Offshore Banking is Not a Crime
In an effort to score political points, Democrats are pounding Mitt Romney over his use of offshore bank accounts. Over the weekend, Senate Majority Whip Dick Durbin remarked, “You either get a Swiss bank account to conceal what you’re doing, or you believe the Swiss franc is stronger than the American dollar.” DNC Chairwoman Debbie Wasserman Schultz recently wondered aloud, “Why does an American businessman need a Swiss bank account and secretive investments like that?” Maryland Governor Martin O’Malley even called Romney’s Swiss bank account a “bet against America.” These attacks reek of populist nonsense tinged with more than a little economic xenophobia.
Contrary to the dominant rhetoric on display, overseas banking is not a crime. People who invest or bank overseas do not hate America. Oftentimes, they are simply banking where their money is earned to avoid the hassle of exchange rate and wire transfer fees. In today’s global economy, earning money in multiple currencies is hardly uncommon.
It’s also smart practice to diversify. Few if any of these critical Democrats lack their own overseas investments for just this reason. But regardless of his specific motivations, Mitt Romney should not be cowed into shame over his banking practices just because he doesn’t strictly park his after-tax earnings in American banks, but should instead seize the opportunity to more aggressively defend against populist attacks on financial privacy and explain the benefits of jurisdictional tax competition.
Tax competition exists when tax burdens are reduced by shifting capital and labor from high-tax jurisdictions to low-tax jurisdictions. Competition to attract mobile taxpayers forces politicians to be more responsible, pushes tax rates down and allows people to enjoy more of the money they earn. Not surprisingly, politicians and statists fight tax competition at every turn.
Central to the effort of undermining tax competition are attacks on so-called tax havens, or low-tax jurisdictions with more competitive tax rates than their high-tax, welfare-state counterparts. The Organization for Economic Cooperation and Development (OECD), a Paris-based bureaucracy that works to punish low-tax jurisdictions and hinder the flight of jobs and capital from high-tax nations, has long been leading the charge against tax competition. The OECD has over the years used blacklists, intimidation and skulduggery to enforce unjust protectionist measures on nations that adopt free-market policies. To make matters worse, the U.S. is the single biggest contributor to the OECD and funds a quarter of the organization’s budget.
At stake in this debate is more than just whether or not President Obama is able to successfully distract Americans from his abysmal economic record. The attacks on his opponent are in part based on political opportunism, to be sure, but they are also part of this ongoing effort to undermine tax competition and make it easier for politicians to pursue onerous tax-and-spend policies.
For instance, a centerpiece in the latest onslaught against Romney is a Vanity Fair article written by Nicholas Shaxson. Shaxson provides no evidence of wrongdoing on Romney’s behalf, instead relying on guilt by association and innuendo to give the impression of impropriety. Nor is he a disinterested reporter just covering a story. Rather, Shaxson is part of a network of advocates for bigger government who have realized that attacking capital mobility, tax planning or avoidance (the right to lawfully structure one’s assets to reduce tax burdens) and tax competition are surefire ways to promote statism.
Shaxson frequently writes for the Tax Justice Network (TJN), a left-wing group committed to “progressive taxation.” TJN has aligned itself with the violent Occupy movement, with a recent newsletter instructing its readers on “how to occupy.” The Tax Justice Network last year launched the FACT Coalition to push for higher taxes in the U.S., and the organization often works in concert with Democratic Senator Carl Levin in an effort to undermine tax competition and empower American tax collectors with a draconian mission of fiscal imperialism, a mandate to impose U.S. law on the rest of the world at significant cost to all parties.
Groups like TJN and politicians like Senator Levin use innocuous or misleading language to make their agendas sound reasonable. They claim to want “transparency” and “accountability,” but rather than wanting governments and those who hold power to be transparent and accountable to citizens, they want citizens to be transparent to government. In other words, they want an end to privacy.
Like tax competition, privacy rights provide a beneficial constraint on the monopoly power of government. More importantly, they protect our basic human rights from government abuses.
The tax-hikers would have us believe that anyone who desires privacy is a law-breaker intent on not paying his fair share, but more often than not it is the law-breakers from whom they are hiding. For instance, Swiss laws affirming financial privacy arose in part to help German Jews protect their assets from Nazi expropriation. Financial privacy remains a critical means of protecting human rights today, as investors and entrepreneurs living under brutal regimes like Hugo Chavez’s or in corrupt and lawless countries such as Mexico are subject to kidnapping, physical threats or worse.
Eliminating financial privacy, as these left-wing groups intend, just so that politicians can more easily and frivolously spend other people’s money, would leave millions exposed without recourse to abusive governments. Efforts to undermine tax competition will also result in higher taxes, reduced economic growth and lower prosperity for all. To avoid this fate, proponents of limited government, free markets and personal liberty must push back against the alliance of high-tax, big-government interests that dominates today’s debate.