Tax cheating, easy living

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Tax cheating, easy living

Josh Eisen and Richard Swift write about the problems that come from avoiding tax.

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A rich client in the pool of the luxury Marina Bay Sands hotel near Singapore’s financial district (where there is a promise of privacy). © Paolo Woods & Gabriele Galimberti/INSTITUTE

Why do we pay taxes? Individual taxes are small. Who would miss them? And then governments waste our taxes on corporate subsidies, expensive military hardware, and big salaries for bureaucrats.

But our taxes also keep us together as a society. They give us basic services, they help the most vulnerable of us. So it this way, taxes are the gift we give each other.

2016 was a bad year for tax cheats. In October The New York Times reported that Donald Trump likely avoided paying nearly a billion dollars in taxes. This was only one of a number of shocking examples of the unfair tax practices of transnationals and the very rich. There is growing public pressure and even politicians are taking notice. David Cameron benefitted from an offshore trust but in May 2016 he said fighting corruption would now be important internationally. Now it’s easy to imagine that tax cheats are worrying.

Or maybe they are not worrying. This is not the first time we have looked at tax cheating. After the 2008 financial crisis, G20 leaders came together to say it will be the end of financial secrets. In 1961, John F Kennedy asked US Congress for laws to stop tax havens. But since the 1960s, the money in tax havens has increased a lot. Since 2008 private money in offshore tax havens has increased by 25 per cent. French economist Gabriel Zucman thinks that there is $7.6 trillion in tax havens. That is eight per cent of all global finance. James Henry is senior advisor at the Tax Justice Network. He thinks that number is much higher, between $21 to $32 trillion.

Life offshore

What is ‘offshore’? We often think offshore means palm trees, expensive cigars, and easy tax laws on islands where the corrupt rich hide their money. This is part of the truth. But there is much more. Offshore is anywhere that allows its clients – criminals, businesses, and the very rich – to avoid taxes and regulations. Caribbean tax havens still play an important part but some of the biggest players in the offshore world are not islands. The City of London is at the centre of secret laws and offshore finance. American banks offer tax-free accounts and secret services to foreign capital and so the US is one of the biggest players in the offshore economy. Many of offshore’s biggest clients are people like Iceland’s former prime minister Sigmundur Gunnlaugsson and famous names like Pepsi, Google, and Facebook.

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Campaigners help to make Starbucks pay $9.7 million in UK taxes/ Jenny Matthews/Alamy Stock Photo

Today the offshore world is a complex economic system that is separate from and part of the global economy. From offices in London or New York, the rich use secret accounting to hide billions in the Cayman Islands, where the money grows tax free.

Transnational companies send billions in profit from the high-tax nations to havens in Jersey, Bermuda, and Luxembourg. Investment banks and others use low offshore taxes in a way that destroyed Enron and led to the 2008 financial crisis.

Today, the offshore world stops the simple and fair idea of meeting the needs of ordinary people. The system can seem complicated, and that’s how it works. More than half of all banking finances and half of global trade are sent offshore.

In 2004, Hurricane Ivan hit the Caymans and caused a lot of damage. After the storm many people were dead and more than a quarter of the islands’ houses were destroyed. Did Hurricane Ivan damage the island’s financial services? No, almost all the money in the Caymans passes through only on paper on its way to Wall Street or the City of London.

What’s wrong with tax avoidance?

Tax cheats are careful to make a difference between evading and avoiding tax. Evading tax is illegal. Avoiding tax uses complicated accounting to cut tax and is legal.

This is a neoliberal idea about tax. Most people see tax as the price we pay for roads, schools, and healthcare, which that makes democratic life possible. But with neoliberal ideas this way of seeing tax is lost. And so Donald Trump sees himself as a neoliberal hero and uses tax laws to avoid taxes.

Tax havens are doing better than before. Economists think that governments lose about $400 billion in tax each year to the offshore economy, more than twice the annual global aid budget. This is bad for democracy. It brings inequality and austerity and small local businesses and middle- and working-class taxpayers pay more tax as they cannot afford accountants and lawyers.

Tax cheats give money to politicians and their campaigns and the politicians do nothing. Paying tax or not becomes a choice for the rich and people who are not rich begin to think why they are paying. In countries like Greece and Italy, and large parts of the Global South, people are avoiding tax more and more and society suffers.

The offshore system also pushes down tax rates worldwide. In a globalized economy companies can go where they want to. And so governments want to offer low taxes, For example, Belgium helped McDonald’s and some 35 other businesses. Tax competition is bad for democracy globally. It takes control of tax policy away from elected governments. Some economists think that in 10 years there will be no business taxes. The offshore system is had for the Global South with corruption and bad tax systems. Perhaps between 2004 and 2013 more than $7.8 trillion went from developing economies to offshore accounts. Many countries lose more to tax havens than they receive in aid and foreign investment. In sub-Saharan Africa, the problem is so bad that economists think it has lost 80 cents for every dollar of debt accrued since 1975. Western politicians are quick to criticise ‘third world’ corruption but they pay little attention to the role of tax havens, including both the US and the City of London.

When will it end?

The problem is political will. The offshore system continues because there are powerful interests who want it. Many politicians are part of the offshore economy. The Panama Papers reported that politicians such as Ukrainian President Petro Poroshenko, the King of Saudi Arabia, and relatives of Syrian Dictator Bashar al-Assad are involved. In this situation ordinary people must hold tax cheats to account. No-one else will do it for us.

NOW READ THE ORIGINAL: https://newint.org/features/2016/12/01/tax-cheating-easy-living/

(This article has been simplified so the words, text structure and quotes may have changed).