Sunday, February 28, 2010

Tax free and ethical

Triodos Bank has entered the tax debate in Britain with its promotion of Individual Savings Accounts (ISAs) as an ethical tax-free form of savings.

For rather a long time the tax avoidance industry has tried to confuse the public - not only in Britain but elsewhere as well - by seeking to equate their sordid practices with the altogether much more acceptable practice of tax planning designed to make use of government exemptions.

One of the boring rituals of so many tax debates involves some rather pompous tax adviser (normally male, late middle-aged) trying to obfuscate the issue by telling members of the audience who use ISAs - or their equivalent in other countries - that they are engaged in tax avoidance. Wrong! For policy purposes the income generated these savings schemes have been exempted from tax: by definition you cannot avoid a tax that does not apply.

The obfuscation lies with the claim that tax avoidance is OK - and in some respect equivalent to using tax exempt ISA products - because it involves the exploitation of loopholes that have not been explicitly closed down. This justification for tax avoidance goes back a long, long way to the Duke of Westminster ruling in 1936 which established the rule that "any taxpayer may organise his affairs in any way he wishes (provided it is legal) so as to minimise tax." An awful lot of skulduggery has flowed from the unintended consequences of this rule.

But a legal ruling, of course, does not make avoidance either ethical or acceptable, since it involves behaviour that is both anti-democratic and socially harmful. This is why we want a strong signal, in the form of a General Anti-Avoidance Principle, that will make it clear, not least to the judiciary, that engaging in tax avoidance is not an acceptable practice.

Triodos Bank does well to use its advertising to draw attention to the ethical issues surrounding tax. This follows close in the footsteps of a clear and unequivocal statement made at a tax justice event last week at Saint Martin-in-the-Fields by the Reverend Will Morris, a tax lawyer, that tax has an important moral dimension that cannot be overlooked in corporate or personal tax planning.

Disclosure: Tax Justice Network Association International Sans But Lucratif banks with Triodos Bank in Brussels.

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Saturday, February 27, 2010

US: no aid for unemployed without millionaire tax break

From our colleagues Citizens for Tax Justice in Washington, D.C:

"Senate Republicans blocked action on aid for millions of unemployed Americans this week, and threatened to continue to do so unless Congress acts on a completely unrelated matter: the federal tax on the estates of millionaires.

Congress has an opportunity to help families hardest hit by the recession while at the same time increasing consumer demand, which in turn will increase the number of businesses that are hiring. The Congressional Budget Office has found that extending unemployment benefits is one of the most effective ways to increase consumer demand (i.e., create jobs), making it attractive from the standpoint of economic policy as well as compassion for struggling Americans."

Perhaps courses in basic economics, history, politics, justice and general good sense are in order.

CTJ also has more on health care here.

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Afghan-Dubai dollar blizzard exceeds tax take

From the Washington Post:

"A blizzard of bank notes is flying out of Afghanistan -- often in full view of customs officers at the Kabul airport . . The cash, estimated to total well over $1 billion a year, flows mostly to the Persian Gulf emirate of Dubai, where many wealthy Afghans now park their families and fund."


Why Dubai? Some clues are available here. The Post continues:

"Cash declaration forms filed at Kabul International Airport and reviewed by The Washington Post show that Afghan passengers took more than $180 million to Dubai during a two-month period starting in July. If that rate held for the entire year, the amount of cash that left Afghanistan in 2009 would have far exceeded the country's annual tax and other domestic revenue of about $875 million."

We don't know where the money is coming from, either. It, or at least part of it, may be a different version of the same old story starring several Latin American (and many other) countries: aid money comes in, rich elites snaffle it and send it back offshore, and keep the country poor. And the response from Dubai?

"Efforts to figure out just how much money is leaving Afghanistan and why have been hampered by a lack of cooperation from Dubai, complained Afghan and U.S. officials, who spoke on the condition of anonymity. Dubai's financial problems, said a U.S. official, had left the emirate eager for foreign cash, and "they don't seem to care where it comes from." Dubai authorities declined to comment."


Time for some concerted international action -- focussing on illicit inflows.

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Thursday, February 25, 2010

The People's Choice: Invade Jersey

By overwhelming majority, Mark Thomas' studio audience on BBC Radio 4 this evening voted in favour of invading Jersey as their preferred action for the People's Manifesto.

Why Jersey? Could it be because Jersey has been acting as a parasite on the back of ordinary people for decades, and we're all sick to death of it?

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Latvia: an unhappy story unfolds around stolen tax data

Associated Press is reporting that stolen tax data is being used by Latvian activists to embarrass politicians and senior government officials in a country that ranks as the weakest economy in the European Union.

According to AP, an activist using the pseudonym Neo , working for an organisation calling itself the People's Army of the Fourth Awakening, claims to have downloaded millions of classified documents over several months from the revenue service's Web site. They are now making the information available on the internet. Their intention, they claim, is to expose graft and waste by top officials, who are paying themselves huge salaries and bonuses at a time when public employees are having their salaries slashed by up to 50 per cent.

The Latvian government is facing massive structural budget deficits, much of which can be traced back to the disastrous adoption of a flat tax regime which has depleted revenues and increased inequality without providing the economic boost that flat tax proponents claim of it.

While many would question Neo's motives, it seems this action has found strong support among ordinary Latvians, who distrust their leaders and oligarchs in equal measure.

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Caesar's Coin: morality and tax

Christian Aid and the church of Saint Martin-in-the Fields, in central London, held a fine debate last night on 'morality and tax', which focused largely on the importance of tax in international development.

The event was something of a coup, bringing together - for the first time ever - speakers from the three major British political parties on a shared tax justice platform.

It was especially remarkable to hear Right Honourable Stephen Timms, Financial Secretary to the Treasury, pushing for (i) a move towards multilateral negotiations on tax information exchange, (ii) making automatic information exchange the "end destination" for international standards, (iii) promoting a country-by-country reporting standard for multinational companies (he has requested the OECD to publish a guideline on such a standard by end-2010), and (iv) pushing for a greater focus on providing technical support and funding to aid capacity building within the tax administrations of poorer countries. This is a tax justice agenda, and its fantastic to have such explicit ministerial support.

