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Charles Gave On The Social Purpose Of Tax Havens

Tyler Durden's picture




 

Submitted by Charles Gave of GAVEKAL Research,

The Cahuzac affair in France has conveniently emerged just as the search for possible scapegoats to Europe’s quandary was intensifying. Thanks to the former French budget minister’s secret Swiss bank account, Europe can now move from its war against finance (Hollande declaring that finance was his enemy, the financial transaction tax, capping of bonuses, etc) to an outright war against tax havens (letting Cyprus sink, arm-twisting Luxembourg into abandoning its banking-secret policy, etc).

Leaving aside the EU’s increasing penchant for forcing members to adopt policies that blatantly go against national interests (like the Tobin tax in the UK), yesterday’s announcement by Luxembourg of an “open-book” policy raises the question of whether the EU is cutting off its nose to spite its face. If tax havens have existed and thrived for so long, they must have some sort of economic justification.

Beyond the debate on the "morality" of hiding one’s wealth, let us simply focus on the possible consequences of closing down havens. First assume that there are two kinds of deposits in these jurisdictions: the perfectly legal kind, and the illegal kind (such as the ones that Jerome Cahuzac had in Switzerland). For an economist, there is no reason to differentiate between the two. Combine them and the amounts get large. Large enough to offer both types of investors economies of scale, a large array of financial services needed, etc.

Now the reality for most tax havens is that their economies are far too small to absorb the excess savings that pour into their countries. Their banks thus end up being large buyers of assets outside of the country. All else being equal, this should be good news for “foreign assets”. If, for example, a Luxembourg bank decides to buy French or German bonds with the deposits of a Belgian dentist, then the yields in Germany and France will be lower than they would have otherwise been. If that account is now closed and moved to Singapore to buy SGD bonds (probably a smart trade anyway), then interest rates in France and Germany will move higher, while they fall in Singapore.

Europe’s welfare states are already on the brink...

Or to put it another way: when it comes to the illegal deposits, the economic net effect of Mr Cahuzac hiding his money in Switzerland was for this “gentleman” to have a lower tax rate. If the governments of the world now succeed in getting these deposits in the open, it will be equivalent to a tax increase, no more no less. And increasing taxes massively, when tax rates are already unbelievably high, would be a sure recipe for sending the struggling economies into a tailspin. Look at it this way: with their domestic economies already circling the drain, can the French, Italian or Spanish entrepreneurs stomach a tax increase? Once again, a war on tax havens is (at least for an economist without any moral compass) nothing but an attempt to increase taxes to prop up bankrupt welfare states; i.e., yet another attempt to send good money after bad to continue feeding the leviathan.

As the 19th century Frederic Bastiat used to say, in any economy, you have what you see and what you do not see. In this case, we see the evil tax havens which allow corrupt French politicians to hide their wealth from the confiscatory taxes they impose on the rest of the population. What we do not see is that tax havens may be a key part of an age-old equation which allows small, risk-taking entrepreneurs to produce profitably. Who is to say that, if we close the tax havens, a number of French, German, Italian, etc, entrepreneurs will not simply decide to head to the beach and call it a day?

In this position of weakness, going out all guns blazing after rich people and their wealth strikes us as sheer madness...

So, at the risk of sounding like a Burkian conservative, we would have hoped that Eurocrats would tread carefully when attempting to shift social contracts and economic infrastructures for the already struggling European entrepreneur. As things stand, Europe’s welfare states are already on the brink. In this position of weakness, going out all guns blazing after rich people and their wealth strikes us as sheer madness; or, perhaps, simple desperation? With every day that passes, Europe continues to make itself less entrepreneur- and investor-friendly. European banks rallied hard yesterday after their -22% post January drop - any such rallies should be sold, just as any dip in Singaporean banks should be bought.

 

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Thu, 04/18/2013 - 13:24 | 3467121 catacl1sm
catacl1sm's picture

If you have lung cancer, you still have a lung removed, have chemo, and get radiation therapy, despite the fact that all of these may kill you. However, the cancer WILL kill you. Sometimes you gotta take the pain before you can get better and healthy. Fuck Luxembourg!

Thu, 04/18/2013 - 13:35 | 3467153 agent default
agent default's picture

Get real, the assets will be sold off, the money converted into gold and silver and locked in safety boxes, and that will be that.  And another thing: This Marxist idea that the individual is property of the collective, propagated lately is absolute and total horseshit.  They have run out of other peoples money at home and now they try to find it abroad.  Fuck them.  Atlas hasn't just shrugged.  He has left the building in Europe.

