Oscar Wilde said of someone that 'He knows the price of everything and the value of nothing.' Does that apply to tax-exiles?
The desire to 'go offshore' is in some sense a denial of the bargain between a citizen and the country he or she 'belongs' to. This 'belonging', which is expressed unilaterally and in a very patronising way by the country concerned through the issue of 'citizenship', 'domicile', 'the right to vote' or in the context of this article as 'the right to be taxed' is not normally offered as one choice among others. It is provided 'as of right' at birth, and to avoid, deny, refuse or abrogate it is seen as somehow negative. One is supposed to welcome and cherish one's status as a citizen.
In practice, people have their own ideas about the value of citizenship, and taxation plays a major part in forming these ideas. The decision to move assets, or eventually oneself, out of the jurisdiction to which one 'belongs' is a denial of the offer to 'belong'.
It is not only through physical or financial departure that people express their disagreement with the State's idea of value in the relationship between them. Civil disobedience, vagrancy, crime and various types of disorderly behaviour are other examples of disagreement coming from dissatisfied and frustrated citizens, who don't have the option of physically removing themselves.
Tax is one (but only one) of the governmental pressures which cause deviant behaviour on the part of citizens - but it is an important one.
So it's clear that the right to be taxed has a price, in the governmental market. But what is that price? This is not a trivial question: Colbert and all subsequent hissing-minimisers want to know the optimal level of taxation. 'Stealth' taxation in the UK has just been exploded - people are not that stupid. It seems that they usually understand what is tax and what isn't, although the vast sums being raised by selling mobile spectrum in Europe, which are clearly a capitalised future tax on the use of mobile phones, are recognised as such by only a few citizens in the countries concerned.
A statistician should be able to establish a formula which links the 'tax-take' with 'percentage of taxation'. Lloyd George thought that the efficiency of income taxation would regress severely if it rose above 10% - but modern experience suggests the rate is closer to 30%. That in itself may be a function of the level of service that Government can provide. Modern Governments provide much more than early 20th century ones did, not all of it in an inefficient way, so that it may be reasonable for the tolerable rate of taxation to have risen. But tax has gone up from 10% to 40% in just one 20th century lifetime: has the quality and quantity of Government services also gone up by 400%? Few people would think so, which is exactly why the offshore industry has developed.
The advent of the Internet will force transparency into the economic relationship between governments and people, by allowing them to compare the results they could achieve by working or investing in different parts of the world. At present Governments try not to allow such comparisons to be available to their citizens, but the Internet will force it to happen.
Even though 'offshore' offers a palpably better economic relationship to its citizens than do the high-tax countries, there is not really a competition between high-tax countries and offshore ones for the citizenship relationship: offshore is not big enough to accommodate the bodies of all those dissatisfied people who would like to go there. But it is big enough to accommodate their savings, which is why the rich countries are attacking offshore through the OECD, the FATF, the EU and other organisations.
Governments may succeed for a while in frightening offshore into more transparency, and it may be the case that people can no longer 'cheat' by hiding their savings in trusts or secret offshore bank accounts; but if a given individual (a) feels that he is getting poor value from his government and (b) cannot better his tax position through offshore or 'alternative' investment, then the only escape route left is for him to compare high-tax jurisdictions, as places to live.
Along then comes tax competition, the real bete noire of the high-tax countries, lying waiting for them in the undergrowth. Unable physically to emigrate to offshore, people will look for the high-tax country which gives them the best deal. This process is already at work for UK retirees, as can be seen in Spain; it will spread via 'teleworkers' and the increasingly mobile army of service workers to encompass a substantial proportion of the population in many advanced countries.
So, the Internet will oblige governments to form improved economic bargains with their citizens, and the market, the wonderful, ever-present market (it is after all only a proxy for human nature) will gradually force its way into the provision of government services. Choice (the counterpart of competition) will be the greatest agent for change when it comes to breaking down the monopoly power of the state, as it always breaks down monopoly once it is introduced. But the key word is 'gradually'. It will take decades for even a relatively open economy like that of Ireland to reach a position of economic maturity in terms of its relationships with its population.
Meanwhile, and until the high-tax countries become brave enough to offer internationally-competitive fiscal regimes, offshore jurisdictions are in a stronger position than they think they are. All they have to do is to go with the grain of international economic development (become transparent, become e-nabled) and they cannot but win as wave after wave of rich-country dissidents look for a better home for their money and their businesses.
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