Friday, October 5, 2012

Tax Shelters

We hear a lot of discussion about tax shelters, tax havens, and so on. This is one of those topics that sends people into fits of hyperbole, overgeneralization, and usually hypocrisy. That's because a) most people don't really get how they work, b) don't know if they should like them or not, and c) don't know if their preferred candidate likes them or not.

The thing with tax havens is that they completely bypass American tax policy. We've tried repatriation under Bush II, who cut the repatriation rate to 5%. That resulted in a net job gain of 0. During the Republican primaries, candidate Rick Santorum suggested a repatriation program with a 0% tax rate, which makes no sense whatsoever (the next logical step would be to pay companies and individuals for bringing their money back; think we'll hear that in 2016?).

The general consensus, at least among Democrats and moderates, is that tax havens are bad. They allow wealthy individuals and companies to send vast amounts of money overseas where US taxes won't be imposed. NPR recently conducted a study where they set up a shell company, essentially just a PO Box in the Caimans, to prove just how easy it is. Romney himself is known to have used tax shelters in the Caiman Islands, as well as in Switzerland, though to what extent we don't know. Suspicions abound that Romney may have moved money out of a Swiss bank account when the bank started naming Americans who used their services to bypass US tax laws, which is illegal.

However, despite the fact that tax havens let the wealthy pay no taxes on certain income, they are tolerated, if not celebrated, by some conservatives. After all, if you believe that wealth is the ultimate goal of business, doesn't it make sense that you would support a system of global back doors that allow for wealth to be stashed away from the hands of government? If you don't believe in taxation, wouldn't you support ways of bypassing it? It makes sense. While most prominent politicians don't come right out and support tax havens, they at least staunchly ignore the issue.

Then there's Paul Ryan. Rather than simply embracing the idea of tax havens, Ryan suggests that we cut tax rates in America to the point where we become a tax haven for other nations. His idea, of course, is that individuals and businesses here in the states would keep our money here, and that other wealthy people would move theirs here as well, providing us with the chance to tax it. But here's the thing: we would have to essentially gut our entire government, slash tax rates by about 90%, and give banks complete anonymity in order for that to work. We would have to turn ourselves into a 3rd World country that is owned by the wealthy, because that's exactly the place where these people stash their money.We would have to loosen the laws and oversight we have on banks to the point where there is no regulation whatsoever. Is that really the price we want to pay so that the wealthy will be happy?

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