For the Liberal Democrats, Michael Moore, was equally supportive of automatic information exchange, country-by-country reporting, and taking tough measures to tackle corrupt practices. He urged civil society to continue with taking the lead on this agenda, commenting that we "can't allow the technical difficulties dim our enthusiasm for making progress on these complex issues."

The big unknown for many of us in the audience was how the Conservative Party representative would respond to the debate. There is a fairly good chance that the Conservatives will be in power in Britain in the next few months. This is the first time that a member of the Conservative Parliamentary Party has publicly engaged on the tax justice agenda, and David Gaukes was slightly hesitant. His comments about country-by-country reporting, for example - he's broadly in favour of more transparency (who isn't?), but was concerned that the information requirements would impose additional costs, including audit fees for subsidiaries in far-flung places. The fact that such subsidiaries are not being audited would probably alarm most shareholders, but that's another matter.

Gaukes was also weak on The Avoidance Issue. How many times do we have to listen to the idiotic idea that the average citizen with a Cash ISA (for non-British people, that is an Individual Savings Account with a special tax status, up to a limit) is engaged in avoidance? No, no, and no. ISAs are tax exempt: by definition you cannot avoid tax when the liability doesn't exist. Since many of the questions that followed were on the theme of avoidance, it really is time that this distinction between legitimate tax planning and avoidance is properly nailed down. Avoidance in all cases involves exploiting loopholes that have not been explicitly granted. That's what makes avoidance harmful, and that's why politicians of all hues should align themselves with South African Finance Minister Pravin Gordham when he says:

"we have allowed the word avoidance to gain too much respectability. It is just a smarter form of evasion."

One of the audience, former revenue official Richard Brooks, raised with Treasury minister Stephen Timms a serious concern about his proposed reforms to the rules governing the taxation of British multinationals' overseas profits, announced last month, and how they stand to hit developing countries very hard. Judging from his response, it looks as if this issue hadn't occurred to him, or his officials, but it is important that they should consider it.
In very broad terms, the current "controlled foreign companies" rules say that if a British multinational diverts profits into a tax haven subsidiary company, the UK can still tax these. Broadly, if any profits are shifted into such companies the rules bite - so multinationals have no incentive to shift profits from an overseas normal tax rate country into a tax haven.
Under the proposed changes, however, if profits are shifted from a non-UK normal rate country - which could well be a developing country - into the tax haven company the rules will not apply. This is a major threat to developing countries since, unlike developed ones, they don't have the laws or resources to challenge the profit shifting. This is likely to cost developing countries several hundreds of millions of pounds annually, which is a sizeable proportion of the UK aid budget.
But none of this has been thought about. The proposals are the product of exclusive discussions between a group of multinationals and Treasury officials. The development angle has not come into it.

Stephen Timms' faltering response (and David Gauke's for the Tories) was that CFC rules are there to protect UK tax. True, but they have long played an important secondary role in preventing avoidance of other countries' taxes, especially poorer ones'. That will be lost, which in the current international climate seems strangely parochial.




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Wednesday, February 24, 2010

Tax and policy leadership: G20 and OECD, developing countries

From the Michigan Law School's Tax Policy Workship co-ordinated by tax expert Reuven Avi-Yonah, a paper by Alison Christians of the University of Wisconsin draws attention to some important points. Entitled Taxation in a Time of Crisis: Policy Leadership from the OECD to the G20, its introduction notes that

"An entrenched international architecture of tax policy expertise ensures that a small group of established players continue to shape tax norms and practices throughout the world. This architecture is based on historical international power relationships and institutional history. For diplomatic restructuring on the world stage to usher in a new age of inclusion for previously marginalized states and peoples, systemic changes must also take place in these entrenched institutions and processes."

It notes that although the G20 includes many developing countries,

"The G20 does not and probably cannot create a “new paradigm for international engagements” in tax policy, foremost because it lacks the infrastructure necessary to activate tax policy development on an international scale. The G20 is neither well-suited nor likely intended to provide an alternative policymaking space. Instead, the G20’s role
in the context of tax policy appears mainly to be one of syndicating, and thereby compelling consensus to, norms formulated, debated, and implemented by the OECD."

. . .
While crisis may have demonstrated the need for developing countries to play a greater role in global economic decision-making, it seems clear that at least in the area of tax policy, inclusiveness for developing countries will be elusive so long as the framing, discussion, and consensus building takes place within an established order that continues to be dominated by the world’s wealthiest countries."

Food for thought. And for action.

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Greenspan: crisis worse than Great Depression

From Bloomberg:

"The world economy has undergone “by far the greatest financial crisis globally ever,” Greenspan said today
. . .
Greenspan said that while the economy was in worse shape in the Great Depression, the recent financial crisis was potentially more harmful than that in the 1930s because “never had short-term credit literally withdrawn.”


Martin Wolf is rather apocalyptic in the FT today, too.

"We can identify two alternatives: success and failure. By “success”, I mean reignition of the credit engine in high-income deficit countries. So private sector spending surges anew, fiscal deficits shrink and the economy appears to being going back to normal, at last. By “failure” I mean that the deleveraging continues, private spending fails to pick up with any real vigour and fiscal deficits remain far bigger, for far longer, than almost anybody now dares to imagine. This would be post-bubble Japan on a far wider scale.

Unhappily, the result of what I call success would probably be a still bigger financial crisis in future."


Greenspan's successor, Ben Bernanke, had something even more startling to say, however.

"The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.
. . .
"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all."
. . .
According to witnesses, Finance Committee members sat in thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT) finally shouted out, "Oh my God, he's right. It's all a mirage. All of it—the money, our whole economy—it's all a lie!"

Screams then filled the Senate Chamber as lawmakers and members of the press ran for the exits, leaving in their wake aisles littered with the remains of torn currency."

The Onion is still going strong. Let's hope the global economy finds some way to keep going.

