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Tax Havens Are Necessary to the Global Economy

By: Vanesa Vallejo - Apr 13, 2016, 1:57 pm
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Besides the humorous note, the t-shirt highlights a truth — taxes can hurt a lot of people. (BoingBoing)

EspañolThis week the “Panama Papers” are everywhere. They’re a series of documents that reveal how politicians and celebrities from around the world are using tax havens.

So far, this has raised two main debates: the first is the anger arising in people who feel cheated by the upper classes’ tax evasion practices. The second is also outrage, but toward the politicians whose tax evasion practices are grounded in political and legal activities that hurt the lower class.

Both sources of anger raise the question of how to end tax evasion, while also encouraging politicians to exert international pressure on increasing controls over tax havens.

Governments talk about toughening penalties on those who do not comply with tax payment. Added to this, the “Panama Papers” case has provoked a condemnation against all the wealthy entrepreneurs who are trying not meet their tax obligations.

Tax havens make the government budgets decrease, therefore they are bad for society. Such an approach, driven by politicians, is based on the belief that it is the state who provides employment and increases a country’s welfare. Apparently people believe entrepreneurs are bad and steal money, and that the state is good because it takes from the “rich” to give to the poor.

In this regard, tax havens bring benefits that most people ignore. First, if they did not exist, the level of investment in the world would be lower because governments would have to keep much of that capital.

Many believe this extra cash is not important and that it’s only a small part of the riches’ greater fortune. But remember, tax evaders pay large amounts of money to accountants and lawyers who handle all the financial engineering for these types of things. In addition, they are willing to risk their prestige and even their freedom, because in many countries evasion is a crime punishable with jail time. The state theft is so onerous that even though they face such risks, the rich find it preferable to evade taxes.

The other key issue is the importance of tax competition. We all recognize the benefits of having a competitive market: to lower prices and improve quality of investments. But when we talk about taxes, it seems that we forget most of these basic principles. Tax havens are incredibly useful for limiting confiscatory nations. If these did not exist, taxes would be much higher than they are today.

Many underestimate the destructive power of a nation when it comes to taxes. It is believed that these are a small share of everything the rich earn and that taxation — as high as it is — will not affect them. But they’re wrong: high taxes bankrupt companies, whole sectors even. Then, they brutally punish the small-business owner.

But a crucial question remains: how is it that so many politicians from different countries have thriving accounts that can not be justified by income?

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The “Panama Papers” show a systematic pillaging of individuals’ resources by politicians. These gentlemen, in a sense, rob citizens and then, to avoid detection, turn to “offshore” companies and tax havens.

So how can we limit politicians’ power and keep them from stealing the money we earn honestly?

The problem is not that honest people, who have earned money working and benefiting society, are seeking an escape from politicians’ theft. That monies are in a tax haven, in an account “offshore” or a company in Panama should not be questionable.

Why is it more acceptable for people to have the money under the mattress or in a national bank? Why is it wrong to protect our money from state theft? Many citizens use these figures to legitimately safeguard their heritage — to put them at the same level as corrupt politicians is to criminalize decent people.

There is a lack of logic in this whole affair. We know that a lot of politicians around the world have incomes that are not justified by their public office. But instead of worrying about the theft to which we are being subjected to, we ask for stronger penalties on those who evade tax payments. That is, we ask to be robbed.

The “Panama Papers” scandal should not lead us to the sterile debate about how to force people to pay taxes. On the contrary, the discussion over the legitimacy of tax evasion should be encouraged. Tax havens have benefited us in many ways. They are essential to encouraging investment. Competition also makes everyone pay less taxes, and allows individual — those who enrich societies — to develop their entrepreneurial function more easily.

Make no mistake: there is no need to point out those who protect what they have honestly earned. We must condemn those who use their power to rob citizens. They are indeed criminals.

Vanesa Vallejo Vanesa Vallejo

Vanesa Vallejo is a Colombian economist, columnist, and classical liberal activist. She is a member of Colombia's Libertarian Movement. Follow her: @VanesaVallejo3.