Thu, 04/18/2013 - 13:46 | 3467200 Beam Me Up Scotty
Beam Me Up Scotty's picture

"This Marxist idea that the individual is property of the collective, propagated lately is absolute and total horseshit"

Not to mention that those furthing that agenda are just a bit "more" equal than everyone else is.  Why work anymore when they tax you well over 60% and probably closer to 70% when you factor in all taxes, licenses and fees.  Thats like saying 7 out of every 10 days you work is for the government.  Thats just about as close to slavery as you can get without actually calling it slavery. 

Well, I'll just say it.  It IS slavery.

Thu, 04/18/2013 - 14:31 | 3467368 Fedaykinx
Fedaykinx's picture

four legs good, two legs better!

Thu, 04/18/2013 - 14:35 | 3467379 MeBizarro
MeBizarro's picture

No one in the US pays anywhere near an effective tax rate of 70% if you combined licenses and fees.  If they do, they are a moron or a fool. 

Thu, 04/18/2013 - 19:05 | 3468787 Beam Me Up Scotty
Beam Me Up Scotty's picture

Oh really?  Federal and state income taxes, property taxes, sales taxes, and a myriad of fees and licenses.  If you don't think you are paying well over at least 50% of your income to the government, you are a moron or a fool.  And thats people in the lowest tax brackets. 

But of couse if you are on the government tit, you get money back, even if you don't pay any income taxes.

Thu, 04/18/2013 - 15:51 | 3467743 Diogenes
Diogenes's picture

Work is for suckers. The hell with jobs, making anything, or doin anthing usefull. We can all get rich off the slick trick, the quick fix and the gimmick. That has been the official policy since the sixties.

Thu, 04/18/2013 - 16:37 | 3467955 Dugald
Dugald's picture

"In this position of weakness, going out all guns blazing after rich people and their wealth strikes us as sheer madness..."

Written by one of the madmen.....??

Thu, 04/18/2013 - 13:36 | 3467157 toys for tits
toys for tits's picture

-1

No tax havens = reduced bank deposits = less bank liquidity = bank runs = bank failures = country failures.

Thu, 04/18/2013 - 13:40 | 3467173 agent default
agent default's picture

Bullshit where do you think the money is invested in?  Stocks and bonds.  Liquidity for playing socialism however has dried up rather decicively.

Thu, 04/18/2013 - 14:09 | 3467311 Urban Redneck
Urban Redneck's picture

That's exactly where it is debt, equity, and derivatives, thereof... It isn't in cash.

Thu, 04/18/2013 - 17:23 | 3468228 toys for tits
toys for tits's picture

Is the bank going to keep the loan/equity/stock/whatever if the deposits are withdrawn from the bank?

NO, but maybe in this era of easy money it doesn't correlate, but it's not how this fractional reserve shit is supposed to work.

Thu, 04/18/2013 - 16:45 | 3467986 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

After WW2 the major nations were de-colonizing, giving all of these places their freedom (BVI, Malta, Pacific Islands etc etc.) They knew they had to find some way to get people to put money in their banking systems so they gave them tax-free status. Simple as that, no conspiracy required. Rich people took advantage, that's all. Recall that the largest int'l tax haven (for non-US investors) is: The USA

Thu, 04/18/2013 - 13:59 | 3467257 Renewable Life
Renewable Life's picture

"From cradle to grave" that's the battle cry of the bullshit EU politicians and socialist that haven't spent a moment of their lives being productive or innovative!!

The legacy of Kings and Kingdoms, is this bullshit fairy tale of the benevolent King that loves his people and will watch over them and protect them, all the while remaining King, while his "subjects" remain peasants in a never ending story!!!

This crock of shit, was destroyed by Jefferson and his Friends in the late 18th century with the gift of Liberty, Life, and the Pursuit of Happiness in the great American experiment!!

But Americans have become weak and easily manipulated and corrupted and those who believe in Kingdoms and Collective Control have once again re-established their control on the world, RIP Jefferson, I'm glad your long gone and don't have to witness what your children have done with the Revolution!

Thu, 04/18/2013 - 13:24 | 3467124 Kirk2NCC1701
Kirk2NCC1701's picture

The wheel will go full circle.  But has a long way to go before it comes around, and becomes more of a "free market" once again.

