NCPA - National Center for Policy Analysis


April 14, 2008

Many people have a negative perception of tax havens; however, we are all beneficiaries of tax havens in ways you might not expect, says Daniel Mitchell, a senior fellow at the Cato Institute.

First, if you live in a developed country, your taxes are probably much lower today than they were 30 years ago, thanks in part to tax havens:

  • In 1980, top personal income tax rates in Organization for Economic Co-operation and Development (OECD) countries averaged more than 67 percent, while corporate rates averaged nearly 50 percent.
  • Top personal tax rates now average only about 40 percent and corporate rates have been reduced to an average of about 27 percent; governments are cutting taxes because they fear that jobs and investment will flee across national borders.

Second, Caribbean isles aren't the only places that welcome tax refugees.  The United States could be considered the world's largest tax haven:

  • The U.S. government generally does not tax interest and capital gains received by foreigners who invest in America.
  • Thanks in part to these attractive policies; foreigners today have more than $12 trillion invested in the United States.
  • Yet if all nations are saddled with the obligation to help enforce foreign tax laws, it is quite likely that a substantial share of that job-creating capital will flee the United States.

Finally, there is even a moral case for tax havens: They play a critical role in protecting people who are subject to religious, ethnic, sexual, political or racial persecution.  Most of the world's population lives in regimes that have inadequate human-rights protections and people with assets often are targets of oppressive governments, says Mitchell.

Source: Daniel J. Mitchell, "Why Tax Havens are a Blessing," Foreign Policy, March 2008.

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