Tuesday, July 24, 2012
There was a study done by the Tax Justice Institute that
says wealth doesn’t trickle down. What they mean by that is that wealthy people
don’t keep their wealth in the country that they earn it in. The left has
seized on that data. Why? Because Republican President Mitt Romney has Swiss
bank accounts.
But if you think about the conclusion, wealth not
trickling down, and think about the data, you will see that there is no
correlation at all between the two that is meaningful.
First, look at the societies where most of the wealth has
left the country and gone into tax havens. Russia, China, Turkey, Iran,
Hungary, Poland, Ukraine, Kazakhstan…. If I was very wealthy, I might spirit a
little money out of the country if that’s where I was a citizen too. Some have
citizens where living behind the Iron Curtain was a reality. Others have
systems of government that don’t value property rights and don’t have systems
of law that are like the US Justice system. Government tyranny is a real worry.
Don’t believe me, ask business owners that were on the wrong side of Putin. Or
even the US trial lawyers.
At least if you are in the Gulag and you have a bunch of
money in a Swiss or Cayman Island bank account you have some hope.
When the themes of the Tax Justice Institute are perused,
it reads like a social justice manifesto.
1. We support sustainable finance for development
2. We support international co-operation on tax,
regulation and crime3. We oppose tax havens and offshore finance
4. We support transparency and we oppose corruption
5. We support a level playing field in competitive markets
6. We favour progressive and equitable taxation
7. We support corporate responsibility and accountability
8. We favour tax compliance and a culture of responsbility
This is an anti-business big government pro bureaucrat
type of organization. Wonder how they feel about less government spending and
smaller government? I bet not friendly.
As per usual with organizations that have an agenda, many
of the items they tic off are hard to argue against. Look at number four. Who
isn’t against transparency and corruption? But when you read what that actually
means, it’s pretty easy to be against it.
We want companies to be made more open about their
financial affairs and to publish data on every country where they operate. We
want the finances of wealthy individuals to be visible to their tax
authorities, so they pay their fair share of tax. Markets work better, and
companies are more accountable, in an environment of transparency. Secrecy
hinders criminal investigation and fosters criminality and corruption such as
insider trading, market rigging, tax evasion, fraud, embezzlement, bribery, the
illicit funding of political parties – and much more. We want to expand the
commonly accepted definitions of corruption so that they no longer focus only
on narrow aspects of the problem such as bribery. We must bring tax, tax
avoidance and tax evasion decisively into the corruption debate.
Uh-huh. This is really an excuse to see what everyone has
to make it easier to confiscate and redistribute wealth.
In this 24/7 world, capital doesn’t know borders anymore.
It goes to the most advantageous spot to return wealth to the entity holding
it. Governments try and erect synthetic fences to capital. But, corporations
and super wealthy individuals can find ways around it. Sometimes they have to
pay a small tariff, like wealthy Chinese do in Macau, but capital goes to where
the entity thinks it best serves them.
The US doesn’t have a huge problem with off shore wealth.
Multi national corporations do keep a large cash cache outside our borders.
Some of that is because of the corporate tax discrepancy between the US and the
rest of the world. But much of the reason for having off shore assets is
because the companies business is growing faster there, and having ready
capital available is important to the life of the business.
As far as wealthy individuals go, most of American wealth
is tied up in American banks. But some hyper wealthy do have accounts in
overseas banks. The reason they do that is risk. Suppose the entire American
government failed, and it’s system of banking with it. When you have a lot of
money, do you want it tied up in one place?
“Any sophisticated person interested in an asset
protection plan should consider Swiss banking,” Lodmell said. “The point is to
remove the money from the U.S. system with an international asset protection
trust … whether you’re a business owner, [an] employer in California where laws
are particularly harsh, or a doctor who could be sued for malpractice.”
If there is a tremendous failure, you want to be able to
pick up the pieces and start again. That’s why a lot of folks put money
offshore. A small percentage use it as a tax dodge. But, they are probably
doing other illegal things to earn their money, like Marc Rich for example.
Having an offshore bank account is the least of your worries.
The wealthy in America, and corporate America hold the
lion’s share of their assets in the US. If one looks at the percentage of
wealth that leaves the country on a GDP basis, and compares it to other
countries in the world it’s no contest. America has the best capitalized
financial system in the world and it’s not overseas assets that are killing our
economy.
What’s killing our economy is big government debt, lousy
law and regulation, poorly designed government programs, and a terrible
response to the financial crisis over the past four years.
The fact is, the more wealthy people you have in a
country, the better. It’s a sign that there is income potential in that country.
When I hear of new millionaires being minted because they created a business
that went public, it gives me hope. When I hear about how someone made a bunch
of money from milking the government, it makes me cynical.
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