Like the thing about the pyramids actually being grain silos, when Ben Carson revealed his plan to turn the U.S. into a tax haven, it was hard to take too seriously.
The idea was to slash U.S. tax rates so dramatically that America “become[s] a tax haven for people because it also becomes an opportunity haven for people,” Carson told CNBC last October.
Unfortunately, Carson, who left the race after winning just eight delegates and wondering aloud if his whole campaign had been an elaborate fraud he was never clued in on, was on to something.
In January, Bloomberg’s Jesse Drucker investigated the world’s hottest tax haven. “Some are calling it the new Switzerland,” he wrote. “The U.S.,” Drucker reported, “is emerging as a leading tax and secrecy haven for rich foreigners. “
And on Thursday, the Financial Times’ John Dizard published a piece with the forthright headline “Fear and regulatory loathing makes America the top tax haven.”
How did the U.S. become the world’s latest, greatest place for corrupt government officials, plutocrats or anyone else who would just prefer a little less scrutiny from tax officials to stash money?
Perversely, the U.S. is tax haven because of years of work by American authorities to crack down on traditional tax havens. In 2010, the U.S. passed the Foreign Account Tax Compliance Act, which requires banks abroad to report details about U.S. clients to American authorities. The U.S. carries enough global financial heft that the group that functions as a club for the world’s rich countries, the Organization for Economic Cooperation and Development, put out standard rules for reporting and sharing account information, spurred in part by the act. Almost 100 countries have signed on to those rules, called the Common Reporting Standard (CRS). Except, crucially, the U.S. Why not? Blame Congress, Dizard says:
While the US administration and the Treasury declared themselves all in favour of adopting the CRS, they do not have the budget authorization or appropriation from Congress to spend anything to do so. Therefore, while Switzerland set a deadline of January 1 2017 as the “effective date” for starting CRS-based tax information sharing with the other 95 signatories, the US Internal Revenue Service will not give its “reciprocal” partners any information about the foreign beneficiaries of any “entities”, such as Nevada or South Dakota trusts.
That sort of arrangement, where money and information flow into a country but are not shared, is the very function of tax havens: you reside in one country, but your money stays in another country, unknown and nontaxable by the government where you live. Congress could change this by passing a law authorizing and funding the IRS to share information with other countries under the CRS.
Tax havens are, of course, bad for the countries they hide money from. They reduce the money those governments can spend on vital social and economic development programs like education, healthcare and infrastructure. Deprived of resources by corrupt officials, governments can’t meet their people's basic needs, and citizens become disenchanted at best and radicalized at worst.
But tax havens themselves suffer, too: their economies can become distorted by catering to the needs of people whose main goal is to hide large sums of money. Money does not flow to tax shelters to invest in the local economy or spur growth and innovation. Deposits might be flowing into whimsically named Nevada LLCs right now, but in the long term, becoming a tax haven is not good for the U.S. economy.