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Tuesday, February 23, 2010

US PIRG: how to save a trillion

The US Federation of Public Interest Research Groups (US PIRG) has a new report with 12 policy recommendations, showing how the U.S. could save $1 trillion. Including:
  • Implement the President's and Congress's International Tax Reforms.
    The president should eliminate tax breaks for companies that keep profits overseas, and Congress should tax corporations that are managed and operated in the U.S. as U.S. companies and drastically increase reporting of offshore income. Savings by 2015: $557.9 billion
  • Implement Surtax on Corporate Book-Tax Gap.
    Place a small tax on the dollar amount that is the gap between what a corporation reports to its shareholders and what it reports to the IRS (which is usually a lot smaller). Savings by 2015: $15 Billion
  • Close The Carried Interest Loophole Tax a major source of income for hedge-fund managers at the same rate that all other Americans are taxed on their income, not at 15%. Savings by 2015: $15.6 billion
Watch the slide show in the Huffington Post here. With the usual nutty comments underneath.

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Not Saint Helena, but Hull


George Monbiot, in his latest article, tackles the tricky question of what is to be done with all those talented, marvellous people who have wrecked the British economy. As the opening paragraph makes clear, attempts to persuade them to do the decent thing by targeting that which they hold most dear in life - money - haven't really delivered the mass exodus that so many hoped for:

It's a bitter blow. When the ­government proposed a windfall tax on bonuses and a 50p top rate of income tax, thousands of bankers and corporate executives promised to leave the country and move to Switzerland. Now we discover that the policy has failed: the number of financiers ­applying for a Swiss work permit fell by 7% last year. The government must try harder to rid this country of its ­antisocial elements.

We at TJN feel very strongly that the Britain's over-dependence on financial services is a massive structural weakness which undermines economic performance, encourages rent-seeking activity, breeds anti-social attitudes, and is generally a BAD THING. The nation would be well rid of a significant proportion of these 'talented' people.

But we must take George to task on a major error, buried in the following paragraph:

International attempts to close down tax havens remain halfhearted. But if, by some miracle, these measures were to succeed, one haven – let's say St Helena – should be kept open. It should be furnished only with rudimentary homes. All who chose to could live there in peace. Every penny they possessed would remain safe from the taxman, as long as they never set foot in another land. They could sit in their cells and count their money for the rest of their lives. Parties of schoolchildren would be brought to the island to goggle at these hermits, and learn some lessons about the follies of wealth.

While we applaud the principle, we must strongly correct a glaring mistake: Saint Helena is neither a tax haven nor a secrecy jurisdiction. It is a hidden gem in the South Atlantic, largely spared from carrying the deadweight of bankers and lawyers. The friendly and peaceful people, who go by the catch-all title of 'Saints', do not deserve to have this fate foisted upon them. Saint Helena is a beautiful island (this blogger has visited in the recent past) and absolutely in no circumstances should the wretched, self-absorbed tax avoiders of this world be allowed anywhere near it.

Instead we propose Hull as a substitute. Hull has had a bad press in recent years, not helped by its elected representative. The city badly needs inwards investment, entrepreneurialism and all the dynamic drive that the super-talented senior executives claim for themselves. Let them congregate in Hull and let's see what happens.

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Bigger banks offer more expensive services

This one is interesting. Just look at the graph. Bigger banks charge consumers more, in contrast to the received wisdom that bigness yields economies of scale and helps banks cut costs and so on.

"Testifying in support of the so-called Financial Services Modernization Act in 1999, Michael Patterson of J.P. Morgan used the word "consumer" no less than twenty-one times in his remarks. He told Congress that freeing up big banks to get even bigger would provide consumers with "greater convenience, more innovation, and lower costs."

But it didn't pan out that way. The article gives a number of good reasons why big banks give customers a more expensive service. Such as:

"Why are small banks and credit unions a better deal? One reason is that they really want your deposits. Unlike big banks, which have access to wholesale funding, community banks rely much more on customer deposits to finance their lending and investments."

They might have teased this out some more. Bigness in banking terms is also closely correlated with offshore-ness. And offshore-ness directly impacts on the factors outlined above, namely use of wholesale funding, and reliance on customer deposits. OK, the links are complex and messy, but it seems a fair conclusion to draw. As we've said, tax havens cause poverty.

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Corruption: U.K., Jersey, yet again


Corruption works like an invisible worm that furtively penetrates deep, deep into the body of its victims, attacking vital organs, compromising immunity systems and ultimately destroying the body itself.

Corruption has been famously described as something that happens in other countries, reflecting how practices considered the norm in certain cultures, e.g. payments for introductions to high-ranking officials, might be considered a corrupt practice elsewhere. Corruption is at its most dangerous when it becomes the cultural norm: the dominance of the media by press barons being one example of what is harmful yet goes unchallenged.

But there is a huge amount of hypocrisy surrounding the corruption debate. We have argued elsewhere that the focus on bribe-taking has cast the spotlight in the direction of poorer countries, often those which have been forced by IMF policies to slash public spending and the salaries of senior officials. Politicians in richer countries, however, have largely turned a blind eye to corrupt practices under their own noses.

Nowhere more so than Britain, where politicians have rightly come under sustained attack over their parliamentary expenses. But Britain is also the Big Daddy of the secrecy jurisdiction world, with the City of London sitting at the centre of a vast web of such places, most of them former colonies, which provide the perfect operational environment for activities at the top end of the corruption spectrum. This includes activities like market-rigging, insider-trading, illicit payments of all types, and tax evasion.

The big hypocrisy lies with the way in which British politicians, backed by armies of think-tanks, learned academics, journalists and uncle Tom Cobbley and all, talk the talk of free markets, but walk the walk of asymmetric information, secrecy, covert payments, political intervention, hidden subsidies, gagging orders, libel tourism, anything and everything to distort and undermine fair competition. The Brits like to tut-tut about their Gallic colleagues, but the truth is that examining magistrates in France have fought with huge integrity against the machinations of the political elite, the Elf Acquitaine case being a prime example, while British companies seem to have the senior politicians in the palms of their hands.

The revelations surrounding the operations of British weapons manufacturer BAE are symptomatic of all that's wrong about Britain's political economy. Disgraced former Prime Minister Tony Blair has been deeply implicated in the sale of a hugely expensive and complex radar system to cash-strapped Tanzania. It has now been revealed by the Serious Fraud Office that a significant proportion of the contract price went into offshore bank accounts.

