 Dan Mitchell is a PhD economist and the Cato Institute's resident tax expert. He's also a great defender on moral grounds of so-called tax havens, which are nothing more than sovereign foreign countries that dare to have lower tax rates than Uncle Sam prefers. Taxes sound like a boring subject, but Dan brings great energy and passion. He'll tell us why the U.S. worldwide tax regime violates the basic human right not to be hounded by a country in which you neither live nor have income, why Burger King was right to move its corporate headquarters out of the U.S., why greedy politicians hate tax competition, and why invasive laws like fat cash should scare anyone who cares about privacy. Stay tuned. Ladies and gentlemen, welcome once again to Mises Weekends. I'm your host, Jeff Deist, and I mentioned in the introduction we're very pleased to welcome Dan Mitchell to our show today. Dan, how are you? I'm doing just fine, considering I'm within the epicenter of Washington, D.C., which is always uncomfortable. Yes. Well, Dan, let me just say a couple of things. First and foremost, I would have to say you must be one of the most important anti-tax intellectuals in the world, really. I mean, I well remember working in Ron Paul's office in, I would say, the mid-2000s. We very frequently cited your material. So you've really spent an entire career in demystifying and exposing the whole rotten tax scheme. So kudos to you for that. Thanks, I guess, but maybe it's just a sign that there are far too few people in Washington trying to actually limit government rather than expand it. Dan, I mentioned to you that I love this whole topic of tax havens. And tax havens seem to be a particular point of contention for our progressive friends. I'm sure you're familiar with the name David K. Johnston, who is a longtime New York Times reporter who never saw a tax he didn't like, I might add. But we've heard the left's view on tax havens ad nauseam. So I would love to get your thoughts on how we as liberty-minded folks should defend lower tax jurisdictions. Well, I like tax havens because they restrain the greed of politicians. If politicians who, of course, always like to play class warfare or always want to finance bigger government, if they have to worry that the geese that lay the golden eggs might fly away, or at least that their money may fly away, that's going to restrain their appetite for higher taxes. And we saw that in the 1980s. Globalization dramatically increased the ability of taxpayers to seek out low tax jurisdictions that had strong human rights laws regarding financial privacy. And I think that's one of the reasons why so many countries lowered income tax rates beginning in the 1980s. The average top personal tax rate in OECD countries basically developed countries of the world. The average top tax rate fell from nearly 68% down to the low 40s. The average corporate tax rate has fallen from 48% down to a 24%. And there's been big decreases in the double taxation of dividends, interest in capital gains. Now, I wish I could claim that all these things were happening because politicians were reading the tax studies I write and things like that. No, I think it's because of tax competition and tax havens are a very big part of tax competition. Simply stated, the politicians are worried about the geese with the golden eggs having the ability to fly away. And that led to better tax policy. But it also led, and sorry for the long-winded answer, but it also led to all these high tax countries working through bureaucracies like the OECD now trying to stamp out tax havens. They realized that tax havens are a threat to big government. Well, Dan, give us sort of an update. What is the current status of the OECD's ongoing goal of tax harmonization, as they like to call it, which really means having all Western countries up their tax rates to match each other? Well, the OECD began at what they called the harmful tax competition campaign back in the 1990s. And that led to the publication of a blacklist of so-called tax havens in the year 2000. But the good news is that's about the time that a lot of pre-market groups began fighting this, and we were able to bully, frankly, the Bush administration into saying no. And just like you can't really have OPEC without Saudi Arabia, you can't have a global tax cartel without the United States. And by getting the United States to sort of pull back from the Germans and the French and the others in the OECD pushing this initiative, we managed to stall them for a long time. Well, we had a victory. Unfortunately, it was only a temporary victory. And when Obama got into office, especially in the environment of a global fiscal meltdown or financial crisis, you basically had the G20 takeover from the OECD. And the G20 was able to push through a big attack on human rights laws and financial privacy. And as a result, even places such as Switzerland no longer at least no longer necessarily apply their human rights laws on financial privacy to non-resident investors. So the bad news is the high-tax government, sort of the global totalitarians that wanted to destroy financial privacy to enable bigger government, they've won some victories. It's now much harder for individuals to protect their privacy around the world in low-tax jurisdictions. Well, when you talk about the OECD, I'm still not sure that most Americans really understand this distinction between worldwide versus territorial tax systems. Of course, the United States is one of only