A Simple and Possibly Naive Solution to Tax Havens

A Simple and Possibly Naïve Solution to Tax Havens

Everyone knows the rich use tax havens.  Heck, if I were really wealthy I would be tempted to do the same.  I’d like to think I would be bold and moral but I confess, when I see the ineptitude of government leaders, I can’t help but wonder why I shouldn’t minimize how much money of mine they get to spend.  Let’s face it, we all try to minimize tax and most of us, even the wealthy, try to do this legally.  And I think most people would agree tax laws all over the world favor the rich in their never ending quest to pay as little tax as possible. 

My philosophy on greed and corruption is pretty straightforward.  A little can be tolerated, but too much brings ruin.  Those of you who know I profess Christianity (as opposed to actually being a really good Christian) might be shocked at this.  After all, I should abhor all greed and all corruption.  My philosophy on this, and a number of other subjects, is based on Ecclesiastes 7::16-18 which reads

 Do not be too righteous, and do not act too wise; why should you destroy yourself?  Do not be too wicked, and do not be a fool; why should you die before your time?  It is good that you should take hold of the one, without letting go of the other; for the one who fears God shall succeed with both.

My point here is that greed and corruption is inevitable so in a practical sense, you have to deal with how much the system can tolerate.  But before I get into this, let me lay one more principle down.  People will always push for more greed and corruption.  This is one reason why lobby groups are so powerful.  This too, is inevitable.  Think of a government and its economy like this.  Imagine a table with a large glass vase full of pretty flowers.  Slowly, the vase moves toward the edge of the table.  Part of it is off the table.  Then a little more, and a little more.  For a while, it can stay on the table.  Any normal person, however, would immediately move the vase toward the center of the table or at least away from the edge where there is no danger of the vase falling.  But instead, people in power continue to push the vase off the table.  Eventually, the vase tips over and shatters.  The vase along with the flowers and water within it, are lost.  Then a country’s version of an enquiry is launched which results in no ramifications for those who pushed the vase off in the first place.  Instead the enquiry says the table should be fitted with expensive edging to prevent this from happening again.  Perhaps the table should be enhanced with a sticky surface to make the vase harder to move. When all the posturing is done, it’s the table’s fault.   In the end, nothing is done at all.  If anything is done, it is temporary and ineffective. 

So here is an example of a little greed which while not exactly right, the system can tolerate.  Imagine you and a buddy of yours, which I’ll call Fred, have lunch.

You:       Hey dude, how’s it going?

Fred:     Good.  How’s work?

You:       Surviving.  You?

Fred:     Busy but OK.

You:       Who’s turn is it to declare this as a business lunch since we discussed work?

Fred:     I did it last time so it’s your turn.

You:       Great.

This sort of thing used to happen all the time, at least in Australia, until the government tightened the laws for declaring business lunches.  But it still happens today when people can get away with it.

When it comes to tax havens and offshore accounts, though, I think most people are pretty disgusted.  Most people feel that level of greed has gone too far.  Again, I won’t sit in moral judgment here because if I had tens of millions, I might do the same thing.  The problem is, though, that rich people and corporations don’t pay their fair share and this results in the squeeze being put on the rest of us.  When a multi-billion dollar company pays $5 in tax, there’s something wrong.  OK, maybe they pay more than $5.  A number of years ago in Australia, one of the country’s richest men paid that amount in tax, so I think this ridiculous amount of tax is paid sometimes.

We could invade and occupy tax havens.  Some of those places have nice beaches and great weather.  Maybe that’s not a bad option.  Another option is for the international community to level sanctions on these places and make it illegal for citizens to have bank accounts there.  That might work, except that every country would need to come on board, and stay on board and that is just not practical.  Plus some of these places have really nice beaches and great weather and it would be sad not to be able to visit those places, which you probably couldn’t do if sanctions were levelled against them.

The solution for tax havens is much simpler than any of the above and still allows anyone to enjoy those nice beaches.  Whenever money is moved into a tax haven, tax it before it gets there.  Suppose I’ve got a million I want to move to an offshore account.  OK, no problem.  I go to my bank and I create a bank transfer.  We already have laws which prevent me from carrying a suitcase full of a million dollars through an airport.  And if we don’t, we should.  So I make the transfer.  But before that million gets to the Cayman Islands bank account I have waiting, it gets taxed.  As this is only a blog post, I won’t go into too much detail, but I’d say whack it with 20% or 30% tax. 

Suppose somebody like Apple has a few billion and they want to transfer the money to Ireland so the bean counters can do their magic and cause less tax to be paid.  OK.  Well, the money still has to get to Ireland.  So hit it with 20% to 30% tax.  Done.  Now the bean counters can do whatever the hell they want, but the government being robbed now has its money.

Now let’s say Australia’s Prime Minister wants to add to his substantial offshore accounts.  OK, 20% to 30% tax during the transfer process and thank you very much!

That is the first part of my solution.  The second part to my solution has to do with shares.  There is a lot of share trading used in money laundering.  The same is true for property development.  Foreign person X gets a lot of money through corruption.  That person buys shares or property in another country and suddenly there is legitimacy.  The dividends that accumulate afterward are also legitimate.  Share markets are manipulated in a bad way because these sorts of transactions are not investment transactions.  There is no interest in building the economy or companies in the countries in which the shares and properties are bought.  So any foreigner buying shares should be taxed when the transaction takes place if the ownership of shares is less than an agreed upon time frame.  For example, if a foreigner buys shares no tax is charged.  But if the foreigner sells those shares before a year, then that person or company gets hit with a 40% tax.

I can already hear the financial press screaming.  I might get blacklisted by the Wall Street Journal were I important enough for them to take notice of me.  Fortunately, I’m not.  We all know shares can go down in a heartbeat.  Surely someone buying shares should have the right to sell.  My counter to this argument is simple.  I do not want large foreign transactions to increase volatility in my home country’s share market.  I want foreign investment to be just that, investment.  The last thing we need is large transactions happening frequently which have nothing to do with the markets or the fundamental values of companies.  Yes it is a little unfair to place such restrictions, but I think it is needed to help ensure clean money is used in the first place.

And I do not like foreign ownership of property.  I’d rather the people of a country own their own land so if a foreigner wants to buy property, well and good.  But if they sell within two or three years, it’s 50% baby and good riddance.  Yes, this might cause me to reconsider my holiday home in the South of France, but if I truly want a holiday home there, this is not a problem.  And for the record, I do not own a holiday home in the South of France.  Great place though.  I highly recommend it.

I could add more, but this is already getting long.  In short, my solution is this.  Allow the rich companies and individuals to put as much money as they want in offshore accounts.  We can’t realistically stop them.  But when that transaction happens, tax them.  At least that way, the people get revenue they should get anyway.

Maybe this solution is simplistic.  Since the rich and powerful use tax havens, they might not enact something like this.  And maybe there are problems.  One of my best friends knows what I know about this stuff raised to the 5^th power so maybe he’ll chime in with “Well that’s pretty naïve.”  But in general, I think the world must move toward a transaction based tax system and I think it will.  The irony is, that not allowing people to buy or sell unless they have permission (mark of approval) makes sense, and that scares me because, as I said earlier, I profess Christianity and the book of Revelation speaks of just this sort of thing in a bad way.  But I think the vase is going to tip over eventually anyway so I’m comfortable with doing what makes sense.  Wow that’s very fatalistic isn’t it.  At least with Christianity, there is a second coming and a paradise ruled by a God who knows what he’s doing to look forward to.  For tax havens and offshore accounts, at least, I think this is the only real solution.