In the latest Guardian article, Blair's former colleague and cabinet minister Clair Short, comments on this deal as follows:

"Every way you looked at it, it [the deal] was outrageous and disgraceful. And guess who absolutely insisted on it going through? My dear friend Tony Blair, who absolutely, adamantly, favoured all proposals for arms deals . . . It was an obviously corrupt project. Tanzania didn't need a new military air traffic control, it was out-of-date technology, they didn't have any military aircraft – they needed a civilian air traffic control system and there was a modern, much cheaper one. Everyone talks about good governance in Africa as though it is an African problem, and often the roots of the 'badness' is companies in Europe."


One Tanzanian politician has subsequently been found to have stashed over half a million pounds into a Jersey bank account under his control. He claims it has no link to the BAE sale, but no other explanation for its origin has been forthcoming. But which of the parties involved is guilty of corruption: the payee? the payor? the enabling bankers who fail to ask awkward questions? the banking regulators who play the role of the three monkeys? or all four?

In our heart of hearts we all know the fifth answer is the correct one.

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New book: Offshore (In French)

French speakers are advised that Alain Deneault, a member of TJN-Canada, is publishing a new book entitled Offshore: paradis fiscaux et souveraineté criminelle.

It argues that secrecy jurisdictions are not just peripheral locations for crime and murky dealings, but platforms for attack, benefiting organised crime, for looting poor countries, and for undermining the sovereignty of nation states.

Available from April.

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Monday, February 22, 2010

Swiss minister questions tax evasion rule

From Reuters:

"Switzerland's justice minister questioned on Sunday whether tax evasion should continue to be treated as a misdemeanour rather than a crime, in another blow to the country's cherished banking secrecy.

Switzerland has already abandoned the distinction between tax evasion -- failing to declare your income or wealth to the taxman -- and tax fraud -- deliberately misleading the revenue -- for foreigners investing money in the country."


More incremental progress. A long way still to go. A separate Reuters story examines the changing mood here.

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Global Witness: FATF lets countries off the hook

We've long criticised the Financial Action Task Force for being ineffectual, and effectively legitimising the illegitimate. Now Global Witness have an important new press release out, which begins:

"An international financial crime watchdog has named and shamed countries that are failing to stop dirty money entering the financial system, a move welcomed by Global Witness. However, conspicuously absent are major financial centres and secrecy jurisdictions, many of which also have serious weaknesses in their anti-money laundering regulations."


If you want evidence of this, look no further than Global Witness' own research - Undue Diligence: How banks do business with corrupt regimes; as well as the latest US Senate Report on keeping foreign dirty money out.

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Tax havens cause poverty: IMF endorses capital controls

Growth rates around the world in the so-called Golden Age of Capitalism, roughly from the late 1940s to 1973, were very substantially greater than in the period that followed them, from the 1970s to today. Countries suffered few financial crises. That earlier high-growth period was a time of strong international capital controls and high taxes; it was followed by a period involving financial liberalisation and explosion of tax havenry. Growth fell sharply, and countries stumbled from crisis to crisis.

Now correlation ain't causation, but that period did show clearly that at least high taxes and capital controls are compatible with high, crisis-free growth. Pah, said the IMF! Just liberalise, slash taxes, and a new golden era beckons. Well, it didn't, and it's a shame that it took the world's major institutions so long to wake up to what researchers have been demonstrating for some time. Still, the IMF has finally signaled a sea change.

Recently we blogged an IMF working paper arguing that capital account liberalisation may not be that helpful. Now, we are pleased to see that The Economist, long a cheerleader for liberalisation in all its forms (though it, too, had been getting nervous about capital account liberalisation), has picked up on a separate IMF Staff Position Paper entitled Capital Inflows: the Role of Controls.

The Economist summarises:

"It (the IMF) concludes that controls are sometimes “justified as part of the policy toolkit” for an economy seeking to deal with surging inflows."

and it reminds readers that the IMF in 1997 even tried to amend its Articles of Agreement to allow it explicitly to promote capital- account liberalisation. The Economist adds that

"Its authors find that GDP fell less sharply during the financial crisis in countries that already had such policies in place. Prior research has shown that the maturity structure of a country’s external liabilities gets longer as a result of capital controls."

And the IMF paper itself notes that:

"Empirically, there does appear to be a negative association between capital controls that were in place prior to the global financial crisis and the output declines suffered during the crisis . . . The use of capital controls was associated with avoiding some of the worst growth outcomes.

Moreover, consistent with the discussion above, it is controls on debt flows that are significantly associated with avoiding crises.
. . .
Such controls, moreover, can retain potency even if investors devise strategies to bypass them."

Tax havens/secrecy jurisdictions take note. This belated recognition - for many researchers have already known this for some time - is nevertheless welcome. This is a massive sea change.

A sentence like this, lifted straight from the IMF report, would have been quite unthinkable, just three years ago:

"(capital controls) could contribute to reducing global imbalances and thus enhance systemic stability. A multilateral framework governing the reimposition of controls, balancing the various considerations, could be helpful in managing possible cross-country spillovers."

But while we agree with some of what is said in IMF working papers; we will agree more when they are translated into official policy.

And can we suggest one further sentence to add to the report. The sentence is this:

Tax havens cause poverty.

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Tax and the environment

American environmentalist James Speth has opened a hugely important debate about the future of the global environment movement. In a recent speech, which we re-produce in full below, he calls for the formation of a massive coalition that will work towards the creation of a new economy based on more sustainable policies.

We at Tax Justice Network strongly share the sense that a radical shift of direction is required, and that fiscal policy has a major part to play in this process. In order to play our part in this debate, we invite contributions from guest bloggers who are interested in exploring new and existing ideas that could play a part in shaping a new economy.

Please contact us to register your interest in making a contribution, which might eventually be published in a forthcoming edition of Tax Justice Focus

* * * * * * * *

Excerpts from:
A New American Environmentalism and the New Economy
copyright by James Gustave Speth

The 10th Annual John H. Chafee Memorial Lecture
National Council for Science and the Environment
Washington, D.C., January 21, 2010


To begin, I would like to invite you to join me in a journey of the imagination. I want you to join me in visiting a world very different from the one we have today.

As the new decade begins in this world, the President, early in his first term, stands before Congress to deliver his State of the Union address. He says the following:

"In the next ten years we shall increase our wealth by fifty percent. The profound question is ­ does this mean that we will be fifty percent richer in a real sense, fifty percent better off, fifty percent happier?...

