At the G-20 meeting in London, the world’s leaders took some time from the urgent business of saving the world’s economies to complain about tax havens.
I’m sure that low-tax states like Hong Kong are an irritant to countries like France. After all, the top personal tax rates are 60% lower in the Far East than they are in Europe. If France could go after the income of Hong Kong residents, that would allow them to collect a lot of money.
Such tax harmonization schemes go back as far as taxation itself. As long as states have been collecting revenues from their people, people have been finding ways to avoid paying them. Typically, competition between countries for business and capital have kept rates low. But coordination among states-some would call it collusion-tends to raise tax rates. 230 years ago Adam Smith wrote:
“People of the same trade seldom meet together … but the conversation ends in ? some contrivance to raise prices.”
This statement is often applied to price-fixing in business. But when governments chase down ex-residents to collect taxes, they’re acting like garden-variety monopolists themselves.
Douglas R. Tengdin, CFA
Chief Investment Officer
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