The sole economic benefit of the increases in higher rate income tax in the USA and UK is repeat business for those who print tourism brochures and immigration forms for the likes of Monaco, Dubai, Lichtenstein, Jersey, the Isle of Man, and bits of the West Indies.

Everyone seems to be talking about tax havens now. Many will do more than talk.

Others – mainly those who cannot afford to move – sneer, “There is more to life than low taxes.”

Actually, that is rather the point...

1   Tax havens often have better public services. The streets on Monte Carlo were always cleaner than those of Soviet Russia. High-tax economies usually manage their public services very badly because the money is used to build huge, centralised bureaucracies. Low-tax economies attract businessmen, so that even their public services are expected to run in a businesslike way.

2   Tax havens are virtuous circles. Low tax rates attract and encourage wealth; wealth increases the tax base; an increased tax base means tax rates can be lowered without cutting services; lower tax rates attract and encourage wealth, etc, etc... Meanwhile, other places experience the opposite, a vicious circle of spiralling tax rates and poverty. 

3   Tax evasion becomes pointless if tax rates are low. This obviously helps the public services, but it is also good for the honest-tax payer: it reduces rates even further, and makes the tax authorities less paranoid and irrational. So, in addition to paying a lower rate, the tax-payer experiences less hassle in the process – which is, in many ways, more agreeable than the low rate.

4   Small states have a better sense of community. They retain a strong sense of local identity, and immigrants are expected to respect local traditions and values. While some ideologies claim that “civic society” and free market capitalism are incompatible, the empirical evidence suggests the complete opposite: tax havens show more real social cohesion than large, centralised states.

5   Crime is usually lower than in most metropolitan areas. This is not true of all tax havens – the West Indies are having particular problems – but most have a combination of efficient police, traditional values, and low unemployment that makes petty crime particularly irrational. Of course, white collar crime is another matter, but even there, tax havens have an additional deterrent: no one, even a crook, wants to be thrown out of Paradise.

6   Tax havens are politically stable. Most are constitutional monarchies – the most consistently stable from of government – or de facto oligarchies which command general consent. Parties and factions have less influence than in centralised democracies. The small size of the community makes it more desirable to keep a consensus and radical divisions are discouraged.

7   Private sector services too are usually well developed. Money attracts money.  

8   Like attracts like. A businessman who emigrates to a tax haven will find other businessmen there. That is useful for business networking – especially since the odds of meeting key decision makers are increased within a relatively small population in a relatively small area – and also pleasant if you prefer to socialise with people with similar interests, outlooks, and backgrounds. Others may find this claustrophobic, but that only emphasises the greatest benefit of all...

9   Tax havens give the freedom to come and go at will. Travel to and from most big Western states is increasingly restrictive. While residency of most tax havens is guarded carefully, once granted it confers more practical liberty than a passport from one of the great democracies.


May 21. 2009 02:35

Stuart Fairney

You've just summed up what I hope is my future.  Incidentally, compare the wide educational choice and fantastic standards available in say, Dubai with the county council saying "you live in area X and will go to school Y"

Not hard to see which is better and you pay for both options either way

Stuart Fairney

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