Bada-Bing!

The Economist magazine and the Tax Justice Network disagree on many things. But we agree on many points too. And this highlights a key point about this network: our core goals cannot easily be characterised as either left-wing or right-wing. We are worried about corruption. We want to protect democracy. We oppose tax avoidance and evasion. (This does not mean we are calling for higher taxes: if the avoiders and evaders paid their share, that could mean lower taxes for the rest of us.) We hate distorted taxes and we support a level playing field in the world economy. We are worried about secrecy too, and the shelter this provides criminals, crooked dictators and terrorists. All of these conerns transcend old, entrenched left-right ideologies. TJN is a network, after all, containing a broad rainbow of views.

So it should be no surprise that both The Economist and TJN firmly agree that when private equity executives pay less tax than their office cleaners, something is amiss (“Carried Away, June 9th, and see the blog post below too.) This tax distortion stems from a long-established discrepancy – that capital gains get gentler tax treatment than income, which in America dates back to the 1920s. “The critics are right. The rules should be changed,” the magazine said in a leader article. “In theory, an efficient tax system would tax both income and capital gains at the same rate – and allow people to make their decisions on merit alone . . . private equity does not need an unfair tax break.” Well said The Economist.
But elsewhere, we part company with this esteemed magazine. See, for example, our two blog posts demolishing their error-strewn, ideologically-blinded survey on Tax Havens, here and here. A key thrust of that survey was that tax havens have cleaned up (“Today's successful tax havens thrive not because of crookery, but because they are well run and well regulated,” it said.) Anyone tempted to swallow this laughable claim could start by reading “The Plot Thickens” on p38 of the hard copy latest edition, outlining how Britain’s rulers have knocked down the police and the Serious Fraud Office to squash a corruption probe into arms sales to Saudi Arabia by the arms firm BAE Systems. The Guardian newspaper covers this in more depth: to get a flavour of the tax haven angle, try, for example, “Questions Over Secret Bank Transfers;” starring the British Virgin Islands; “Nobbling the Police,” featuring Jersey and Switzerland and the now-infamous Riggs Bank in Washington; or “Prince used cash in BAE-linked account for palace,” involving Saudi Prince Bandar, the Vatican Bank, Riggs Bank, the Pope, Margaret Thatcher, the head of the CIA, Chilean dictator Augusto Pinochet, and Obiang Nguema of Equatorial Guinea. (This is just a taster of this byzantine unfolding affair, which one might describe as the Anglo-Saxon version to the Elf Affair in Paris: oil, arms, corruption in both oil producing and oil consuming countries, and, yes, tax havens at the heart of it all.)

In its latest article about the BAE scandal, The Economist skipped neatly over the tax haven angle. However, in the same issue its Lexington column, headlined "Bada-Bing!" did mourn the end of the remarkable American television series “The Sopranos,” involving the troubled mafia character Tony Soprano, who planned his thuggery and corruption from an office in his strip club, the Bada-Bing! Would Tony have been able to find a way to facilitate his crimes by using tax havens, now that they are, as the Economist put it, “well run and well regulated”? We can only wonder.