Thursday, April 16, 2009

tax heaven

Freudian slip - I mean tax haven. It seems that the G20, as part as their plan to save the world from total financial meltdown, is cracking down on tax havens, as the tax revenues are needed in this time of hardships and some claim that "culture of banking secrecy had worsened problems in the global economy". Is this a slippery slope which will reduce freedom? Unlikely, for to paraphrase the UK stance "tax avoidance may comply with the letter of the law but not with its spirit." No wait, never mind.

Is the stationary bandit learning to walk?

But I must agree with this crackdown, for several reasons I will list below. Before reading further: take a minute or so to consider - is this crackdown good or bad? Why?

An informal poll taken on this blog indicates good idea (1 vote) is overwhelmed by bad (3) and evil (2), with nobody saying "who cares?" (0). Small sample size, and not a random sample either, but interesting. My first reaction was between "evil" and "bad", but I further considered and arrived at "good" - here is why.

If someone is a citizen of nation X they are bound by the rules of nation X. Most free countries (all of OECD nations?) allow you to give up your citizenship - if you don't want to pay for the benefits of citizenship, and you are ultrarich, then perhaps you should give up your passport and rights and get citizenship in whatever country you are parking your cash in. They will likely be happy to take you in. Most nations like people with money, and people with lots of cash are the only ones who really do have the freedom to walk away. They also have some power to change things - if they are forced to feel the pain that others feel they may take more of an interest in changing their nations for good. This "walk" argument is somewhat weak and overused, but here both the consequences (positive change in laws) and the current situation (often active law breaking) suggests it is legitimate to make.

Also on the pro side, we will perhaps see
hypocrites like Bono and many other "left wing" proponents get their just deserts and have to pay taxes for the programs they petition governments for - instead of their current situation of tax avoidance and simultaneous pleading for people and governments to help the needy. Shake some of your pocket change out Bono. This is a small, but entertaining, benefit.

In the narrow sense this, the tax haven crackdown, will reduce freedom - but of (mostly) the most free people in the world. In addition, the "loss of freedom" comes from a process of anarchy (international relationships is one of anarchy) and one of voluntary behaviour that does not use force (tax havens are "merely" excluded from benificial trade if they do not conform - standard free market stuff), and, to repeat, if the ultrarich people and companies are forced (by their nations) to pay outrageous taxes in their countries they will either (1) start pushing to change them, or (2) walk, both of which will tend to improve tax structures and freedom.

I do not (sadly) know any strong libertarians, but I suspect they will find it hard to argue against this crackdown - they may think that taxes are a moral evil, but anarchy and noncoericive methods are behind the crackdown, and if they are consequentualists they will have to consider the force for positive reform that will occur - unintentionally this move could reduce tax rates.

So start cracking away G20!


  1. I hail the spread of acts of defiance against unjust laws (tax evasion being a prime example) as steps in the right direction: widespread defiance delegitimizes state authority. In one respect I agree with you: crackdowns like this, which offend the currently rich and powerful, can lead to reform. However, crackdowns of this sort are typically supported by the mass population, and more than likely will lead to nothing.

    However, I find your assertion that anarchy and noncoercive methods are behind the crackdown to be puzzling. You say "international relationships is one of anarchy." Sure, the leaders of the G20 nation can 'anarchically' reach a deal by which they agree to suppress tax havens, but then they must use coercive methods to actually get the people who are governed to comply. They are not agreeing to not trade with the nonconforming haven, they are agreeing to force their subjects not to trade.

    A strong libertarian, therefore, would find it easy to argue against the crackdown. Just because a deal came about noncoercively doesn't mean that the result of the deal is noncoercive: if states reach a noncoercive agreement to tax, it does not change the moral status of taxation.

  2. "I find your assertion that anarchy and noncoercive methods are behind the crackdown to be puzzling."

    True, the "actors" here are not people - but states - so this is a limited form of anarchy, and a strong libertarian may simply discount international relationships of not being anarchic and say this form of anarchy is so severely limited to be useless: I make the case for two reasons:

    (1) this, while limited, can be studied as a type of anarchy where we pretend nations are "people", so we can actually get some understanding of strength & weakness of anarchy [note most states, such as the US, like this current system and do not want to be under world courts etc, which is a good argument *for* more anarchy within states: what is good for the goose...], and

    (2) I want to intentionally push strong libertarians a bit, since I think that a lot of economic (and general interesting philosophy) is behind this case, and one can tease some understanding out with argument here.

    [snipe] I had a bunch of babbling here, I'll turn it into a future post...

    Suffice to say, I believe this is an interesting case study that pulls many deep issues to the fore.