Thu, 04/18/2013 - 13:25 | 3467128 HoaX
HoaX's picture

If tax havens have existed and thrived for so long, they must have some sort of economic justification.

lol, really?

I can come up with some of those as well:

         If rapists have existed and thrived for so long, they must have some sort of biological justification.

         If bankrobbers have existed for so long, they must have some sort of economic justification.

Etc. etc.

Thu, 04/18/2013 - 13:36 | 3467140 Landotfree
Landotfree's picture

When a government or a dictator believe my property belongs to them, the collective, or other, from which was not obtained by priviledge or license, I will use ever means necessary to protect said property

There is no collectivitism in law.  The "collective" are nothing more than idiots, sheep, from which the wolves can prey on, oh no, I do not want to be a part of your group.

Title 26 USCA § 7852(a)

 

 

Thu, 04/18/2013 - 13:39 | 3467162 Steve in Greensboro
Steve in Greensboro's picture

@HoaX: Hey Jackass. People who think they can take my stuff without my permission are called thieves.  In the U.S., they are also called Democrats, Progressives and RINOs.  If I've earned it, I have the right to keep it.  If I have to move it to Singapore to keep it, that is what I'm going to do.  And fuck you.

Thu, 04/18/2013 - 13:43 | 3467192 AnAnonymous
AnAnonymous's picture

But they are not called the 'american' middle class.

Biggest thieves must be covered. Part of the servants'job.

Thu, 04/18/2013 - 13:46 | 3467203 akak
akak's picture

Made me laugh.

River pigs make more sense than you.

Thu, 04/18/2013 - 13:41 | 3467177 AnAnonymous
AnAnonymous's picture

'American' way of thinking.

Thu, 04/18/2013 - 13:44 | 3467195 akak
akak's picture

'Chinese' way of trolling.

Thu, 04/18/2013 - 15:44 | 3467721 Schmuck Raker
Schmuck Raker's picture

"Good luck, akak. We're all counting on you."

Thu, 04/18/2013 - 14:22 | 3467346 Urban Redneck
Urban Redneck's picture

Those who do not remember the past are condemned to repeat it. (blah, blah, blah)

Certain jurisdictions have existed as havens since long before the assets left in their safekeeping were even subject to taxes.

But for a certain variety of faggot, there is apparently some huge distinction between shoving the long arm the law up some poor debt serf ass to look for loose change to facilitate their debauchery, and a common criminal doing the same. 

Thu, 04/18/2013 - 13:29 | 3467137 Kirk2NCC1701
Kirk2NCC1701's picture

Crony and black markets develop when the official system (communism) is fundamentally flawed and cannot work, or when a working system (capitalism) has been compromised & corrupted (natural Checks & Balances removed).  You can't 'fix' one without fixing the other.

Thu, 04/18/2013 - 13:41 | 3467155 Mercury
Mercury's picture

There's a vaccum developing here.

Capital (ahh!...she is like a woman - no?) wants to go where it is welcome and stay where it is well treated.

Developing world, call your office.

Thu, 04/18/2013 - 13:41 | 3467169 Alcoholic Nativ...
Alcoholic Native American's picture

Leave the tax havens alone!  derp derp derp, investor unfriendly countries are not where I want to persue my rent seeking!  derp derp derp  all praise the lords of capital and job creation!

 

Great Article

Thu, 04/18/2013 - 15:10 | 3467573 otto skorzeny
otto skorzeny's picture

derp-you speak in riddles-derp

Thu, 04/18/2013 - 13:44 | 3467186 AnAnonymous
AnAnonymous's picture

Who is to say that, if we close the tax havens, a number of French, German, Italian, etc, entrepreneurs will not simply decide to head to the beach and call it a day?
___________________________

No kidding?

And who says there will be no 'american' entrepreneur to seize the opportunity of that massive exodus to beaches?

Thu, 04/18/2013 - 13:47 | 3467211 akak
akak's picture

If they do, they will most likely find Chinese turds and dead river pigs floating up on those beaches.

Pollution, filth, and inability to self-indict about either: "Made in China".

Thu, 04/18/2013 - 16:51 | 3468009 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

It really has become a toilet. Every day I see rich Chinese getting off the plane here in Sydney and marvelling "wow! clean air! wow! clean water". And Sydney real estate continues to defy gravity.

Fri, 04/19/2013 - 05:40 | 3470317 Parrotile
Parrotile's picture

That's until they get downstream of the Orica plant on a "bad day" -  "Ah, smells JUST like back home!"

