Creating wealth is hard enough without having to worry about how much the government is making on your investments. That’s just one reason to opt for offshore investment opportunities. As this article will show through a combination of allegory and mathematical calculations, wealth creation is a complex concept; the following allegory presents the risks of excessive government on the growth of wealth.

On a island lived 12 industrious people, each of whom earned $100 a week, coming to a total of $1,200 a week. The combined yearly income from production (what today is called GDP) was $62,400.

One day the candlestick maker held a meeting and declared that he should be elected governor of the island to maintain the standard of living for the others. Because he was now too busy governing to produce his candlesticks, he declared that each of the 11 should donate $9 each week to him. With the country’s earnings now only at $1,100 per week, their GDP dropped to $57,200 and each producer was now only getting $91.00 per week.

With each passing year, the situation grew steadily worse, so the governor decided that the decline in the island’s economy was due to too much production and not enough thought given to the future: the solution was to elect more government. The grocer and butcher were thus elected to government, and decided that they deserved the same amount of money as the governor.

The problem was that now only nine members that were producing anything of value, meaning that the weekly combined income was only $900, but the government still wanted $100 each. Each of the nine producers had to give up $33.34 each week for the government, which in turn meant that each producer now earned $66.66 each week.

By the time the island knew what had happened, it was too late. Future generations came and paid a portion of their wages to government and eventually, they no longer questioned government and tax, accepting it as a natural part of their lives. At the beginning of the story, the island’s GDP was $62,400; by the end, the GDP was $46,800 – a difference of $15,600! What kind of system would give more money to the unproductive, and tax us on our savings to boot? Especially when the money used for savings is money left over from our wages that has already had the tax paid.

By taxing savings, there is little to no incentive to get ahead. Tax havens have strict secrecy policies; offshore banks within these havens also have strict secrecy policies, and the investments themselves are also conducted under strict confidentially guidelines. Furthermore, Supreme Court judges have ruled that you only need to pay the minimum amount of tax payable – and under no circumstances is it illegal to invest offshore.

Below is a table of the effects of compound interest, with and without tax applied on the savings. I am certainly not advocating that people blatantly break the law, but only a fool would do all the research and hard work on an investment, go without, and invest after-tax dollars, taking all the risks, only to give a portion of it to the government when they make more than enough from citizens already. The table is based on the investment of $1,000 with tax being charged at 30% per annum on the interest.

                     Interest Rate      5 Years         10 Years        20 Years               30 Years
No Tax               3%               $1,159            $1,344          $1,806                     $2,427              
Tax                     3%               $1,110            $1,231          $1,515                     $1,865

No Tax               5%               $1,276            $1,629           $2,653                     $4,322
Tax                     5%               $1,188            $1,411           $1,990                     $2,807

No Tax              10%              $1,651            $2,594           $6,727                    $17,449
Tax                    10%              $1,402            $1,967           $3,870                      $7,612

No Tax              12%              $1,762            $3,105           $9,644                     $29,954
Tax                    12%              $1,496            $2,240           $5,019                     $11,243

No Tax               24%             $2,932            $8,594           $73,864                  $634,820    
Tax                     24%             $2,174            $4,725           $22,328                  $105,510

No Tax               36%             $4,653            $21,647         $468,574             $10,143,019
Tax                     36%             $3,076              $9,463           $89,554                 $847,778

No Tax               40%             $5,398            $28,925         $836,669             $24,201,043
Tax                     40%             $3,436            $11,806         $139,380              $1,645,505      

No Tax               50%             $7,594            $57,665      $3,325,257            $191,751,059
Tax                     50%             $4,484            $20,107            $404,274           $8,128,549

No Tax               72%             $15,054          $226,613       $51,353,369  $11,637,247,000
Tax                     72%               $7,696            $59,221         $3,507,169      $207,699,325