Taxes

The Militant Left (Update and Bump)

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Forget extraordinary rendition or arresting Internet gambling executives, Pulitzer Prize-winning journalist David Cay Johnston argues in Mother Jones that if the laws of another country conflict with those of the U.S., we should just invade them.

Okay, so he's talking about the Cayman Islands. Still, it's a pretty astonishing proposal.

In 1983 just 10 percent of America's corporate profits were funneled through places that charge little or no corporate income tax; today more than 25 percent of profits go through tax havens. The Obama administration could tell the Caymans—now fifth in the world in bank deposits—to repeal its bank secrecy laws or be invaded; since the island nation's total armed forces consists of about 300 police officers, it shouldn't be hard for technicians and auditors, accompanied by a few Marines, to fly in and seize all the records. Bermuda, which relies on the Royal Navy for its military, could be next, and so on. Long before we get to Switzerland and Luxembourg, their governments should have gotten the message.

Johnston then seems to get an inkling of just how preposterous his idea is and backs down a bit, just before proposing more bad ideas:

Barring gunboat diplomacy (tempting as it is), there is no reason we cannot pass laws to block financial transactions with tax havens or even, Cuba-style, make it a crime for Americans to visit or do business with them without special permission. Congress could declare the hiding of funds a threat to national security and require that anyone with offshore assets disclose them to the IRS within 30 days and pay taxes, interest, and penalties within 180 days. For the holdouts, temporary special teams in the IRS and Justice Department could speedily pursue civil or criminal charges.

 Thanks to Chris Muir for the tip.

Via email, Johnston responds:

Wow, what reactions—many of them full of venom and personal attack, but without any substance on the issues in my article. BTW, for those who make wild guesses and get it wrong, I am a registered Republican and chairman of a corporation I founded with one of my sons. The issue: our federal government forces employees to pay taxes on their wages through a rigorous withholding regime, but Congress lets people with non-wage income and corporations assess themselves with little or no verification and then lets them defer paying their income taxes for decades (with inflation reducing the value collected) and to outright evade taxes, a crime. We have two income tax systems, separate and unequal in their enforcement and reporting regimes. And of course in my Mother Jones piece I am jesting about actually invading the Caymans, as Radley sort of notes, but I am joking not about the need to enforce the law and stop helping calculated cheats get away with their felonies.

I apologize for getting Johnston's political leanings wrong. I'm not sure the jest of his invasion proposal was all that apparent, particularly given the severity of his actual proposals, which include a possible Cuba-like trade embargo on a country like Switzerland.

I happen to think countries that offer secret banking and tax shelters serve an important function.  Their value may not be as apparent to everyone in the U.S., but I'd imagine even a skeptic like Johnston might see things differently if he lived in a country where the government was more callous about how it appropriated its citizens' possessions (which isn't to say there's nothing callous about taking money from taxpayers and, for example, using it to help failed financial houses pay out bonuses to their executives).

It's also pretty arrogant to think the U.S. government should simply impose its own laws on the rest of the world, be it with military force or by restricting the ability of its own citizens to engage in voluntary trade with the citizens of other countries.