Jack Lew’s Cayman Adventure
Written by Daniel J. Mitchell, a senior fellow at the Cato Institute. Posted with permission from Cato @ Liberty.
Every so often you get a “teaching moment” in Washington. We now have one excellent example, as President Obama’s nominee for treasury secretary has been caught with his hand in the “tax haven” cookie jar. Mr. Lew not only invested some of his own money in a Cayman-based fund, he also was in charge of a Citi Bank division that had over 100 Cayman-domiciled funds. This provides an opportunity to educate lawmakers about the “offshore” world.
As you can imagine, Republicans are having some fun with this issue. Mitt Romney was subjected to a lot of class warfare demagoguery during the 2012 campaign because he had invested some of his wealth in a Cayman fund. GOPers are now hoisting Lew on a petard and grilling him about the obvious hypocrisy of a “progressive” utilizing—both personally and professionally—a jurisdiction that commits the unforgivable crime of not imposing income tax.
In a sensible world, Lew would be able to say what everyone in the financial world already understands: the Cayman Islands are an excellent, fully legal, tax-neutral platform for investment funds because 1) there’s no added layer of tax, 2) there’s good rule of law, and, 3) foreigners can invest in the American economy without creating any nexus with the IRS. But we don’t live in a sensible world, so Lew instead wants us to believe he didn’t realize that the funds were domiciled in Cayman.
I guess all the other wealthy progressives with offshore-based investments were probably also unaware, right?
Anyhow, I’m taking a glass-half-full perspective on this kerfuffle since it gives me an opportunity to educate more people on why tax havens are a liberalizing and positive force in the global economy.
And what of Lew as treasury secretary? As I explained for Real News, he’s competent but misguided.
In other words, the chances of any good tax reform in the next four years are asymptotically approaching zero. Based on his background (and also based on the views of the president he’ll be serving), it’s virtually impossible to envision good entitlement reform, pro-growth tax reform, or any changes to fiscal policy that would lessen the likelihood of future Greek-style fiscal collapse (as amusingly illustrated by this cartoon).
So with any luck, they’ll be some tax havens around the world that the rest of us can utilize when that day of reckoning occurs.