"The great question is, shall we make our peace with nature and begin to make reparations for the damage we have done to our air, our land and our water?

"Restoring nature to its natural state is a cause beyond party and beyond factions. It is a cause of particular concern to young Americans ­ because they more than we will reap the grim consequences of our failure to act on programs which are needed now if we are to prevent disaster later.

"The program I shall propose to Congress will be the most comprehensive and costly program in this field ever in the nation's history.

"The argument is increasingly heard that a fundamental contradiction has arisen between economic growth and the quality of life, so that to have one we must forsake the other. The answer is not to abandon growth, but to redirect it.

"I propose, that before these problems become insoluble, the nation develop a national growth policy. Our purpose will be to find those means by which Federal, state and local government can influence the course of growth so as positively to affect the quality of American life."

And Congress acts. To address these challenges, it responds with the toughest environmental legislation in history. And it does so not with partisan rancor and threats of filibusters but by large bipartisan majorities.

In this world that we are imagining, the public is aroused; the media are attentive; the courts are supportive. Citizens are alarmed by the crisis they face. They organize a movement and issue this powerful declaration: "We, therefore, resolve to act. We propose a revolution in conduct toward an environment that is rising in revolt against us. Granted that ideas and institutions long established are not easily changed; yet today is the first day of the rest of our life on this planet. We will begin anew."

Meanwhile, the nation's leading environmental scholars and practitioners, and even some economists, are asking whether measures such as those in the Congress will be enough, and whether deeper changes are not needed. GDP and the national income accounts are challenged for their failure to tell us things that really matter, including whether our society is equitable and fair and whether we are gaining or losing environmental quality.

A sense of planetary limits is palpable. The country's growth fetish comes under attack as analysts see the fundamental incompatibility between limitless growth and an increasingly small and limited planet. Advocacy emerges for moving to an economy that would be "nongrowing in terms of the size of the human population, the quantity of physical resources in use, and [the] impact on the biological environment." Joined with this is a call from many sources for us to break from our consumerist and materialistic ways ­ to seek simpler lives in harmony with nature and each other.

These advocates recognize that, with growth no longer available as a palliative, "one problem that must be faced squarely is the redistribution of wealth within and between nations." They also recognize the need to create needed employment opportunities by stimulating employment in areas long underserved by the economy and even by moving to shorter workweeks. And none of this seems likely, these writers realize, without a dramatic revitalization of democratic life.

Digging deeper, some opinion leaders, including both ecologists and economists, ask, "whether the operational requirements of the private enterprise economic system are compatible with ecological imperatives." They conclude that the answer is "no." Environmental limits will eventually require limits on economic growth, they reason.

"In a private enterprise system," they conclude, "[this] no-growth condition means no further accumulation of capital. If, as seems to be the case, accumulation of capital, through profit, is the basic driving force of this system, it is difficult to see how it can continue to operate under conditions of no growth." And thus begins the thought: how does society move beyond the capitalism of the day?

You can see that the world we are imagining is one of high hopes and optimism that the job can and will be done. It is also a world of deep searching for the next steps that will be required once the immediate goals are met.

Now, at this point, I suspect there may be a generational divide in the audience. Those of you of my vintage have probably realized that this is not an imaginary world at all. You do not have to imagine this world ­ you remember it. It is the actual world of the early 1970s. That is really what President Nixon said to the Congress in 1970. Congress really did declare that air pollution standards must protect public health and welfare with an adequate margin of safety and without regard to the economic costs. The revolutionary Clean Water Act really did seek no discharge of pollutants, with the goals of restoring the physical, chemical and biological integrity of the nation's waters and making our waters fishable and swimmable for all by the mid-1980s.

Many scientists, economists and activists supported the longer term thinking about growth and consumerism that I just mentioned, and they recognized the ties to social equity issues. They saw the challenge all this posed to our system of political economy. I have quoted John Holden, Paul and Anne Ehrlich and Barry Commoner, opinion leaders in this era, but there were many others, including Kenneth Boulding who famously noted, "Anyone who thinks exponential growth can go on forever in a finite world is either a madman or an economist."

It was in many respects a great beginning. Not perfect, not to be romanticized, but still a remarkably strong start. And now four decades have passed. So let us fast forward to the present and take stock. What do we find today?

* * * * * *
We opted to work within the system and neglected to seek transformation of the system itself.

* * * * * *
And it is here that we arrive at the central issue ­ the paradox which every U.S. environmentalist must now face. The environmental movement ­ we still seem to call it that ­ has grown in strength and sophistication, and yet the environment continues to go downhill, fast. If we look at real world conditions and trends, we see that we are winning victories but losing the planet, to the point that a ruined world looms as a real prospect for our children and grandchildren. And the United States is at the epicenter of the problem.

So, a specter is haunting U.S. environmentalists ­ the specter of failure. The only valid test for us is not membership, staff size, or even our victories but success on the ground ­ and by that test we are failing in our core purpose. We are not saving the planet. We have instead allowed our only world to come to the brink of disaster. Some who look at the latest science on climate change and biodiversity loss would say we are not on the brink of disaster, but well over it.

* * * * * *
The size of the world economy doubled since 1960, and then doubled again. World economic activity is projected to quadruple again by mid-century. At recent rates of growth, the world economy will double in size in two decades. It took all of human history to grow the $7 trillion world economy of 1950. We now grow by that amount in a decade! We thus face the prospect of enormous environmental deterioration just when we need to be moving strongly in the opposite direction.

* * * * * *
It seems to me one conclusion is inescapable. We need a new environmentalism in America. The world needs a new environmentalism in America. Today's environmentalism is not succeeding.

* * * * * *
We must build a new environmentalism in America. And here is the core of the new environmentalism: it seeks a new economy. And to deliver on the promise of the new economy, we must build a new politics.

* * * * * *
But the new environmentalism will not get far if it is focused only on greening the economy, as important as that is. As David Korten, John Cavanagh and I and others in the New Economy Working Group are saying, the old economy has actually given rise to a triple crisis, and they are tightly linked. The failure of the old economy is evident in a threefold economic, social, and environmental crisis.

