Government Doesn’t Own You (2015 Nov)

by Barry A. Liebling

In his new book The Hidden Wealth of Nations Gabriel Zucman – a professor at UC Berkeley – laments that a worldwide catastrophe is occurring. About 8% of the “world’s wealth” is being “hidden” by private individuals and private corporations. Wealthy people and multinational corporations are using tax havens to shelter their money from what Dr Zucman regards as the “rightful owners” – tax collecting governments. The author concedes that “most of the activities in tax havens are legitimate” (that is, legal) but is disturbed that tax avoidance activity is costing governments at least $200 billion a year. What particularly vexes the author is that tax avoidance is contributing to inequality and that if actions are not taken to curb the practice ordinary people might be less willing to pay taxes. His proposed solution to the “problem” is just what you would expect – new more-intrusive regulations on tax havens and international coordination among governments to make it ever more difficult for private individuals to escape the state’s grasp.

It is not necessary to read the entire book to discern the core opinions and attitudes of the author. Dr Zucman has published a slide presentation online that summarizes his main themes.

The Hidden Wealth of Nations is likely to be embraced by the leftist intellectual elite. References to it will be used as ammunition by those who despise individual autonomy (in others) and yearn for a forceful government that has its massive hands in everything. Of course, if you understand and appreciate the philosophy of individual liberty you will see that Dr Zucman’s thesis is based on fallacious premises.

The root (and flawed) assumption behind the book is that governments legitimately own all the wealth. Individuals have a permanent obligation to serve and obey their government. Since the source of all wealth is human productivity – people creating value – the implication is that governments own the people within them. Note that this is the key premise behind many varieties of totalitarianism, including and especially Marxism.

The correct alternative to Dr Zucman’s (and the mainstream leftist) view is that individuals have inalienable rights to life, liberty, property and the pursuit of happiness. This view recognizes that individuals should have sovereignty over their own lives – including how they generate wealth and what they do with it. A governments is necessary to protect individual rights which means its proper role is to proscribe the use of force and fraud. A government obtains all of its funding and resources from individuals, and ideally (but unfortunately, not typically) free individuals finance it on a voluntary basis.

The book recognizes that tax havens represent a conflict between a government and private parties (wealthy individuals and corporations). The author’s implicit interpretation is that the government is the innocent victim when it does not get its way. The state has a default claim on all money since it needs to maintain power and fund its endless list of projects. However, a person or company that attempts to preserve private wealth using a legal tax haven is morally culpable since the desire to keep something for yourself is an affront to society as a whole. There is a big problem (to leftists) if private actions reduce the state’s take.

If you prize liberty you will see that the use of tax havens is a normal response to government abuse. Businesses and individuals shelter their money abroad precisely because the domestic tax burden is unjust, onerous, and has the effect of driving people away. Within the US, companies are frequently moving their operations from high taxation states to low taxation states – not because the businesses are malicious but because they are escaping an increasingly punishing environment. An observer who values freedom will have sympathy for private parties attempting to attenuate government burdens and will judge the greedy grasping claw of tax collectors harshly.

To make his argument resonate with his leftist readership Dr Zucman asserts that when companies and individuals use tax havens they are increasing inequality. The magic word “inequality” is the meddler’s classic trump card. Leftists say they are troubled by inequality, but actually they are delighted whenever they find it. In their world-view unequal economic outcomes is the universal signal for government action – starting state programs, increasing them, and above all aggressively imposing more taxes.

If you appreciate the concept of freedom you understand that inequality per se, is not a legitimate issue. It is the proper business of the government to protect everyone’s individual rights, and it is out-of-bounds for it to micro-manage and fiddle with anyone’s income. A man or woman who acquires wealth ethically, is entitled to it – regardless of how much or how little other people may have. A scoundrel (whether a private citizen or a government official) who enriches himself by violating the rights of others does not deserve any of it – even if the scoundrel has taken from those who are “richer” than he is. People who understand this are immune to the income inequality gambit.

There is a possible upside if The Hidden Wealth of Nations becomes well-known. Its underlying fallacies might be widely recognized which could energize advocates for liberty to make their case more persuasively.

*** See other entries at in “Monthly Columns.” ***

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