So here’s an article about tax havens (with a cameo by Thomas Piketty). It omits a summary of (1) why tax havens are bad things (“problem” is Sunstein’s preferred word) and (2) why they are used. That omission a mistake.
But whatever your political party, you are unlikely to approve of the illegal use of tax havens. As it turns out, a lot of wealthy people in the United States, Europe, and elsewhere have been hiding money in foreign countries — above all, Switzerland, Luxembourg, and the Virgin Islands. As a result, they have been able to avoid paying taxes in their home countries. Until recently, however, officials have not known the magnitude of that problem.
Source: Parking the Big Money by Cass R. Sunstein
What do ya’ll think is the context for a negative estimation of tax havens?
It it morality or a belief that more tax revenue makes a more effective government? Both are debatable.
Is it that tax havens are illegal?Not entirely (“[Tax avoidance by multinational corporations] is typically done without violating a national law”).
Whatever the reason, there is a “physics of money” to consider. Money gets spent one way or the other. The company may spend it on executive salaries, but those executives will surely spend it on goods and services (someone buys those diamond-plated iPhone cases). Same for the individual account holder — if they don’t spend it then their heirs will (and statistically, spend it poorly).
So in the context of a “physics of money”, perhaps the most problematic aspect of tax havens is how they directs the money they hold.
What I mean is that money works best when it flows freely, when the person with the money has the most options to spend it on goods and services. And I’d say this includes “prospective” goods and services, i.e. investing in ideas, experiments and creation. That in turn means information and imagination.
So think of tax havens as just one more set of goods and services competing for money. Anyone know what kind of money tax haven managers make? What kind of benefits do tax haven countries reap?
Regulations like what Sunstein and Piketty propose are just ways of raising the cost of spending money on tax havens. But we also want to increase the benefit (or at least perceived benefit) of spending the money on alternatives to tax havens.
The fact is that companies and rich folks are willing to pay the fees for using tax havens. They believe they can use their money better than the government would use it.
Surely they can be given an alternative to tax havens that still directs their money in a world-enriching direction. That’s partly the logic behind 501(c)3 contributions, or setting up an Endowment or a grant-making Foundation. Or one can go the direction of Zuckerberg, Gates, Musk et al. — putting money into profitable but world-changing ventures.
Then again Gates, Zuckerberg, Musk et al. are able to invest their money the way they do because of an effective government (even if government *inefficiencies* are also a strong motivator).
Anyway, I feel like Sunstein’s article could have at least touched on this complexity. Instead we start from the simplistic assumption “Tax Havens Are Bad”. That assumption weakens the entire effort to find something more moral and economically effective.