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logo    Twiddle-twaddle from the Ca[n']to Rumpstitute


Yesterday, the Dallas Morning News reprinted a piece on tax policy written by Daniel J. Mitchell, a senior fellow at the Cato Institute, which was originally published in Foreign Policy. Finding anything good to say about this piece is impossible. It should never have been written; having been written, no editor should ever have accepted it for publication; having been published, no permission should ever have been given for its republication. It is a quintessential example of the twiddle-twaddle that passes for scholarship and research in American letters. It belongs in the trash!

Before taking up the piece's argument, I want to point out the contents of the fourth paragraph: Mr. Mitchell writes, "When we think of tax havens, we tend to imagine yacht-besotted enclaves of shadowy . . . dilettantes . . . laughing about . . . tax loopholes. . . ."  I am not certain what the referent of the pronoun we is, but I don't believe that Mr. Mitchell means himself and his friends. The only other alternative that I see is the use of we to refer to people in general. If that is the usage Mr. Mitchell has in mind, then the content of the paragraph is not anything he or anyone else could ever know. No thoughtful person would ever presume to know what "people tend to imagine when. . . ." A person who makes such presumptions revels that s/he does not routinely make an effort to distinguish between what can be supported by evidence and what can not. So although what such persons write cannot be dismissed out of hand, since such dismissals would be ad hominem rejections, what they write must be given careful and acute evaluations.

Now to the argument.

Mr. Mitchell tries to make two points. The first is that very high tax rates "discourage saving and investment, stifling economic growth. . . ." But what precisely does this mean? Although not justifiable linguistically, in our fiat-money, inflationary economy, the terms saving and investment have merged. One saves by investing or doesn't save at all. So what did those who had to pay taxes calculated on very high rates do with their money? Did they spend what they would have invested had rates been lower? If so, they increased consumption which is the main engine behind economic growth in the United States. So how could that have hurt the economy? Did they, perhaps, not spend it all? What, then, did they do with it? Light cigars? No, they surreptitiously hid their excess wealth in foreign tax havens, neither spending nor investing it in America and thereby not only did they do nothing to promote the American economy, in fact they injured it. No one who does that has either his nation or the nation's people at heart and is therefore a pure scoundrel. Not only does s/he deserve to be taxed, s/he deserves to be deported to the country in which the money is tax-sheltered. I wonder how many Americans would put their money in hidden accounts in Liechtenstein if they had to live there? (I would ask the same question of the principals of those American companies that think India, China, and other low-wage countries are such great places to manufacture products for American consumption. There is thus an analog to the old expression, Put your money where your mouth is. It might read, Put your body where your money is. And I wonder whether India or China would tax it.)

But Mr. Mitchell goes on: "Tax havens, by providing a safe refuge for people seeking to dodge confiscatory tax rates, have played a critical role in these positive [loaded adjective which means, in this context, illegal] developments. Better to get some revenue with modest tax rates, lawmakers have concluded, than impose high tax-rates and lose out." But I would then ask, why haven't lawmakers concluded that they should modestly tax all illegal activity, turn a blind eye to the illegality, because it is "[b]etter to get some revenue than lose out"? After all, the two cases are exactly the same in form.

But the second point is the clincher. Mr. Mitchell writes, "High-tax countries complain that jurisdictions such as Lichtenstein enable tax evasion, but this sidesteps the point that lower tax rates and tax reform are a much better way to reduce tax evasion." I think not. A better way of reducing tax evasion would to make the punishment fit the crime.

To reduce the debate about tax policy to a debate about tax evasion is to sidestep the real issue. Taxes are, after all, a government's only means of financing its activities. The only question that matters is whether taxation raises enough money to pay for the activities that the government deems necessary. Tax-rates don't matter in the least, since there will always be people who will try to avoid paying taxes. The European nations, which Mr. Mitchell uses as examples, all have deemed it necessary to provide their peoples with extensive social safety nets; ours hasn't. Those nations know that tax evasion makes accumulating the necessary sums more difficult, and they're climbing all over Liechtenstein and other tax havens for making tax-evasion easy.

Although the United States has not, perhaps it should. This nation cannot finance the maintenance of its infrastructure, it borrows the money it gives away in foreign-aid and the money needed to fight our wars in Iraq and Afghanistan, it can't find the money to rebuild New Orleans nor to adequately finance our frayed social safety-net. Worse, it may not ever be able to repay this debt. So although low tax-rates may be good for a financial healthy, creditor nation, they can lead to the nation's destruction if taxation cannot pay the bills. The European social democracies know that; our government, and their fraudulent advisors in Americas stink tanks apparently do not. (4/7/2008)