* * * * * *
. . . the new economy ­ the prime objective of the new environmentalism ­ must be about more than green. We need a broader, more inclusive framing of our goal. We need to answer the probing question posed by John de Graaf in his new film: What's the economy for anyhow? The answer, I believe, is that we should be building what I would call a "sustaining economy" ­ one that gives top, over-riding priority to sustaining both human and natural communities. It must be an economy where the purpose is to sustain people and the planet, where social justice and cohesion are prized, and where human communities, nature, and democracy all flourish. Its watchword is caring ­ caring for each other, for the natural world, and for the future. Promoting the transition to such an economy is in fact the mission of the New Economy Network, which I'm now working with many others to build. It will be a broad, welcoming space for all those pursuing diverse paths to these goals.

To build the new economy we need innovative economic thinking and new models. There is today wide-spread dissatisfaction with much of current economic orthodoxy. Enter the New Economics Institute, which is now being launched in the United States. The new economy needs a new economics. The new economy also needs a journal to focus our attention beyond problems to solutions, and I applaud Bob Costanza for launching the new journal Solutions.

* * * * * *
Beyond the generalities, it is fair to ask for more on how this new economy might look. As an early step in building a new economy, I believe we must begin to question the current centrality of economic growth in our economic and political life, what Clive Hamilton has called our "growth fetish." With recent books like Peter Victor's "Managing Without Growth," Tim Jackson's "Prosperity Without Growth," and the New Economics Foundation's "The Great Transition," this is no longer as quixotic a cause as it was when I wrote my "Bridge" book just a few years ago. Peter Brown's wonderful book, "Right Relationship," also deserves mention in this context.

* * * * * *
. . . . The new environmentalism must be about more than green. Mainstream American environmentalism to date has been too limited. In the current frame of action, too little attention is paid to the corporate dominance of economic and political life, to transcending our growth fetish, to promoting major lifestyle changes and challenging the materialistic and anthropocentric values that dominate our society, to addressing the constraints on environmental action stemming from America's vast social insecurity and hobbled democracy, to framing a new American story, or to building a new environmental politics. The new environmentalism must correct these deficiencies.

* * * * * *
I have concentrated [in the full lecture] mostly on needed policies, I suppose because that is my background. But there is another hopeful path into a sustainable and just future. This is the path of "build it and they will come" and "just do it." One of the most remarkable and yet under-noticed things going on in our country today is the proliferation of innovative models of "local living" economies, sustainable communities and transition towns and for-benefit businesses which prioritize community and environment over profit and growth.

The work that Gar Alperovitz and his colleagues are doing in Cleveland with the Evergreen Cooperative is a wonderful case in point. An impressive array of new economy businesses has been brought together in the American Sustainable Business Council, and a new Fourth Sector is emerging, bringing together the best of the private sector, the not-for-profit NGOs, and government. The seeds of the new economy are already being planted across our land.

* * * * * *
The new environmentalism must work with this progressive coalition to build a mighty force in electoral politics. This will require major efforts at grassroots organizing; strengthening groups working at the state and community levels; and developing motivational messages and appeals < size="1">Gus Speth may be reached at:
gus.speth@yale.edu


James Gustave Speth has devoted much of his professional life to care of the environment. He is the Sara Shallenberger Brown Professor in the Practice of Environmental Policy at Yale where he served as Dean of the Yale School of Forestry and Environmental Studies from 1999 to 2009. Dean Speth was Administrator of the United Nations Development Programme and chair of the UN Development Group, founder and president of the World Resources Institute, chairman of the U.S. Council on Environmental Quality, and senior attorney and cofounder of the Natural Resources Defense Council.

As a long time environmentalist, he is concerned. He, as others, sees that all the increased professionalism, all the resources, all the sophisticated techniques, all the advances of the modern environmental movement have failed to save our fragile ecosystems. He has come to realize that the elephant in the room raising havoc with our climate and waters and soil quality and biodiversity is the current economic system fed on excessive consumption and growth. He argues that if environmentalists are to achieve their goals, they must join with social activists, cultural innovators, and neighborhood advocates in creating a New Economics -- one that shares wealth, encourages diversity and decentralization of production, is responsible to the environment, and puts community accountability ahead of profits.

This New Environmentalism is as much a political movement as an economic one. It will take rethinking policies at the national, state, and local levels to encourage a "sustaining" economy. It can be done. At least Gus Speth feels we have no choice but to make the effort. This passion has put him at the head of multiple initiatives to define a New Economics and implement a New Economy.

We are delighted to welcome Gus Speth to the board of the E. F. Schumacher Society as the organization transforms into the New Economics Institute. His lecture "A New American Environmentalism and the New Economy" delivered in January to the National Council for Science and the Environment is excerpted below for your interest. The full text may be read at:

http://www.smallisbeautiful.org/publications/speth10.html


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Time to stop the offshore VAT scams

As The Guardian reports:

"Tax-free internet sales from the Channel Islands have been steadily ballooning over the past 10 years while the Entertainment Retailers Association claims 1,600 shops selling music have closed in the last five years."

Time to shut this blatant abuse down. Read more here.

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Saturday, February 20, 2010

CTJ: flat tax consolidates loopholes for the wealthy

Citizens for Tax Justice in Washington has another excellent short paper, this time about the flat tax. It begins:

"Since 1995, Senator Arlen Specter of Pennsylvania has introduced legislation to create a federal “flat tax” in every session of Congress, including this session. This single-rate tax would replace the existing progressive personal income tax, as well as the corporate income tax and estate tax."

Now what's wrong with the flat tax?

Well, for starters, there is the fact that the people who dreamed up this gimmick in 1983 admitted that a flat tax "will be a tremendous boon to the economic elite” and that “it is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people.”

And CTJ's time tested number crunching has analysed the proposal, and worked out that it would involve:
  • Enormous tax cuts for the richest five percent of taxpayers, including an average tax cut of $209,562 for the richest one percent in 2010.
  • Tax hikes for all other income groups. The bottom 95 percent of taxpayers would pay an average of $2,887 more in federal taxes in 2010.
  • Low-income Americans would lose the refundable credits that they receive under the current income tax.
  • The form of income that mostly flows to the wealthy — investment income — would be exempt from the personal income component of the flat tax, while all compensation for work, including wages and even employer-provided health care benefits, would be taxed.
  • There would be little simplification in taxes for the majority of Americans. Replacing progressive tax rates with a single rate has nothing to do with simplicity, because progressive rates are not what makes the current system complicated.
What actually makes the tax system complicated are the various loopholes and special breaks that mostly benefit businesses and higher-income individuals. Capital gains income (which wealthy investors tend to have) is currently taxed at a lower rate than the wage and salary income that constitutes almost all income for most Americans.