seven OECD countries that taxes its citizens and residents on their worldwide income, regardless of where they reside or work. I would like to know, from your perspective, does the average American really understand this conceptually? And if so, do they understand how terrible the impact is not only on American business, but also on Americans working abroad? Not only does the average American not understand this, the average tax policy person doesn't understand it. What's worldwide taxation? Worldwide taxation is the notion that a government is going to tax not on the basis of income earned inside national borders, but on the basis of income earned anywhere in the world, even if it's already taxed someplace else in the world. But then it's not just that principle, which of course is you contrast against territorial taxation, which is the common sense notion of only taxing inside national borders, but then you also have to break it down by types of income. There's corporate income, there's labor income, and then there's individual saving and investment income. And very, very few countries in the world have worldwide taxation for labor income or for corporate income. So the US definitely stands out in a very bad way in that regard. So if you're an American citizen, and let's say you're married to someone from Brazil, you're living and working in Brazil, from almost any other country in the world, Brazil would tax you, but that would be it. But no, under the American tax law, the US wants to tax you as well. And likewise, if you're an American domiciled company, you'll also be hit by the IRS taxes on Brazilian income, in addition, of course, to the taxes that are imposed by Brazil. Now, the one area where other countries do join the US is in the worldwide taxation of saving and investment income. In other words, interest on bank accounts, dividends on stock ownership, capital gains. This is where the high-tax governments think that there's a pot of gold at the end of the rainbow. Oh, all these rich people with their bank accounts and brokerage accounts, they're somehow hiding their money in Switzerland or the Cayman Islands or Panama, and we need to break down financial privacy. Why? So we can double-tax that income on a worldwide basis. Now, here's one of the things that I think is very important about this whole debate. If you follow tax reform issues, you know that the best way, or let me rephrase that, the least destructive way of collecting tax is to have a low-rate system with no double-taxation on a territorial basis. Well, what is it that the US government is trying to do? What is it that the OECD is trying to do when they're off on tax havens? They're basically trying to make it possible for countries to do very bad tax policy, double-taxation on a worldwide basis. Well, and of course, double-taxation is closely related to the left's hysteria over so-called corporate inversions. You'll recall last year, Burger King received a lot of bad press when it announced it would buy the Canadian coffee chain Tim Hortons and read Domicile as a Canadian corporation. I don't think this is actually completed yet, but this strategy goes directly to the problem with the worldwide tax system. And of course, as you mentioned, you've got double-taxation on corporate income earned abroad. So can you give us your take on this hysteria and the lack of understanding over why would a company be so unpatriotic as to leave the US? Because we have this worldwide taxation for corporate income combined, and this is critical, combined with the world's highest corporate tax rate, this creates a huge competitive burden for American companies competing for market share around the world. Simply stated, if you're an American company trying to compete against, say, Dutch companies and British companies and Japanese companies for business in Ireland, well, all of you will pay the 12.5% Irish corporate tax rate on any Irish profits. But then the IRS is going to insist, at least if you ever try to bring that money back to your shareholders, they're going to insist that you declare and pay tax on that income to the IRS at a 35% rate, which is about three times as much as any of your competitors are gonna have to pay as a US company. So if you're a multinational, this doesn't really apply so much for domestic companies, but if you're a multinational trying to compete around the world against companies, domiciled in countries with territorial tax systems, the US corporate tax system is a huge, huge millstone around your neck. And so it makes sense if you can to read domicile in a jurisdiction that has a better territorial system. That doesn't, by the way, that doesn't get you out of paying tax to the IRS on your US source income, whether you're Honda or whether you're General Motors, whether you're Siemens or whether you're General Electric, companies that do business in the US will pay tax to the IRS under US source profits. The question is whether or not the US government should be trying to tax foreign source income. Other countries don't make this mistake. We do. And as a result, our companies, simply if they wanna follow the fiduciary responsibility to their shareholders and also care about their workers and consumers, they read domicile. They do a so-called corporate inversion. Unfortunately, it's not only corporations that have this bad incentive, it's individuals as well. Now, I'm sure most of our listeners have heard about the new fat calaw, which is now a couple of years