gordon Brown led constant campaigns against tax havens, looking for new ways to raise revenue out of them.
Even the Vatican has joined the campaign. Pope Benedict XVI was reported last month to be working on a doctrinal pronouncement that will condemn tax evasion as “socially unjust”, while the planned encyclical – the most authoritative statement a pope can issue – will denounce the use of tax havens and offshore bank accounts by wealthy individuals, on the grounds that they reduce the tax revenues raised for the benefit of society as a whole (although curiously the Vatican hasn’t reacted so well to proposals by the Italian government to curb the Catholic church’s own tax break).
But instead of attacking tax havens, other countries should be trying to learn from them. The way they lead the global wealth rankings is testament to the power of lower taxes to raise overall living standards. The Bahamas manages to be far richer than any of its neighbouring Caribbean islands, Luxembourg is wealthier than France or Belgium, while Jersey has pulled well ahead of near-by Britain.
Of course, you can object that these are all tiny places, with minuscule populations floating on top of an ocean of tax accountants and brass-plate companies. There is some truth in that. But the list also includes low-tax nations such as Ireland, Hong Kong and Switzerland: all mid-sized trading territories which levy significantly lower taxes than most of their rivals.
You might say, as well, that the tax havens are rich because they are corrupt: they are refuges for corrupt dictators and drug dealers and tax evaders, who are allowed to launder their illicit gains through their banks and trust companies.
But though money laundering through the Cayman Islands may be a staple of popular fiction, there isn’t much evidence for it in the real world. Most criminals launder the proceeds of the crimes domestically, since they are well aware that moving their money across borders only increases the chances of detection. Terrorists use traditional networks of money changers – not banks in Jersey.
Governments should spend more time worrying about why it is that so much development aid ends up lining the pockets of a corrupt elite than where the money ends up. There is always going to be a bank somewhere that will take their money: even if there wasn’t they’d stash it away in gold or diamonds.
Low-tax territories provide an alternative to the high-tax world. They impose some discipline on governments elsewhere, restricting the amount they can raise in taxes by providing an escape route. But more importantly, they demonstrate the ability of lower taxes to consistently raise living standards, even in the most unpromising locations.
Maybe it is time to stop hammering the tax havens – and start trying to learn from them instead.
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| Krypton |
The more money people keep, the more they have to spend. Check out the negative income tax.
Negative Income Tax:
A negative income tax would replace the current progressive income tax system used throughout most of the Western world. This would be replaced by a flat tax of, say, 25%, but each taxpayer would also be given $10,000 by the government.
Thus a person earning only $4000 per year would pay $1000 in taxes for a net income of $13,000.
$10,000 + $4000 - $1000 = $13,000 net income (Overall, they would receive a net gain of $9,000 from the government.)
A person making $40,000 would be at the break-even point, essentially paying no taxes.
$10,000 + $40,000 - $10,000 = $40,000 net income
A person making $1,000,000 per year would pay close to the full 25% tax.
$10,000 + $1,000,000 - $250,000 = $760,000 net income. |
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| atbell |
It's a bit of a trick. These are all very small countries.
From the CIA factbook
Bermuda has about 67,000 people
Luxumburg has about 408,000 people
and Jersey has about about 91,000 people
It doesn't take much to bump up thier per capita GDP. To get the per cap. GDP to rise 1$ requires the generation of 67, 408, or 91 thousand US$, which corespondes to about 670,000 - 4,080,000 - or 910,000 US$ more investment in a year.
By contrast the US (pop ~300,000,000) would require 300 million US$ to get the same increase, or an aditional investment of 3,000,000,000 US$.
Flows of 0.5 to 5 million US$ aren't uncomon but encouraging an extra 3 billion would be very difficult. |
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| George Smiley |
GDP/Capita is the most rediculous method of indentifying the "average" I can think of. Surely the most obvious way to indentify an accurate average would be to find the mode, rather than the media wage. You could have bands of £500s (or $1000s) and see which band has the most people in it.
GDP/Capita, especially for a nation with a population below that of most large towns, is easily distorted, especially with an disproportionately high amount of millionaires living there.