Many wealthy people therefore have an incentive to use various schemes to disguise what is really compensation for work as capital gains income. But instead of addressing this by taxing all income the same way, the Specter flat tax makes capital gains income entirely tax-free!

As CTJ concludes:

"Senator Specter’s flat tax is not so much about eliminating loopholes as it is about consolidating loopholes for the rich."

And how have taxes been faring the real world? Well, look at an example. Try Iceland.

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Friday, February 19, 2010

On London Citizens

Please forgive us for posting a slightly mercurial blog, about an apparently arcane and tangential subject. This, from The Guardian:

"James Purnell, who announced he is standing down as an MP this morning, is to retrain as a community organiser. . . . Purnell and a member of his constituency party will spend next week relearning the tools of their trade at a five day community organising course run by the UK's largest community organisation, London Citizens."

The purpose of this blog is not to point to the politician (although this Purnell link is funny) but instead to flag up this organisation, which may turn out, in the fullness of time, to be one of the most interesting civil society organisations in Britain today. More on this, and on the tax justice angle, in due course.


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Small financial centres: new IMF report

The IMF has published a new paper on small financial centres. These include a number of secrecy jurisdictions but takes arbitrary measures of size to exclude many other ones - including the monster havens such as Switzerland, Luxembourg, and of course the City of London and the United States.

It is good that the IMF is starting to bring out new data and take an interest in these issues, of course, and in this context it notes that:

"Our data sources are not only incomplete but often indirect. . . . The academic literature on small financial centers is relatively small."

You can say that again. There is some useful material here, particularly on things like assets and liabilities, but much more is needed (you will find some very useful things in this recent book too, as well as in our Mapping the Faultlines project and Financial Secrecy Index.) One thing that this new IMF paper notes it that

"According to the June 2007 and June 2008 surveys of U.S. portfolio liabilities, the Cayman Islands were the largest foreign holder of private-label U.S. mortgage-backed securities. More information on the ultimate holders of these securities could clearly provide valuable insights on the transmission of the ―sub-prime shock and the financial crisis more generally."


"More information" on secrecy jurisdictions is one of TJN's core demands - one of our very raisons d'être. The IMF paper adds:

"Many banks have also used small financial centers for ―off balance sheet activities. For instance, onshore banks established conduits and structured investment vehicles in offshore centers during the 2003-2007 securitization boom. These vehicles were typically funded in onshore financial markets and purchased onshore assets."

Once again, we find the secrecy jurisdictions at the centre of the crisis. So much nonsense has spewed out from the secrecy jurisdictions and the centres of which they are satellites about this: the standard response from Cayman and elsewhere is to point the finger back onshore and say "it is their fault." Journalists and other analysts have been all too ready to take them at their word, partly because part of the trick with these entities has been to mix up "onshore" with "offshore" (as with the above IMF paragraph involving offshore vehicles being funded onshore, and buying onshore assets.) This double game always gives the tax havens the chance to point elsewhere, and cover up their own, central roles. But the point of the secrecy jurisdictions is that they are quick and flexible to produce whatever legal structures the abusive financiers require - they are key to the whole mess.

And here is a reminder of another reason why the havens have been able to point elsewhere. Take this September 2009 Report on Special Purpose Entities from the Bank for International Settlements.

"The most common jurisdictions for US securitisations are the Cayman Islands and the state of Delaware. The onshore (Delaware) versus offshore (Cayman) decision will generally be driven by factors outlined in the previous section."


The Bank for International Settlements needs to understand what offshore is. Delaware is very much a corporate haven, secrecy jurisdiction, tax havens - call it what you will. It is offshore. By making another arbitrary distinction - deciding to call certain offshore jurisdictions onshore, they provide fodder for those who would absolve the havens.

Hat tip: Mark Herkenrath

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Michael Moore: Bravura by the truckload


When did America's love story with capitalism begin? Many people, probably most, assume that capitalism came ashore with the Founding Fathers, but, as Michael Moore points out in his latest film, the term isn't so much as mentioned in the Constitution, and alternative models of ownership, including owner-controlled businesses and cooperatives, have thrived and continue to thrive in America's market economy.

It's fair to say that Michael Moore is a divisive film director. Some people hate him and his films with a passion that reflects more their personal ideological fanaticism than any reasoned critique of the actual work. Others find his films too polemic in style, and occasionally simplistic. For my part, I almost always enjoy their strong entertainment value and I think Moore successfully negotiates a path between good cinema and highbrow political documentary. "Capitalism: A Love Story" is perhaps his most successful to date.

Speaking last night at a special preview screening in London organised by the Tipping Point Film Fund, British film director Ken Loach (Kes, Land and Freedom, The Wind That Shook the Barley, Looking for Eric) praised Moore's "cheek, irreverence and bravura", which this film has by the truckload.

And talking about trucks, who wouldn't laugh at the chutzpah of turning up with a huge armoured truck at the front door of American International Group to demand a refund of the billions of taxpayer's money forked out in the past 18 months? Or cordoning the New York Stock Exchange with 'scene of crime' tape and calling on its occupants to come out with their hands held high.

What has this to do with tax justice? Well quite a bit actually, not least since, as the film makes very clear, the astonishing growth of American economic and cultural might in the 1950s and 1960s coincided with a period of high marginal tax rates and huge public investment in arts, technology and social progress. American's led the way on a wide spectrum of issues, including film, space technology, ecology, feminism and civil rights. The American middle class was prosperous, well-educated, secure and in love with capitalism.

What happened? Well, according to Moore, the worm struck in the 1980s when President Reagan's reforms shifted America from Capitalism version 2.1 to v2.2 - the tax cutting, de-regulating, privatising, anti-state model that captured political debate in and around Washington (and London). Tax, as Moore points out, plays a key part in shaping the type of society we choose to live in. If tax policies favour rich people and powerful companies, we should not be surprised if the version of capitalism we live under promotes inequality, strife and social breakdown.