old, and both the IRS and the Treasury Department through its FinCEN program require US taxpayers to report assets held abroad. And as you know, these rules, Dan, can make it incredibly hard for people just trying to get a bank account who work even for a US company. But in another country. And I would just wonder whether you would agree that laws like fat cal represent actually a step towards capital controls and maybe even outright confiscation of assets down the road. And that this informational reporting is something that all of us, whether we personally have assets held abroad or not, should be very concerned about. Globalization is the enemy of big government. Tax competition is part of globalization. Labor and capital moving across borders to find better policy is a form of that tax competition and globalization. Governments are fighting against it. And fat cal is an example of the US unilaterally engaging in fiscal and financial imperialism in effect telling other countries, we're going to impose protectionist taxes on you unless you agree to become deputy tax collectors for the IRS. And this, of course, runs contrary to human rights laws and privacy laws in other countries. It's creating nightmares for overseas Americans. We had millions of American citizens who live and work overseas. That's good for our country, good for our country's image. And yet these people now are almost treated like lepers because foreign financial institutions don't want to have anything to do by and large with Americans because you created a nexus with the IRS. And it's interesting with respect to fat cal, there are people whose lives have very much been ruined who have faced huge 50% penalties, 50% confiscation of let's say a foreign bank account, merely not for failing to pay a tax, but for merely failing to file a reporting form. And this is the sort of thing that I think should give all libertarians pause. And I just wonder if we're not in an environment now where we feel like Dan that we're sort of losing control over the IRS. Well, I think we've already reached that stage but it's not the IRS that I blame. Yes, I suppose I do blame them some but I blame the politicians because it's the politicians who enact these kinds of crazy laws without any consideration of issues such as human rights, any considerations about fiscal and financial imperialism, what are the limits to US laws when you're overseas, but you're right, ordinary people are the ones being hurt. Let's say you happen just because you were born in Buffalo to Canadian parents, you actually have an American passport buried somewhere in your personal effects, but you lived and worked in Canada your whole life. So you've never filed tax returns to the US because logically under a decent humane system you wouldn't have to. You've never filed forms about your bank accounts and things like that. Well, technically under US law, you're subject to incredibly onerous fines and penalties because you have that American passport somewhere just by accident of birth, even though you've never lived in America, worked in America, but we assert the right to tax on a worldwide basis and a worldwide tax system is fundamentally inconsistent with a humane international order. One final question for you, Dan, as we wrap this up. As libertarians, we tend to view taxes purely in political terms or maybe even philosophical terms, right? We oppose them, we wanna see them eliminated or reduced. We think of them as an evil that funds the state and makes the state more powerful, but you're also a PhD economist, not just a tax expert at Cato. Should we be thinking about taxes more like economists? In other words, in terms of their impact on production and entrepreneurship? Well, I think of taxes in both ways. I'm a libertarian and so I don't like big government and I don't like giving more money to government because as Peter or work says, that's like giving whiskey and car keys to teenage boys. But since I'm an economist, and this is in reference to what we were talking about earlier, the most destructive way to collect revenue is to double and triple and quadruple tax capital. I mean, every economic theory, even Marxism, they all agree you have to have saving and investing to finance future economic growth. And yet our tax system penalizes capital formation. So when I look at issues such as the OECD and high tax governments going after tax havens, they're doing that to facilitate the very worst ways of collecting tax revenue. So for heaven's sake, yes, I want very small government, but whatever size government we're going to have, doesn't it make sense to finance it with taxes that don't do as much damage to job creation and living standards that don't cause as much need to interfere with privacy and human rights? So yeah, I love tax havens because not only am I a libertarian who wants smaller government, but also because I'm an economist who doesn't want needlessly destructive and senseless taxation. Dan Mitchell, thanks so much for your time this weekend. Ladies and gentlemen, if you're interested in this topic, Dan Mitchell is absolutely one of the best experts in the entire US. You can find his work, of course, at kato.org. You can find his work on his own WordPress site at danieljmichael.wordpress.com. And I must say, from my own perspective, Dan, is you really demystify some of these tax issues and your material is very readable for a layperson. So again, thanks for your time. Ladies and gentlemen, have a great weekend.