Monday, September 15, 2008

The Economic Case forTax Havens...

This video is a decent basic summary of what it means to do business "offshore" and what a “tax haven” is. First world governments have been on a major campaign the past 10-20 years to steer the masses towards a sense of criminality or "dishonesty" for investing or doing business in tax advantaged jurisdictions. It is quite understandable that high tax countries would be threatened and alarmed with major business and funds leaving their country...yet the balance has gone way out of whack between the power and influence of "States" versus power and influence of "individuals" or "corporations". For that reason, you see a lot of currency and brain drain happening on an increasing level...especially from North American and European high tax countries.

I have a couple clarifications or "anti-myth" statements to make. First, tax AVOIDANCE is not a EVASION is. Very simply put, investing money in ways to limit taxation of profits or interest is not a crime...anywhere that I know of. People invest in "municipality bonds" often for the primary reason of getting the highest non-tax yield possible. Other people invest in stocks with low or no dividend payment history in order to limit their annual tax obligations while hoping for a high appreciation in their stock price that isn't taxed until they cash it out. People make huge decisions based on the tax issues versus the profitability quite often. Many people choose to invest in real estate in Panama versus other countries because the real estate taxes here are next to nothing compared to USA and other major jurisdictions in the world. These incentives have brought great wealth and productivity to this small county at many levels. These investments are purely legitimate...and any country that would try and limit its citizen’s freedom to invest their money outside of their country is practicing a form of socialism or even communism in the modern age.

The USA is reeling from an economic downturn unprecedented in this century. The current write downs of major financial firms, the takeover of Freddie Mac and Fannie Mae using American's tax dollars, and the huge debt of both our government and its citizens is arguably a bigger downturn economically than we had during the "great depression" in the early 1900s. Sure, we have more social systems and entitlement programs as a safety net for the average citizen than we had back then, and the Federal government is obviously much more willing these days to step in and bail out errant financial institutions in order to avoid panic in the markets. I just keep questioning how long our system can support that financially and how any political leader can promise tax reductions or lowered government spending while continuing these government bailouts and false promises…paid for by the citizen's tax coffers? Do any of these people talk to accountants anymore?

Other scary comparisons of current times to the "Great Depression" are:

• Governments during the Depression reacted to crisis by adding more "protectionism" against international trade. I hear a lot of those voices today in the annals of congress.

• A debt bubble quickly contracted, inflation increased, and people stopped spending what little they had left. Credit became much more difficult to obtain. Sound familiar?

• Politicians keep claiming we are not in recession or depression because "our economy is still growing". They apparently don’t realize that during the Great Depression, "THE US GDP GREW AT AN ANNUAL RATE OF 2.83% A YEAR BETWEEN 1930 AND 1941! ...The GDP growth rate during the preceding growth period, 1920Q2-1929Q2, approximately, was in excess of 5% a year". With today's growth at around 3%, how can these people argue against recession or depression with THAT statistic?

• World War II was largely caused by the depression as people turned inward for security and followed extreme leaders like Hitler and Mussolini as answers to the threats of harder times. Any wonder why governments are now so quickly "rattling their sabers" of war and conflict? As the old saying goes, "war is profitable" least for a time. Any wonder why you have current despot governments on the rise again? Venezuela, Iran, N Korea, Bolivia, Ecuador, and Russia? Any wonder why we invaded Iraq instead of Afghanistan, Iran or North Korea?

My point here is not necessarily to be an alarmist or "dooms dayer" even though one might argue we need some more reality therapy in our world about these issues. But, I do find it ironic that during these hard economic times, our Federal government is focused on passing legislation that is protectionist in nature, trying to limit freedom of funds going offshore or into global markets, and still not facing the music on oil dependency and failing energy policies related to antiquated fossil fuels... and yes, global warming. Instead of competing our way out of this hole we have dug for ourselves, we want to legislate and TAX our way out of it!

And here's a point you're REALLY going to love...the two biggest tax havens in the world? Yep, the USA and Great Britain. WHAT? Oh yea...the USA offers some of the best tax incentives for FOREIGN companies or individuals to bring money and do business in the USA...but those incentives are NOT available to US citizens or domestic corporations. Any wonder WHY so many companies go "offshore" and/or leave the USA…only to turn around and sell back to or invest back into America as a “Foreign” company? It’s about survival folks. They want to become a foreign company and compete on a level playing field. This is a true example...from the other side of the fence...of why there is no true "free enterprise" or level competition. It's all about competitive tax systems. And very hypocritically, our USA government wants to outlaw or tax local citizens or companies for taking money or business offshore, while instigating and promoting FOREIGN interests to escape THEIR expensive tax systems and bring money and business to the USA. It's a ridiculous scenario...and I can't believe more people or companies don't hype these atrocities in global business and throw them into the faces of our legislators. All these politicians harping how they are going to shut down or castigate those businesses wanting to leave, while taking money from foreign interests that are incentivized over our own citizens to compete domestically…it is a travesty. These types of legislators should be shot for treason...and misrepresentation of "the people". that off my chest. At least now we should be able to better understand the attraction of offshore investment. Panama is the 2nd largest financial service center in the WORLD. Why? Because, they offer some of the most competitive tax rates for international business, and allow their citizens AND foreigners a high, legal level of financial privacy in a world that retains very little of it. If governments have their way, all of our investments, income and tax obligations will be publicly available via the internet...and probably for a fee...from anyone who seeks it. If you can't understand the reason and meaning of financial privacy, then you just haven't read or understood enough history, both ancient and recent. The world is full of predators...individuals, organizations, lawyers, and politicians, kings and criminals...who want access and control over you. Most of them want a piece of you...with no right to have it. That is why MOST people of means are very sensitive to financial privacy and why so many of them are starting to free and flee with their assets to "tax havens". It is absolutely legal, and correct that they should have the right to do so.

The USA needs to adopt a more competitive agenda for attracting and keeping money and business within our borders. Protectionism has never worked and was a large factor in the "Great Depression". High taxation has never worked in building an economy. Large bureaucratic governments have never had a good history of building economies. They produce no income, and spend ours with no real respect for what it takes to produce it.

Panama, nor anywhere else for that matter, is a panacea for good government or democracy in motion. But, at least tax wise, they have a big step up on big brother, the USA, in the competitive tax department. Keep these things in mind this fall as you vote. I will be voting for whoever has my and the country’s financial interests and power at the forefront of their agenda.

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