Lowtax Network

Back To Top

Your Lowtax Account

no smoke without fire

Kitty Miv, Editor
09 August, 2016

Kitty's Country Rankings are below, with a description of how they are compiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

If anybody doubts the assertion that United States "tax expenditures" – credits, deductions, exemptions, and the like – are running out of control, they need only read the Washington-based Tax Foundation's latest report on the matter to see that they are wrong.

As the Foundation's report points out, not all tax expenditures are bad. But it is clear that that tax code is packed full of dead wood – or pork in the parlance of Washington – and that stripping much of it away is long overdue. This is attested to by a truly staggering statistic – that the federal government will "spend" USD17 trillion on tax expenditures between now and 2025. That's almost as much as the entire gross domestic product of the United States in 2015.

Tax expenditures are a fundamental reason why US taxes are relatively high, and highly uncompetitive, because tax expenditures need to be paid for somehow, and leaving corporate tax at 35 percent is probably politically more acceptable – and easier – than cutting the expenditures themselves, especially as the vast majority of tax expenditures benefit individuals. So any member of Congress who calls for their elimination is not going to be endeared to their constituents. Yet, it could be a risk worth taking.

According to the Center for American Progress, repealing all tax expenditures en masse would enable Congress to cut taxes by 40 percent and still collect the same amount of revenue. That would result in the US having a corporate tax rate of 21 percent and a much more user-friendly tax code.

Not that Congress has been unwilling to tackle the tax expenditure monster. But if the political will is there, it is going to be an uphill battle. Last year, Rep. Paul Ryan (R – Wisconsin) and Sen. Patty Murray (D – Washington) introduced legislation that would establish a 15-member commission to study how best to expand the use of data to evaluate the effectiveness of US federal programs and tax expenditures. And this would be before the debate actually begins on eliminating those tax expenditures deemed unworthy. The depressing conclusion to be drawn is that Congress remains at the base of the tax reform mountain.

Meanwhile, the European Union has flatly denied that New Zealand will be placed on a new blacklist of tax havens stemming from its probe into the Panama Papers. But no smoke without fire as the saying goes, and the idea must have come from somewhere. Well, as it turns out, that somewhere was a non-legislative resolution proposed by a member of the European Parliament that New Zealand was worthy of investigation because it made an appearance in the documents leaked from Panama law firm Mossack Fonseca. And it seems that New Zealand's foreign trusts regime has put the country on the radar of the international transparency campaign.

Certainly, if anonymity is top of your list when organizing your financial affairs, you could do a lot worse than make use of a New Zealand foreign trust, which has been one of the most popular vehicles for this purpose for a number of years. But if having trust laws, which by their very definition are designed to break the link between an asset and its owner, was the only criterion for inclusion on a tax haven black list, that list would be very long, and include some surprising names. It's coming to something when a country with a corporate tax rate of 28 percent, which, incidentally, is comfortably higher than the EU average, is accused of being a tax haven. As New Zealand Prime Minister suggested when this storm (in a teacup?) broke, those accusing other nations of failing transparency standards should look closer to home before doing so, especially as New Zealand is legislating to introduce a registry of foreign trusts.

New Zealand might not be a low-tax economy, but it is a dynamic and largely pro-business one. The Heritage Foundation/Wall Street Journal places it third on its latest league table of economic freedom, behind only Singapore and Hong Kong, and just ahead of Switzerland. New Zealand fares even better in the World Bank's Doing Business Index, where it is positioned in second place behind Singapore – if you're looking for a place to form a company quickly and cheaply, New Zealand is the place to do it, ranked as it is at number one in the "starting a business" sub-index. I wonder whether this, combined with the Government's recent assertion that few of the OECD's BEPS recommendations require a response from New Zealand because its tax regime is robust enough, has ruffled a few feathers in Europe, which has become the standard bearer for BEPS, and increasingly sclerotic in its approach to economy and tax policy.

 

Kitty's Encomiums and Execrations

Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at minus 2, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums

New Zealand open

Kitty's Execrations

United States expensive

 

Ciao

Kitty



About the Author


Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net

 

 

« Go Back to Blogs

Blog Archive

Event Listings

Listings for the leading worldwide conferences and events in accounting, investment, banking and finance, transfer pricing, corporate taxation and more...
See Event Listings »