This Sunday, released the International Consortium of Investigative Journalists a massive review of tax havens around the world based on a large leak of documents from 14 offshore service firms. The ICIJ calls the released records “Pandora Papers.”
The investigation must be particularly annoying for ordinary citizens everywhere because it found 35 current and former world leaders using complex financial manipulation to hide their wealth, avoid taxes, or both.
At the same time, readers may feel hopeless: The wrongdoing revealed by the ICIJ’s reporting appears so byzantine that its cessation seems beyond the capacity of democratic governance. In 2004, President George W. Bush urged Americans to embrace the sense of worthlessness, saying there is no point in raising taxes on the rich because “the real rich know how to evade taxes.”
However, in reality, there is no technical reason that the world of international financial secrecy and all related injustices cannot be eliminated. The challenge is purely a political one. This doesn’t mean it’s not scary, especially since Pandora Papers shows that the people who write laws are doing it not only on behalf of their wealthy patron but also for themselves. But that means no one should fall for nonsensical claims that it’s impossible.
This is especially important today as societies around the world are more severely divided into two. Bad enough that tax havens shift the tax burden from superrich to everyone. However, the greatest damage they cause is the feeding of precise, edible uniforms across societies that have a set of rules for regular people and a completely different one for those getting to the top of the pyramid.
There is no technical reason that the world of international financial secrecy and all related injustices cannot be eliminated. The challenge is purely a political one.
For example, an especially shocking discovery in the Pandora Papers was former British Prime Minister Tony Blair and his wife avoided more than $ 400,000 in taxes by buying an offshore firm that owns a London townhouse worth nearly $ 9 million. Blair is the most important chief minster in the past 40 years from the Labor Party, the counterpart of the Democrats in the United States. It cannot be politically liberal working, asking everyone to contribute to the common good, led by the people. like Blair, who actively avoided doing so.
To understand what can be done about coastal tax areas, it is important to understand who uses them, and why. First, they can serve as a means for taxation to avoid, conducted on a large scale by corporations and is generally legal (partly because corporations help write laws). Second, there are taxes to avoid, which are mostly conducted by individuals and illegally.
Pandora Papers is generally not about company tax avoidance. End of company tax avoidance will require changing our current “territory” tax system, where company profits are taxed in countries where companies claim they are earned, to a “division form”System, which evaluates taxes on more easily gamed metrics, such as sales or payroll.
Rather, the revelations of the Pandora Papers are about the behavior of individuals. Tax havens allow to hide assets thanks to two simple features: Havens often do not report assets to the relevant tax authorities, and they have strict hiding laws that can hide who is ultimately owners of assets.
Gabriel Zucman, an associate professor of economics at the University of California, Berkeley, suggested several straightforward ways to address this. Zucman is one of the world’s leading experts on tax havens and author of the short, general audience book “The Hidden Treasure of Nations. “
Zucman pointed out that there is progress ahead. The Foreign Account Tax Compliance Act, passed by Congress in 2010, imposed U.S. policies on financial institutions around the world. Under FATCA, banks in Bermudas, Switzerland, the Cayman Islands, and every other country must search their records for accounts held by U.S. citizens and then report their income to the IRS.
The FATCA passage has created momentum for similar measures in other countries. What is needed now, Zucman says, is for this momentum to continue and for other countries, individually or collectively, to unite to ask foreign banks to deliver the profits of the citizens of each country to national tax authorities.
However, thanks to trusts and shell corporations, financial institutions can in many cases truthfully say that they do not know who owns the assets they hold. This problem can be faced by an international financial registry of the exact individuals who own which assets.
Zucman believes such an enrollment is “not in any way utopian.” Countries already have such registrations for one type of wealth: property. And while less well known, there are now private registrations for many other types of property. The Depository Trust Company monitors the ownership of all stock issued by U.S. companies. Euroclear France does the same for French corporate stocks. Euroclear Belgium and Clearstream do this for bonds issued by US companies but denominated in European currencies.
Existing databases can be merged into one. This will require the supervision of a public institution with extensive financial expertise. But we already have one of those: the International Monetary Fund.
It does not directly solve the problem of financial anxiety – the IMF under this scenario only has information pointing to the ownership of trusts, anonymous corporations, and so on. Uninstalling different layers of secrecy would be expensive, laborious, and sometimes impossible.
The IMF must collect a 3 percent wealth tax on all stocks, bonds, mutual funds, land, and assets in such registry that can be returned if the owners ’seizure is opened themselves.
But Zucman has an excuse: The IMF must collect a 3 percent wealth tax on all stocks, bonds, mutual funds, land, and assets in such a registry that can be returned if the real owners owners have opened themselves.
Individuals disclosed in the Pandora Papers will thus have two choices: They can conceal their assets, and thus eat up a 3 percent tax per year to the point of no financial advantage in using tax havens, or they can expose themselves, making their assets tax and therefore also making tax havens meaningless.
Again, this is undoubtedly a huge political mountain to climb. And opponents of financial transparency will claim there is no way to force countries with tax havens to comply. But this is simply wrong: The US and the European Union have enormous power that they continue to use against other countries if they will. Zucman calculates that France, Italy, and Germany could force even a rich country like Switzerland to agree to any necessary transparency changes by placing a 30 percent tariff on Swiss products. It costs more in Switzerland than it takes as a tax haven. It would also be legal under World Trade Organization rules, because that tariff level would allow the three countries to recover approximately the same amount in tax revenues that Switzerland spends on them.
Meanwhile, there are many international public interest organizations that understand the importance of the issue and are trying to push it on the global agenda. “Here are our missing hospitals,” a representative for Oxfam International said said in a statement, in response to the publication of the Pandora Papers. “Here sit the pay-packets of all the excess teachers and firefighters and public servants we need. Whenever a politician or business leader claims there is no ‘money’ to pay for climate damage and change, for more and better jobs, for a fair recovery after COVID, for more help abroad, they know where to look. ”
Members of Congress have only been required to disclose their finances since 1978. Until 2010, Americans may have assets abroad that cannot be reported to the IRS. Recently there was a provision prohibiting shell companies entered in a National Defense Authorization Act passed with a veto by President Donald Trump before he was even removed from office. Financial secrets have been dragged out to light before, and they could be again.