A tax haven is any territory or country where there are low taxes or no taxes at all. For some people and many companies, they find that it is more economic and makes more sense to relocate to this area because they can save a considerable amount of money on their taxes. What this creates, in essence, is tax competition or governmental competition. Governments begin to have to compete for the tax revenue of different people and companies. When this happens, the average person typically makes out the best.
Competition is the lifeblood of business. When there are two companies that are creating the exact same product with a different name, suddenly it becomes important to see who can compete. Company A drops their price. Company B offers another incentive. Company A retaliates with an incentive. Company B drops their price. In the end, though, the consumer can walk up to the store and purchase whatever product they want. When there is competition, the consumer gets the best deal they can.
The problem, though, is the fact that governments don’t have very many competitors. If you’re a US citizen paying income tax, where’s the competition? You could leave the country. And that’s what more people are beginning to do. In a recent article published on Fort Liberty, I talked about how government greed was forcing American’s best and brightest to find new homes. They were so tired of all the high taxes that instead of paying it, they decided to instead find a new home. They would rather leave America than pay the high taxes.
When this happens, America loses out on tax revenue. While one hundred people leaving won’t appear at all on the bank roll of the treasury, if more people continue to leave or if a big business that pays millions a year in business were to leave the, that will hurt the bank roll. When that happens, the US government will have to reconsider their policies: do they raise taxes even more or do they lower taxes and hope that people will come back?
Tax competition would argue that the government should lower taxes. The first reason is to keep our citizens here. The second reason is because we want more people to come here. It used to be that people wanted to come to America, but now that our taxes are so much higher, fewer people want to immigrate to the United States.
A tax haven is a place where taxes are so low that people often relocate there to reap the benefits of the low tax. This results in government competition. Two different countries compete over the tax revenue. If the United States wants to increase the revenue that comes into the treasury, they need to be competitive. The government needs to make taxes more competitive. If they don’t, more people will continue to leave the country and fewer people will come in. That is disastrous to our country. A tax haven is competition to other countries; it’s a country’s choice how to respond to the competition.