For example:
10 people live on an Island A and 10 on Island B
On Island A, 10 people all earn £20,000/year
On Island B, 9 people earn £20,000/year and 1 person earns £200,000/year
GDP/Capita on Island A is £20,000
GDP/Capita on Island B is £38,000
I know this is a simple example, but as you can see, with just one person earning a very high wage, it gives the impression that the average wage on Island B is actually double what the "real" (mode) average wage is.
I think this is especially important to take into account when considering Bermuda's place in the rankings. With a population of 66,000 and a poverty rate of 19%, to suggest that most people in the country earn £35,000 ($70,000) is quite frankly rediculous. |
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| pkcRAISTLIN |
| quote: | Originally posted by Krypton
The more money people keep, the more they have to spend. Check out the negative income tax.
Negative Income Tax:
A negative income tax would replace the current progressive income tax system used throughout most of the Western world. This would be replaced by a flat tax of, say, 25%, but each taxpayer would also be given $10,000 by the government.
Thus a person earning only $4000 per year would pay $1000 in taxes for a net income of $13,000.
$10,000 + $4000 - $1000 = $13,000 net income (Overall, they would receive a net gain of $9,000 from the government.)
A person making $40,000 would be at the break-even point, essentially paying no taxes.
$10,000 + $40,000 - $10,000 = $40,000 net income
A person making $1,000,000 per year would pay close to the full 25% tax.
$10,000 + $1,000,000 - $250,000 = $760,000 net income. |
what kind of economic shortfall would that give, say, the US government(s)? is that in addition to consumption taxes as well? |
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| Krypton |
| quote: | Originally posted by pkcRAISTLIN
what kind of economic shortfall would that give, say, the US government(s)? is that in addition to consumption taxes as well? |
It would force the government to cut back on spending. The more over budget the government is (now 9 trillion $ most of it Bush), the less valuable the dollar becomes.
Consumption taxes? Like cigarette and alcohol tax? Probably still keep them.
I still like the fair tax better...
The FAIRTAX (H.R.25/S.1025) is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes (including Alternative Minimum Tax), payroll taxes (including Social Security and Medicare taxes), corporate taxes, capital gains taxes, gift taxes, and estate taxes with a national retail sales tax, to be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to households of citizens and legal resident aliens (based on family size) as an advance rebate of tax on purchases up to the poverty level.[1][2] The sales tax rate, as defined in the legislation, is 23% of the total register price (23¢ of every $1—calculated the same way as income taxes), which is comparable to a 30% traditional state sales tax (30¢ on top of every $1).[3] Because the U.S. tax system has a hidden effect on prices,[4] it is expected that moving to the FairTax would decrease production costs from the removal of business taxes and compliance costs, which is predicted to offset a portion of the FairTax effect on prices. |
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| eROs.au |
| quote: | Originally posted by Krypton
The more money people keep, the more they have to spend. Check out the negative income tax.
Negative Income Tax:
A negative income tax would replace the current progressive income tax system used throughout most of the Western world. This would be replaced by a flat tax of, say, 25%, but each taxpayer would also be given $10,000 by the government.
Thus a person earning only $4000 per year would pay $1000 in taxes for a net income of $13,000.
$10,000 + $4000 - $1000 = $13,000 net income (Overall, they would receive a net gain of $9,000 from the government.)
A person making $40,000 would be at the break-even point, essentially paying no taxes.
$10,000 + $40,000 - $10,000 = $40,000 net income
A person making $1,000,000 per year would pay close to the full 25% tax.
$10,000 + $1,000,000 - $250,000 = $760,000 net income. |
I could sit on my fat lazy ass and collect $10,000 while working maybe a part-time job just to keep employed status? |
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| Krypton |
| quote: | Originally posted by eROs.au
I could sit on my fat lazy ass and collect $10,000 while working maybe a part-time job just to keep employed status? |
There might be some requirements, like being student, or having employment. That way, productivity stays up, employment stays up. I know plenty of people who could sit on their ass and live off 10,000. Plenty more where that came from.... |
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