“There’s no such thing as bad publicity,” or so the saying goes. But when U.S. Democratic presidential candidate Hillary Clinton named the Cayman Islands — in the context of tax abuses, of course — it certainly wasn’t good publicity for our country.
Smart people, however, know that offshore financial centers are an important component of the global economy. Mrs. Clinton, for all her shortcomings, may not be stupid — but she certainly is opportunistic.
The reaction online and in the media to Mrs. Clinton’s comments was fairly predictable: first portraying her remarks as a frontal assault on tax havens, then, depending on the ideological leanings of the source, labeling her as heroine or hypocrite, considering her own financial connections with Cayman (including through her husband, former U.S. President Bill Clinton).
We don’t interpret her statements, or her related tax proposals, in such a manner. Our impression was that Mrs. Clinton was speaking about a relative handful of American individuals who maneuver through the U.S. tax code in order to pay lower rates. To quote Mrs. Clinton, “the kind of misclassifying of income, trying to make it look like it’s capital gains when it is really ordinary income, going ahead and routing income through the Bahamas or the Cayman Islands or wherever.”
She proposes to levy a 4 percent tax surcharge on Americans earning more than $5 million per year (no matter if the money is generated onshore or offshore), effectively creating a new top tax bracket for the wealthiest households. Mrs. Clinton wants to limit the ability of the very wealthy to defer income tax on offshore fund investments (known as the “Romney loophole”), and she also endorses the “Buffett Rule” proposal to set a minimum tax rate of 30 percent for Americans who earn more than $2 million per year.
Put another way, Mrs. Clinton’s target isn’t Cayman, per se — it’s the rich.
(Bermuda, on the other hand, may have cause to worry, as Mrs. Clinton aimed at the confluence of the reinsurance industry and hedge fund sector.)
For the purposes of this editorial, we’ll limit our comments on Mrs. Clinton’s policies to this: We disagree with their intent and effectiveness.
The larger truth is that politicians, just like writers (see, for example, the first sentence of this editorial), often employ tropes — or clichés — to transmit an impression to their audience in as few words as possible. Unfortunately the name of our country in books, film, politics and common parlance has become synonymous with money laundering, tax evasion, and all sorts of unpopular or even unsavory activity by the wealthy elite.
We’ll call this “the John Grisham effect,” after the author’s selection of Cayman as a setting for scandal in his 1991 novel “The Firm,” which became a major film. Mr. Grisham chose Cayman out of the most innocent of intentions — he needed a Caribbean locale, and had visited our country before; but the ensuing chain reaction of reputational ramifications has been most serious.
How much actual economic damage Cayman has suffered as a result of its image abroad as a “notorious tax haven” is unclear. Perhaps there has been none, other than to lend our relatively staid financial offerings an aroma of adventure and daring.
Regardless, over the past 25 years, the public relations response from our leaders has been totally ineffective, and nearly nonexistent. When the legitimacy of Cayman’s financial sector is impugned, we rarely hear strong rejoinders from the Cayman Islands Monetary Authority or Cayman’s government. (When we do witness a vociferous rebuttal, it tends to be from attorney Anthony Travers, the former head of Cayman Finance, who is a one-man band playing Cayman’s anthem to the rest of the world.)
At this point, we don’t know if this is a battle worth fighting, or one that our country can hope to win. For better or worse, “the Cayman Islands” is firmly entrenched in the popular lexicon as a “notorious tax haven.”
Ultimately, aside from wounds inflicted upon our fealty to country and accuracy, the international demonization of Cayman may have little practical effect. The real concern is if governments such as the U.S., entities such as the EU, or organizations such as the OECD, resolve to exorcise the demon that has been created in their own imaginations. That would place us in real danger.