You really DO need to visit China. It's rather better than the overall impression you get from ZH. Also they managed to build their HST services in a far shorter timeframe than the "anticipated" plan for the Brisvegas to Melbourne "HST" route - 40 YEARS (and $114 BILLION!!). Already blown $20 million on "consultation and planning". The far more technically challenging Channel Tunnel (which is actually THREE parallel tunnels) only cost 9 billion Sterling (= $AU 13.32 billion at current rates) which included the finance and rolling stock!!

Australia - where EVERYTHING is jaw-droppingly expensive. I KNOW this, cause I LIVE there!! Sydney RE is THE bubble, and when that pops, the Aussie economy really will go tits-up, and for a very long time.

 

Thu, 04/18/2013 - 13:44 | 3467194 Floodmaster
Floodmaster's picture

Europe's total employment minus school teachers, police officers and pen pushers = 0.

Thu, 04/18/2013 - 14:13 | 3467322 The Abstraction...
The Abstraction of Justice's picture

Most police and teachers are pen pushers.

Thu, 04/18/2013 - 13:52 | 3467238 Fix-ItSilly
Fix-ItSilly's picture

The logic of this article is absurd.  And the conclusion is self serving and not a proper picture.

The closing of foreign tax shelters will help yield the proper tax revenue from the enacted policy and treat rich and poor the way the policy was crafted.  The closing of those tax shelter may actually REDUCE taxes on the middle and lower classes and those of the rich class that responsibly chose to pay their taxes.

Thu, 04/18/2013 - 14:12 | 3467319 The Abstraction...
The Abstraction of Justice's picture

Exactly the reason why starting a limited company in a tax haven is substantially more expensive than most the western world. If the costs were comparable then tax avoidance would be open to all. The demand would crush tax revenues worldwide. The only way the elite can get away with it is to make sure the cost of entry bars the gate shut for everyone else.

 

We need low taxes, but low taxes for all.

Thu, 04/18/2013 - 15:11 | 3467575 otto skorzeny
otto skorzeny's picture

We need no taxes,but no taxes for all-  fixed it fer ya

Fri, 04/19/2013 - 03:30 | 3470225 The Abstraction...
The Abstraction of Justice's picture

How do we maintain nuclear weapons without taxes?

Fri, 04/19/2013 - 22:04 | 3475547 BigJim
BigJim's picture

I'm sure there are some nice Saudi gentlemen who'd be happy to look after our nukes for us at no charge.

Thu, 04/18/2013 - 15:13 | 3467585 otto skorzeny
otto skorzeny's picture

REDUCE taxes? by a government-that's the funniest thing I've heard today -thanks

Thu, 04/18/2013 - 15:28 | 3467635 SloaneSquare
SloaneSquare's picture

 

These places, like the Isle of Man, act as a hub for businesses & high net worth individuals to direct their spending in various parts of the world. The complexities of certain large jurisdictions tax codes make it difficult for to control vast private and corporate empires.

Having certainty in how your assets are invested, efficiently, through 'offshore financial centres' makes complete sense. It is a level of specialisation that these jurisdictions offer that makes them attractive, as does the bonus of lower tax rates.

Let us not forget that FACTA is allowing the US to spy on assets held overseas. Do you think Delaware will encounter as much scrutiny?

It doesn't make sense for bankrupt countries to prise away this heard earned capital. Such deposits could and do in fact return to their own shores by way of infrastructure spending.

 

Fri, 04/19/2013 - 22:07 | 3475568 BigJim
BigJim's picture

Also - those deposits were lent short by the depositors, but used to lend long by the banks.

Thanks to fractional reserve banking, deposit flight would trigger more Cypruses.... tax havens that agree to become more transparent risk a banking system collapse.

Thu, 04/18/2013 - 16:02 | 3467804 irie1029
irie1029's picture

in 1776 America was a tax haven.  

Thu, 04/18/2013 - 16:42 | 3467974 JR
JR's picture

What was Sam Adams doing all getting dressed up like an Indian to throw tea in the Boston harbor, and why were businessmen up and down the eastern seaboard urging resistance to British taxes, if this was a tax haven?  Maybe it’s justice, like Boston Tea Party justice, that makes tax havens. Justice means equal treatment under the law, that if Congress is going to allow tax havens for the Bill Gateses it can allow them for J.R.’s consulting business and Joe Six-Pack’s truck dispatching service. And if I’m wrong, tell me about it; because I’d like to have my own little tax haven.

