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How legal are tax havens? Ethically-speaking, they are not.

In a commentary by Daniel Mitchell published on the Cato Institute website, the author found amusement with President Obama's hypocrisy, where Secretary of State John Kerry, new Treasury Secretary Lew, and Michael Froman, nominated for Trade Representative, have had money stashed away in the Cayman Islands, a tax haven; Obama once condemned this as "the biggest tax scam in the world" when it came to Mitt Romney's own stash.

But Mitchell's piece is amusing in itself, as this is yet another "hatchet job" against Obama, no doubt coming from a "pitchman" for tax havens.

Mitchell claims tax havens have "better fiscal policy, often with zero income taxes [in other words, stealing by not fairly sharing the burden of paying taxes]";

They "encourage other nations to adopt better fiscal policy because of tax competition [between, e.g., poor countries desperate for foreign investment because of capital flight and thus being locked into a vicious circle financially.]"

They "provide refuge to people suffering fiscal oppression" and "political persecution" [that is so funny, given that the "oppressed" have millions of dollars stashed away in tax havens, so they're not exactly hurting financially; and they have corporate and/or political power];
And they "benefit the American economy, both directly and indirectly [not average U.S. taxpayers who have to shoulder the tax burden more because taxes are not always paid by the wealthy]."

Tax havens are ill-defined when it comes to legally nailing them down. The U.S. Government Accountability Office, however, offers the following characteristics: virtually or totally tax-free, lack of information exchange regarding a tax haven's status, lack of transparency, and no need to move to the tax haven.

Putting it simply, tax havens are locations where money can be stored which is virtually or totally tax-free. Examples of tax havens are the Cayman Islands, Bahamas, Panama, Samoa, Monaco and Seychelles.  Individuals or corporate entities can set up "shell" subsidiaries in tax havens like these and/or they could move to the location itself. Either way, it's the same result, and it's supposed to be legal.

But if the Tax Justice Network's description of a tax haven were to be put into the tax laws (which sound vague to begin with), tax havens would be illegal.

The TJN asserts that tax havens cause and maintain poverty. It estimates that offshore funds total between $21 to $32 trillion. "Third World" nations are hit hard because governments don't have enough of the revenue to sustainably fund the societies they govern.
The TJN states that tax havens are "heightening inequality, and poverty, corroding democracy, distorting markets, undermining financial and other regulation and curbing economic growth, accelerating capital flight from poor countries, and promoting corruption and crime around the world." Ethically, then, tax havens are illegal; and the "laws" that make them "legal" are also illegal.

Other estimates coming from the Organization for Economic Co-operation and Development are between $5 to $7 trillion of total global investments, and from the IMF at $4.6 billion. But regardless of which is most accurate, it's clear that hoarding money in tax havens is a worldwide problem and not a fiscally responsible solution.  

Who really benefits from the "heaven" of tax havens that Mitchell describes? Well, the rich have become super-rich, while the "commoners" have seen their real wages drop over the years, with the gap widening further between the two. It's another example of capital dominating labor, which should be the other way around, because of it wasn't for labor, capital would not exist.

Mitchell's promotion of tax havens is not only not amusing; it's a part of the problem.

David Starr writes on various social and political issues, both national and international.


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