Pop quiz: can you name this free-market jurisdiction in the Western hemisphere?
Here are some of its attributes:
- Personal income tax: NONE
- Corporate income tax: NONE
- Capital gains tax: NONE
- Taxation of dividends: NONE
- Taxation of interest: NONE
- Withholding taxes: NONE
- Payroll tax: NONE
- Social Security tax: NONE
- Wealth tax: NONE
- Inheritance/estate tax: NONE
- Property taxes: NONE
Compared to the levels of taxation in the US, Canada, and Europe, to say the above is a breath of fresh air would be a major understatement.
Now, there are only three jurisdictions in the Western hemisphere that do not levy property taxes, so that should narrow the field. The mere existence of property taxes is a ridiculous notion that should offend anyone with a respect of property rights. I have already covered this topic here in case you’re interested.
All three are worthy of discussion, but I want to focus on Cayman today.
(By the way, locals pronounce it like cay-man, not cay-men. It sort of rhymes with the way you would say “hey man.”)
There is one absolutely crucial feature that distinguishes the Cayman Islands from other low-tax jurisdictions: a culture and history that is vehemently opposed to direct taxation—which has never existed in Cayman.
Over the years, every proposal that has had even a whiff of a possibility that it might lead to direct taxation has been driven out of town, along with the foolish politicians who sponsored it. It’s proven to be a great deterrent.
This dynamic has been fostered by the fact that Cayman is a small place where everybody—including the politicians—know each other. The political system in that sense remains very personal. The legislators go to the same restaurants and live in the same neighborhoods as their constituents—they cannot easily hide. This sort of personal accountability is impossible in large countries. It helps keep Caymanian politicians in check.
Give an Inch and They’ll Take a Mile
The aversion to even the concept of direct taxation in Cayman is extremely important. Because once the principle is conceded—and you give politicians an inch—it’s only a matter of time before they’ll take a mile.
You’ll recall that when the federal income tax was introduced in the US in 1913, those making up to $20,000 (equivalent to around $475,000 today) were only taxed at 1%—that’s ONE PERCENT.
The top bracket kicked in at $500,000 (equivalent to around $12 million today), and the tax rate for it was only 7%.
Of course, once the principle was conceded in 1913, the politicians naturally couldn’t resist ramping it up until we have the monstrosity that exists today in the US tax code, which most Americans passively accept as “normal.”
In my view, it’s Cayman’s unique culture and history that’s opposed to the very principle of direct taxation, which is the best guarantor it will continue to be a beacon of light well into the future.
Judge Me by My Enemies
But not everyone is as thrilled about the Caymanians’ love for low taxes as I am.
Spendthrift politicians the world over have long despised Cayman—something that should be taken as a badge of honor, as far as I’m concerned.
This is because productive people and companies gravitate to places where they’re treated best. And it’s hard to find a place where you’ll be treated better with respect to taxation than in Cayman. This healthy dynamic is called tax competition.
Naturally, politicians in countries with uncompetitive tax policies don’t like this because it means fewer productive people to fleece, which helps put a limit on their wasteful spending.
Consequently, Cayman has long been pressured. A prominent Caymanian professional told me about how the US government used to fax over laws to the Cayman government and demand that they adopt them. Imagine a situation where China arrogantly faxed over a new law to the US Congress and demanded they adopt it and you'll know how the Caymanians felt.
Fortunately, these methods were never really that successful. In fact, they’ve made Cayman stronger. Now the jurisdiction is battle-hardened and knows how to handle the pressure.
Another way Cayman has been pressured is through demonization in the media and popular culture as some sort of shady money-laundering center. Never mind the fact that unlike murder, robbery, and rape, money laundering is a victimless make-believe crime invented by politicians.
Here’s what Lew Rockwell said in a post titled The Totalitarian Notion of ‘Money Laundering’:
Normal people … are outraged and astounded to know that using your own cash, honestly gained and (dishonestly) taxed, can be a major-league federal felony. Spending $10,000 or more of your own cash without filling out a federal form is a crime. But get this: spending smaller amounts can be a crime too, if they add up to more than $10,000. We are told that this police-state measure is necessary to fight terrorism. But when the evil Reagan administration pushed all these laws through, the excuse was to fight the drug war. Of course, neither is true. Such surveillance is part of the federal effort to tax and control every dime you have and spend. Need I mention that only one public official, then and now, fights for our privacy and property rights in this area? Ron Paul battled Reagan, Bush I, Clinton I, and Bush II on the victimless crime of “money laundering.” As Ron says, freedom means governmental transparency and private opacity, not the reverse.
But let’s set that argument aside and assume that money laundering is indeed a real crime. The people who demonize Cayman never mention that New York and London are some of the largest money laundering centers in the world. Cayman is squeaky clean in comparison with tight “know your customer” and other banking controls.
Here’s what the New York Times has said:
A study last year by the Colombian economists Alejandro Gaviria and Daniel Mejía concluded that the vast majority of profits from drug trafficking in Colombia were reaped by criminal syndicates in rich countries and laundered by banks in global financial centers like New York and London.
What this all means is that the popular (mis)conception about Cayman being some sort of unique and illicit jurisdiction is nothing but propaganda from proponents of big government.
The reality is that Cayman is a highly sophisticated and professional financial center that stands out because of its unique history and culture opposed to direct taxation. For people looking to make the most of their personal freedom and financial opportunity, Cayman checks a lot of boxes.
If we judge Cayman by its enemies, I’d say it’s a wonderful place.
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