In the meantime, U.S. PIRG on April 4, 2013 reported on a jointly-released new study revealing “that the average taxpayer in 2012 would have to shoulder an extra $1,026 in taxes to make up for the revenue lost due to the use of offshore tax havens by corporations and wealthy individuals. The report also found that the average small business would have to pay $3,067 to cover the cost of offshore tax dodging by large corporations. …

Here are highlights from the reporTt:

 ...Every year, corporations and wealthy individuals avoid paying an estimated $150 billion in taxes by using complicated accounting tricks to shift their profits to offshore tax havens. Of that $150 billion, $90 billion is avoided specifically by corporations.

...Scott Klinger, the Tax Policy Director of the American Sustainable Business Council and Business for Shared Prosperity, which represents more than 165,000 business owners throughout the United States, also commented [that] using offshore tax loopholes to avoid paying taxes is not a Democrat or Republican issue. It is a serious business issue, and one of great importance to Main Street business owners, regardless of their political affiliation.”

Many of America’s largest and best-known corporations use complex tax avoidance schemes to shift their profits offshore and drastically shrink their tax bill:

·         Pfizer, the world’s largest drug maker, made 40 percent of its sales in the U.S. over the past five years, but thanks to their use of offshore tax loopholes they reported no taxable income in the U.S. during that time. The company operates 172 subsidiaries in tax havens and has $73 billion parked offshore which remains untaxed by the U.S., according to its own SEC filing. That is the second highest amount of money sitting offshore for a U.S. multinational corporation.

·         Microsoft avoided $4.5 billion in federal income taxes over a three year period by using sophisticated accounting tricks to artificially shift its income to tax-friendly Puerto Rico. Microsoft maintains five tax haven subsidiaries and keeps 70 percent of its cash offshore, a total of $60.8 billion, on which it would otherwise owe $19.4 billion in U.S. taxes. 

·         Citigroup – a bank that was bailed out by taxpayers during the financial meltdown of 2008 – maintains 20 subsidiaries in tax havens and has $42.6 billion sitting offshore, on which it would otherwise owe $11.5 billion in taxes, according to its own SEC filing. Citigroup currently ranks eighth among U.S. multinationals for having the most money stashed offshore.

http://www.uspirg.org/news/usp/offshore-tax-havens-cost-average-taxpayer-1026-year-small-businesses-3067

Thu, 04/18/2013 - 16:14 | 3467849 JR
JR's picture

Says Mike Hower:  Eliminating tax havens and corporate loopholes could nurture small business, strengthen the middle class and grow the economy.

Poll Shows Most Small Business Owners Oppose Offshore Tax Havens | Triple Pundit

By Mike Hower | April 11th, 2013

A recent poll conducted by the American Sustainable Business Council (ASBC) and Main Street Alliance (MSA) found some 85 percent of small business owners oppose a territorial tax system, which would permanently exempt offshore profits from U.S. taxation.

Supporters of a territorial tax system generally argue that the current global system puts U.S. firms at a competitive disadvantage since they are required to pay a higher U.S. tax rate on repatriated profits earned in low-tax countries, while multinationals based abroad pay only the local tax rate on these profits.

While this might hold true for Wall Street, it is a whole different story for Main Street. For smaller operations constrained to the U.S., overseas tax havens can make it harder to compete with large corporations.

“I’m not afraid as a small business to compete with the big boys,” said Henry Passapera, a member of the MSA and the co-owner of P&R Trading, a New Jersey-based international supplier of airline parts and equipment. “But when big corporations use offshore tax havens to avoid their tax responsibility, it puts small businesses like mine at a competitive disadvantage.”

“If you want to fly the American flag at your corporate headquarters, you ought to pay your fair share of taxes,” he added.  

This is why nearly 80 percent of small business owners say they are in favor of closing overseas exemptions altogether, according to the ASBC-MSA poll. More than 60 percent also would like to see an end to deferral, a current tax code provision that allows corporations to indefinitely defer payment of U.S. taxes on profits made or shifted offshore.

By a margin of more than 2-to-1, small business owners claim they prefer to close corporate tax loopholes rather than cut government programs such as education, infrastructure or defense. A recent study by the U.S. Public Interest Group estimates that these loopholes amount to as much as $150 billion each year in lost government revenues.

Everyone who is anyone is doing it. Such publicly beloved companies as Apple, Google and Microsoft have kept billions of dollars worth of profits overseas to avoid paying U.S. taxes, which Bloomberg places at $1.9 trillion overall. Yes, with a “t.”

