Sunday, July 20, 2008

Tax Shelters and Senators

GENEVA (AP) --A U.S. Senate subcommittee accused banks in Switzerland and Liechtenstein of helping wealthy Americans evade billions in taxes each year, and urged the establishment of tougher laws to combat offshore tax havens around the world. -July 20 2008

The above article discusses the U.S. Senate's outrage over banking practices in several infamous European banking centers, notably Switzerland and Lichtenstein. The real tragedy in this story isn’t that money is being sheltered, but rather that so much more money isn’t able to be protected. The real culprit is the IRS, not the private individuals who are brave enough to resist taxation of their wealth.

Some of the claims made and terminology used by the Senators should be profoundly disturbing to anyone who values the right of people to keep what they earn. In the article, the Senate subcommittee states that, "offshore abuses cost U.S. taxpayers about $100 billion a year." This is a false statement. By holding one's own money, without ever agreeing to surrender it, Mr. Levin is incorrect to claim that this withholding causes a loss for others. No money has been lost. On the contrary, the tax shelter prevented money from being lost. The tax shelter saved money for the taxpayer. One party, however, did suffer a loss, and that was the US Government.

Sen. Carl Levin suggests that, "tax havens are engaged in economic warfare against the United States and the honest, hardworking American taxpayer is losing." This is essentially the opposite of what is occurring. It is the US Government which is engaged in economic warfare against the foreign banks. The banks have hurt no one. The banks have stolen from no one. The banks, in fact, do everything they can to avoid confrontation. They are indeed being punished for their very remoteness. The IRS, on the other hand, has at its disposal all manner of economic weaponry, including the full force of the US Government and the tremendous economic pressure it is able to assert. The IRS has its economic guns blazing; the European banks haven’t fired a shot. If warfare is occurring, only one side is able to use force.

Sen. Norm Coleman of Minnesota stipulates, "It is simply unacceptable that some individuals are using offshore tax havens and secrecy jurisdictions to shelter trillions of dollars from taxation, forcing working families to shoulder the burden." Are the private bank accounts of wealthy individuals forcing working families to shoulder their burden? Or, is it the US Government which is forcing working families to shoulder the burden? Is it UBS causing the average American to work four or five months out of the year for the State? Or, is it the US Government? Is the “honest, hardworking American taxpayer” losing? Yes, he is losing because he is being taxed, and it is certainly not the Swiss banks which have levied the taxes.

Suppose Switzerland decided to suddenly hand over $100 billion in sheltered tax money from its clients' accounts, would that $100 billion be returned to the U.S. Taxpayer, thereby alleviating the "burden" placed on hardworking Americans? No, of course not. The $100 billion would be given to the U.S. Government and would be promptly spent elsewhere. No matter how much money UBS surrenders to the IRS, the burden on American taxpayers will not decrease. On the contrary, the burden on those taxpayers who were attempting to protect their property will greatly increase to the extent they are unable to protect it. There is a net increase in aggregate taxpayer burden for every dollar obtained by the IRS. There is conversely a net decrease in aggregate taxpayer burden for every dollar shielded from the IRS. If the Senators wished to protect taxpayers, they would encourage capital flight overseas. Clearly, it is not the taxpayers whom they wish to protect, it is their dear ability to spend.

The Senate subcommittee, through its rhetoric, has managed to swap the Taxpayer and the Government, making the Taxpayer look like the victim when in fact the Taxpayer is a victim only after the Government successfully taxes him. In other words, taxpayers are victims because they are being taxed by the Government, not because a few of the taxpayers are able to figure out how to avoid the crimes being committed against them.

Consider a metaphor – say there are ten people walking down an alleyway late at night, going about their business and trying to get home to their families. Then, two men with guns ambush them and demand their money (15% to 45% of it, depending on how much they made that day). Nine of the people willingly hand over their money, scared to resist, but the tenth person is able to hide during the confusion and get away from the thieves. For the thieves to then turn around and say to the victims, "hey, one guy didn't pay us, which will cost you another 100 bucks!" sounds pretty unfair and distorted. Yet, for the victims to then believe the thief, and willingly hand over their money whilst placing blame with the one guy that got away? That is absurd, but that is what’s happening.

Another metaphor – if a women gets robbed, but the thief is unable to break into her neighbor's home, does she curse the thief or does she curse the neighbor? This tax shelter article describes the thief cursing the neighbor, and then blaming the neighbor for robbing the woman! Unfortunately, the press and the American public tend to side with the thief.

We would all do well to remember that it is not the taxpayers as a group who lose out when certain individuals among them hide their money, it is the Government. When one shelters his money, it is the Government that loses revenue, not one’s fellow taxpayers. It is through the deliberate confusion of the two that U.S. Officials are able to convince the public that tax dodgers are evil criminals. Swiss banks don't cause taxpayers to lose $100 billion per year, rather, they allow them to retain $100 billion per year, preventing it from being lost in the perpetual circus that is Government “service.”

Hiding the money that one earns is not unethical. It is not wrong, immoral, or in any way malicious. The fact that protecting one’s property is illegal is indicative of the sad state of the Union. Those individuals evading taxes should not be vilified; rather they should be applauded for standing up to the thieves. Article page