Today's post is by Chuck Collins, co-founder of Wealth for the Common Good, a network of business leaders and high net worth individuals that support progressive taxation and shared prosperity. He is co-author, with Bill Gates Sr., of Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes.
And if you want to delve deep into the topic, my unqualified recommendation this tax season is Nicholas Shaxson’s Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens.
Shaxson, a veteran journalist, slices through the technical jargon to reveal the devastating impact of what he calls “the offshore system” on economic health, global poverty, and our state and federal budget deficits.
Tax havens, or more accurately “secrecy jurisdictions,” are the mechanisms through which wealthy individuals and multinational corporations move money around the planet to avoid taxation and regulation. These same mechanisms facilitate criminal activity, from drug money laundering to terrorist financing networks.
According to Shaxson, there are about 60 “secrecy jurisdictions” around the world, countries with loose incorporation rules, bank reporting and financial transparency requirements. Those of us in the U.S. are most familiar with some of the Caribbean tax havens such the Cayman Islands, Bermuda, and the Bahamas. But technology and pharmacy companies often create subsidiaries in countries like Ireland and the Netherlands to hold patents and intellectual property to reduce US taxes.
The offshore system has spawned a huge tax avoidance industry, with teams of lawyers and accountants who add nothing to the efficiency of markets or products. Recent stories about General Electric’s storied tax dodging dramatize the ways that modern multinationals view their tax accounting departments as profit centers.
At a time when federal and state lawmakers are grappling with huge budget deficits, the impact of corporate tax dodging is getting new attention. The cost of tax havens is estimated to be over $100 billion of lost revenue each year. And a coalition of over 20 U.S. companies have launched their “WinAmerica” campaign to lobby a “tax holiday” on $1.2 trillion in overseas profits they want to bring back to the U.S. Opposing these measures is a whole grassroots movement, US UNCUT, that has emerged to argue: “No Budget Cuts Until Tax Dodgers Pay Up.”
Shaxson argues that almost every major economic story and crisis can trace its roots back to the offshore system. The financial practices of the “shadow banking system” that triggered the 2008 global economic meltdown were facilitated through an opaque and unaccountable finance sector built around layers of off shore tax havens. The two biggest recipients of taxpayer bailout funds are, by no coincidence, huge users of the offshore system. Citigroup has 427 subsidies in tax havens and Bank of America has 115.
At the heart of the global system of off shore tax havens is the transfer of wealth –away from communities and the global south and into the bank accounts of the planet’s wealthiest and most powerful citizens and corporations. For those who care about global poverty and trade, the offshore system is how wealthy elites move their money out of the nations of the global south –and why resource rich nations are unable to effectively tax the corporations that extract their natural wealth. Shaxson cites reports that estimate trillions of dollars of illicit financial flows out of African countries over the last two decades.
Shaxson, who lives in Switzerland, is in the U.S. this week to promote the book and did a press conference with U.S. Senator Carl Levin, champion of legislation to stop tax haven abuses. Congress has been slow to tackle the off shore problem, but the tide is turning.
Treasure Islands was released in the UK in January and quickly became a best selling non-fiction book. It has become the bible of the UK Uncut movement, a grassroots effort to stop budget cuts and make corporate tax dodgers pay. The U.S. Uncut movement, inspired by efforts from across the Atlantic, has over 80 protests planned for the coming tax day weekend. On Friday 4/15, author Shaxson be joining US UNCUT to do a creative “book signing” at the offices of a prominent tax dodger in Washington DC.