During the 2012 presidential election, the only thing Barack Obama and Mitt Romney seemed to agree on was that helping small businesses to thrive is the best way to grow the economy. And they were right – small businesses have created more than 65 percent of the net new jobs, according to data from the U.S. Small Business Administration.

Smaller businesses also benefit big business when they are acquired. Google has acquired more than 100 companies to sustain its growth and Cisco has purchased more than 140. As large corporations continue to downsize and outsource, many former employees become independent contractors or start their own businesses rather than look for new corporate gigs. In essence, small business is the broccoli that allows the baby economy to grow up big and strong.

Over the years, the president has promised to nurture small business, strengthen the middle class and get us out of this economic rut once and for all. Eliminating tax havens and corporate loopholes would be a major step in achieving all three.

http://www.triplepundit.com/2013/04/poll-shows-small-business-owners-oppose-offshore-tax-havens/

Thu, 04/18/2013 - 16:23 | 3467893 kchrisc
kchrisc's picture

"...whether the EU is cutting off its nose to spite its face."

No, they are cutting off their nose to save themselves while screwing over the sheeple further. hujel

Thu, 04/18/2013 - 16:49 | 3468002 imaginalis
imaginalis's picture

They will go after bank accounts in tax havens. However, a few will be passed over. Corzines, Bernankes, Blankfeins and a short but priviledged list of henchmen for the elite.

Thu, 04/18/2013 - 17:52 | 3468413 RECISION
RECISION's picture

methinks this article does protest too much...

Thu, 04/18/2013 - 18:08 | 3468509 FunkyOldGeezer
FunkyOldGeezer's picture

Why didn't the writer of this piece just come out and say it... effectively what any 'rich' (too BIG to be taxed) person says and does.

F**k off, I'm rich. If you don't like it, you can lump it.

This piece is pure BS. Rich people are greedy b*stards, pure and simple. They want all their money and the world too. Try to take it away and suddenly there's the threat that everything will be worse as a result... yeah, as if that isn't some sort of double bluff. Call their bluff out.

Fri, 04/19/2013 - 04:46 | 3470277 Tompooz
Tompooz's picture

Loopholes in tax laws are the result of necessary political compromises made in order to have those laws pass in the first place.

Closing them is reneging on those compromises.

To eliminate banking privacy goes quite a bit further--it is an ominous foreshadowing of the totalitarian big-brother state. 

Fri, 04/19/2013 - 10:56 | 3471841 Lighty
Lighty's picture

"If tax havens have existed and thrived for so long, they must have some sort of economic justification". After such pearls of wisdom, I think ZH editors should seriously re-consider whether it makes sense to publish other content from this author. In practice, his thesis is that tax heavens are "too big too fail" because of consequences on asset markets and becuase, in some misterious way, they contribute to entrepeneurs' productivity. How money lying still in a Swiss bak account can bring any benefit to my national economy, except for pumping international financial market, is unfathomable for me. Let's call things with the name they deserve: this is stealing to the community, pure and simple. They cannot tell me the do it for survival of their firms, simply becuase, if they needed it, they would invest it, and not hide it in the Caymans.  The whole idea of "this is MY money, and no one can touch it" is suicidal for societies; without an idea of common purpose and good, for which everyone must give his contribution, they're corroded from within. Inequality rise, and extreme inequality is accompanied by almost every kind of social malaise.

At the same time, if governments claim a too bigger parts of the surplus, they end up destroying every incentive for production. The threshold I think depends on cultural factors, which determine both the level of socially accepted contribution and the efficiency of public sector. Northern Eu countries have very high taxes but with extensive and efficient public sectors, low levels of inequality and cohesed societies. They enjoy very high standards of living, and the pay 50%+ top personal tax rate. In Italy we have slightly lower tax rates, but our cultural deficits when it comes to complex organizations make the system terribly inefficient, so that yes, a smaller government would be a good idea here, without falling in a free-for-all.

Fri, 04/19/2013 - 16:44 | 3473988 wkwillis
wkwillis's picture

The voters will replace the government if their services are cut, or there government jobs, or their government contractor jobs, or their subsidies.

The rich people don't want to pay higher taxes.

The government borrows the money to have high services,direct and indirect government jobs, and subsidies.

The rich people put their money into tax havens.

The tax havens loan it to the government.

How do you think that will end?

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