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- Why the Rich Use Tax Havens
You need to understand the role of countries in the world of finance. And when you start studying it, something becomes apparent immediately. The role of a country in finance is not what it seems on the surface.
Politics And the Demand for Tax Havens
For the large part, countries operate more like businesses and companies. They don't operate like what an average person would assume.
For example, countries don't create their own money nor do they determine the value of their money. Central banks do that. And while the government of a country might have a say in the choosing of the top central bank official, the government doesn't have an economic choice.
The preset will of economic forces will prevail over the best intentions of any government. In many cases, the public is gullible. And they often just succumb to whatever their favourite politician says.
And politicians like to take the credit when things are good. But they love to blame others when things are bad. Both the totalitarian and democratic leaders. That is way easier than trying to explain national economics to the public.
So, what is the role of a country? First, understand that a country is not responsible for its money or the value of its money. You won't change that by becoming president. If you become president and threaten to, you'll probably be martyred. Never underestimate the forces at work there.
If you want to change money, you have to make an economic case and hope the case gains momentum so that it becomes mainstream. That will take time (maybe years or decades) and involve no killings.
Second, a country doesn't also control the consumption behaviour of its people but can influence it. The government has tools to influence the direction of consumption. By the way, big businesses and large corporations also have tools to influence consumption.
Third, the economic goal of a country is growth and not necessarily improving the lives of the residents. This is very important. We are all residents of one country or another. Thinking that the government will make decisions in the interest of the people is often misleading.
Don't be deceived by democratic countries. Politicians need money to campaign to get elected. That tells you all you need to know. The will of the people often gets sabotaged. Not all the time, but it happens a lot. Campaigns promote ideas to worsen a situation that is not even a problem. And people jump to support such causes because they don't know any better.
Everything has its good and bad side. Economic growth often leads to the improvement of life for the residents. However, it sometimes comes with repercussions that people are not prepared for.
When a government is failing (especially economically), they look for where to cast the blame. The easiest place seems to be on big businesses and corporations. Macro businesspeople and economists see this. And that is why they consider tax havens.
Relevance of Tax Havens
Tax havens are simply countries (or islands) in the world where you don't pay taxes if you register your business it has a certain amount of money (usually a big number).
Tax havens are usually small countries where little or no economic activity happens. And the only way they attract capital is a zero-tax policy. The country makes a marginal amount of money on that huge capital via banking.
Examples of tax havens are the Cayman Islands, Luxembourg, Switzerland etc. Yes, there are big countries that are tax havens too. But you have to know how to structure the companies.
Or you probably don't need to know. You just need an agent or private banker who knows these things and is willing (and able) to guide you.
Most of the public believes that tax havens are evil. And only people with stolen funds try to hide their money. Or that wealthy people try to avoid taxation legally.
Yes, wealthy people avoid being taxed legally as much as the rules allow. And this is because they know that taxation wasn't supposed to be a thing. Taxes in the modern era started as a temporary measure because of wars. And then, it never stopped.
Taxes become more intrusive and unbearable to the point where the worker is practically a slave of the government. How does government make money if they don't tax then? Well, I'm glad you asked.
Government Revenue Sources
Remember our starting point - countries are functionally companies or businesses. And just as a business has its assets and liabilities, a country has its assets and liabilities. A country has income and expenses.
Taxes are not the natural income source of a country. A country is supposed to have assets and produce to sell to other countries. And also, the country can levy tariffs on other countries coming to sell within the country.
Some countries have oil, precious metals, and so on. In fact, I think that every country should be in the business of energy production, whether as a public-private partnership or as fully government-owned. Some countries know this and understand its power. But many don't and hence, are subservient and economically impoverished.
A government that cannot make money without taxes is a government that will make the people suffer. If a country is heavily dependent on taxes, it will take years or decades to change into a better structure. And the idea of a government change every 4 years makes that almost impossible.
This is why economic growth is almost impossible for third-world countries today:
The countries don't produce (enough)
The GDP is too weak to be taxed (but still taxed)
They are not in control of their money
People in government change every 4 years (which makes long-term thinking for any government futile)
Nobody believes growth will happen. And so when there is any little breakthrough, there is high corruption to render it useless
And a consequence of this perpetual failure of governments puts high pressure on big businesses. Hence, tax havens.
Why Talk About Tax Havens?
I'm talking about it so that if you need one, you don't shoot yourself in the foot by calling it something that only thieves use. Heavy taxation often signals a failing government.
Protect your money legally as much as you can. Sometimes, taking your money out of a country can be the best investment decision you make.
The risk doesn't lie in stocks, bonds, commodities, etc., alone. The risk also includes countries. Where is your money? This is very important.
Do some research. Put your money where it is supposed to be for your own interests. That is the first step to success. If your money is in the wrong country (that betrays your interests), it doesn't matter where you invest it. It will be a bad investment.
Get good advice. Let your money be in countries that align with your interests. Don't let anyone discourage you from tax havens.
Tax havens are good. And good people use them too.
Stay rich.
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