Why Puerto Rico Tax Haven Is A Blessing

By Tara Daniels

Whenever some people hear of a tax haven, what springs to their mind is a group of wealthy businessmen enjoying the tax loopholes that have been figured out by their accountants. This stereotypical image, coupled with the fact that certain people have offshore bank accounts somewhere in Monaco or Puerto Rico with millions of dollars, makes tax havens suspicious. Some may question why the rich get tax rebates while the middle class and the poor do not. However, such an opinion can be wrong as each person benefits from a Puerto Rico tax haven.

For one, if a person lives in a developed country, then today his or her taxes are probably lower than they were three decades ago thanks to tax havens. The top tax rates of personal income in 1980 averaged over 67%, with corporate taxes averaging almost 50%. Countries imposed extra rates of tax on capital routinely to compound the image, including capital gain taxes, dividend taxes, wealth taxes and inheritance taxes. Such policies discouraged investment and taxes, stifling growth of the economy and leading to significant economic hardship.

Since that time, governments have raced to make reforms in tax regimes and cut out tax rates. These days, personal income tax rates are about 40% on average, with their corporate counter parts having reduced to an average of 27%. This change has largely been as a result of globalization rather than ideology. Governments are reducing tax rates since they fear citizens will start looking for employment and investment opportunities outside the borders.

Tax havens have made a major contribution to these positive developments, through the provision of a safe refuge for people who want to dodge confiscatory taxes. Lawmakers have decided that generating revenue through modest tax rates is better than imposing high rates and then risking losing out.

There might even be a moral case in favor of tax havens. They play a crucial role in the protection of individuals subjected to ethnic, religious, racial, political or sexual persecution. A majority of the worlds population lives in countries and regimes having inadequate protection of human rights, and individuals with assets are often targeted by oppressive governments.

For such victims of oppression, depositing their assets with tax havens offers important protection. Even the United Nations wrote a report back in 1998 that attacked tax havens, but in it admitted governments all over the world for most of the 20th century spied on its citizens with the aim of accessing political control. One way of attaining political freedom involves hiding personal information from governments through tax havens.

The OECD is trying to invigorate its campaign against what it calls uncooperative tax havens. But these are the havens that are helping to develop a better tax policy. Its proposals are fortunately facing an uphill climb. It has blacklisted a number of tax havens, trying to get them to weaken their tax laws. The havens will however only do that if other nations also agree, which is unlikely.

Tax competition is taking tax policy in the correct direction, and a Puerto Rico tax haven play a major role in this process of liberation. Tax reforms and lower rates are a sure way of combating evasion.

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