Germany Fiscally Invades Liechtenstein
If the European Union cracks down on Liechtenstein, violating its sovereignty, German and other European taxpayers will shift their accounts to other tax havens.
March 1, 2008
Fred Foldvary, Ph.D.
Economist

The German government has inflicted a fiscal invasion of the Principality of Liechtenstein, a tiny independent country between Switzerland and Austria. Germans along with other nationals have been depositing their money in Liechtenstein’s banks to reduce their taxes. German government officials believe that some of these Germans are seeking to illegally evade taxes.

To get around Liechtenstein’s privacy laws, the German government officials purchased the bank account records of account holders from a former bank employee, who is reported to have stolen the information in 2001 and 2002 in violation of Liechtenstein's banking-confidentiality laws. Liechtenstein's Crown Prince Alois accused the German officials of using "methods that defy the rule of law." In March 2008, police in Liechtenstein issued an arrest warrant for the man they believe stole the bank data.

Taxes are high in the European Union, while they are low in Liechtenstein, which is in a customs and monetary union with Switzerland, outside the European Union. The European government chiefs are upset that taxpayers are escaping high taxes with accounts in Liechtenstein. Corporations have also establishing their bases in Liechtenstein. The Organisation for Economic Co-operation and Development, a club of the wealthy states, has accused Liechtenstein of running a tax haven.

Crown Prince Alois declared that "Germany will not solve its problems with its taxpayers by attacking Liechtenstein." He is correct. If the European Union cracks down on Liechtenstein, violating its sovereignty, German and other European taxpayers will shift their accounts to other tax havens. There are plenty of small countries within and outside of Europe that would welcome the funds.

Liechtenstein resisted the Nazi German attempt to swallow up the country during World War II. Now it has to defend itself against the German invasion of the privacy of its banking system and the fiscal invasion that seeks to take away the funds invested in Liechtenstein’s banks.

The reason Liechtenstein has a thriving financial industry is the high taxes inflicted by the major countries world-wide. With its relatively free-market economy and currency backed by the stable Swiss franc, the residents of Liechtenstein enjoy a high standard of living, with little unemployment. The government of Liechtenstein is willing to cooperate with the European Union to enforce laws against fraud, but seeks to maintain its banking independence.

When Nazis ruled Germany, one could not blame its victims for seeking to escape to freedom. Likewise, although of course taxation is a much milder form of oppression than concentration camps, one should not blame Germans and others from seeking to escape the confiscation of their legitimately earned money.

The state of Germany is not only fiscally invading accounts in foreign countries, but also of the funds and investments within the country. Here is the question the German government must confront: are Germans to be free citizens, or serfs of the state?

Like any human beings, Germans are morally entitled to freiheit, the freedom to do anything that does not coercively harm others. That includes engaging in labor and keeping the wages of labor. The taxation of labor, including the products of labor, transactions of labor, and investments of wages, is a violation of liberty and natural rights. Plenty of tax revenue is available from land rent or land value, which does not take from labor, as human action did not create land. There is no economic need to tax wages when earned or when saved.

The great German writer Johann Wolfgang von Goethe wrote, “None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. They feed them on falsehoods till wrong looks like right in their eyes."

Tax propagandists say that taxes are necessary for public goods and to prevent the collapse of civilization. But this ignores the distinction between just and unjust sources of public revenue. If land rent is not tapped for public revenue, then landowners get subsidized, as public works and civic services pump up land rent and land value. The only way to avoid the land-value subsidy and subsequent economic distortions is to tap the site values for public revenue. This truth has been kept from the minds of taxpayers by masters who control education.

The taxation of wages, interest, dividends, business profits, and trade reduces incomes and economic growth and violates freedom. These fiscal invasions are unnecessary, as governance can obtain plenty of revue by tapping land rent as well as from pollution charges and user fees.

So long as governments inflict fiscal invasions, people will naturally seek to shelter their income. The only fair and permanent way to stop tax refugees from escaping fiscal invasion is to stop the fiscal attacks and lower taxes to the ground with public revenue from the land. Then there would be no more tax havens, since wealth would no longer shrink, flee, and hide from the tax collector.


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Fred Foldvary, Ph.D.
Economist

FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.