During discussion after the film screening last night, someone described Moore's film style as pop-art. This is a useful way of viewing them. Pop art emerged in the 1950s, drawing on themes and images of popular culture and advertising to make ironic comment about prevailing cultural norms and attitudes. Moore aims at communicating beyond the usual audience that might be attracted to political film-making, filling his films with images, soundtracks and gags that bring energy and fresh life to a subject that has already been picked over hundreds of times since the current crisis began.

Moore has examined the American navel at great length, and tells a compelling, if slightly over-long, story of how the love story turned sour. Rating ****

John Christensen

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Jersey: From the Department of We Told You So

Has Jersey's Evening Post, the island's only newspaper, finally woken from its slumbers? In an article titled "What's in store now that the UK sees any kind of blatant tax planning as unacceptable", commentator Peter Body, a long-standing apologist for tax havenry, concedes "It’s not only banking secrecy that’s dead. Tax avoidance – the industry that helped Jersey become so prosperous – now appears to be on its last legs as well."

Well three cheers for that. TJN has campaigned long and hard against the idea that tax avoidance is legitimate in any circumstances. We regard tax planning based on compliance with government granted exemptions as legitimate, but avoidance, by definition, involves exploiting loopholes that have not been granted. This is why tax avoidance is fundamentally anti-democratic and incompatible with ethical business activities.

Referring to the recent visit by UK Treasury Secretary Stephen Timms, Peter Body continues:

‘Whether you are a corporation or an individual it has become increasingly unacceptable for you to use your resources to avoid your fair share of the (tax) burden,’ the minister said. So all those wealthy individuals and companies that have used complicated tax structures devised by expensive Jersey lawyers, and others, could be in for a hard time."

While we suspect there will be very, very few tears shed for lawyers facing harder times, the consequences for other islanders have been dire. For decades, Jersey's leaders have relied on using favourable tax treatment and legalised secrecy to anchor a footloose industry to Jersey’s shores. With tax avoidance and legalized secrecy under attack, the future looks a great deal less rosy.

What comes next? The island suffers from an extreme case of what development economists call 'path dependency': meaning that its future prospects will be shaped by the recent past. In plain English, the skills base of its labour force is largely geared to offshore tax avoidance and little else. How quickly can its stockpile of socially useless lawyers and accountants be beaten into plough-shares or something equally useful?

As Body concludes in his article, time is not on the island's side: "few people predicted how quickly new tax information rules could be adopted in the past year or so. So it would be a good idea to start planning now for this brave new world."

Sound advice, though we very much doubt that Chief Minister Le Sueur and his current Council of Ministers have the capacity to plot a new route forward, let alone the mix of qualities required to make a dramatic break from the recent past.

And the clock is ticking.

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Iceland seeks to become anti-secrecy haven

TJN's director John Christensen has just been in the astonishingly beautiful Iceland (a rather reasonably priced tourist destination these days following its economic disaster) and he met officials from the secrecy-busting group Wikileaks. The Guardian has picked up on an important story about what Wikileaks and Iceland have been planning for some time:

"Iceland is aiming to become a global haven for investigative journalism, with the country's parliament expected to vote through legislation protecting sources, guaranteeing freedom of speech and ending libel tourism.

Supporters liken the initiative to the offshore financial havens that corporations use to avoid government tax regimes – only for free speech."


This is a fantastically exciting idea. Rather than waffle on about this, we urge you instead to read more in this story.

And watch a clip of the Wikileaks folks explaining their idea here.



And on the subject of Iceland - we can't help reminding our readers of this.

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Rich get richer, tax rates fall

This data is for the United States in 2007, at the peak of the boom. The tax writer David Cay Johnston notes:

"In 2007 the top 400 taxpayers had an average income of $344.8 million, up 31 percent from their average $263.3 million income in 2006, according to figures in a report that the IRS posted to its Web site . . . Their effective income tax rate fell to 16.62 percent, down more than half a percentage point from 17.17 percent in 2006."


Nothing new here in terms of the trend, but the piece contains many nugget-like updates, such as:

"Payroll taxes did not add a significant burden to the top 400, not changing the rounding of rates by even one decimal. With payroll taxes taken into account, the effective tax rate of the top 400 would be 17.2 percent in 2006 and 16.6 percent in 2007, my analysis shows -- the same as not counting payroll taxes. As a point of comparison, about two-thirds of Americans pay more in Social Security, Medicare, and unemployment taxes than in federal income taxes.
. . .
Salaries and wages accounted for only 6.5 percent of the top 400's income in 2007.


This piece doesn't make comparisons with people on the poverty line; this is a regular public report on the top 400 taxpayers which was started up in the Clinton years, closed down in the years of George W. Bush, and then started up again under Obama.

In Britain, we also note this today:

"Figures published in 2007 showed that while about 400 people earned more than £10 million a year in Britain, only 65 of them paid income tax."

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Thursday, February 18, 2010

India transfer pricing effort yields $5bn

From the Indian goverment:

"India introduced the transfer pricing legislation in the year 2001. The transfer pricing regulations have come of age in India - both in terms of quality of audits as well as the revenue generated for the Government. Till date, the Directorate of Transfer Pricing has made an adjustment of Rs. 23,000 crore (approx. US $ 5000 million), which is a great achievement in a small period of time."

Indeed it is a great achievement -- and this involves tinkering around with existing practices. We are also startled to see this:

"The tax concessions to industry are more than Rs. 42,000 cr."

That would be almost $10bn a year. We don't know the details, but this looks like just the legal stuff. The whole speech is well worth reading. TJN is gearing up for a major transfer pricing project very soon, exploring alternative methods.

P.S. Apologies for low blogging rate recently. Other things are taking precedence; normal service will be resumed shortly.

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Monday, February 15, 2010

New report: how to tax banks

(Update: the FT adviser has covered our report in detail.)

Bankers are very successful at avoiding taxes. They operate from secrecy jurisdictions where they can book a large part of their profits. Their services are exempt from value added and other forms of sales taxes. Their trades in currencies, derivatives, gilts, swaps and other over-the-counter transactions are largely untaxed. They claim tax relief on the massive bonuses they pay themselves from profits.

There are no sound economic reasons why they should receive these implicit subsidies on their largely rent-seeking activities. This is more about power politics than economics. Bankers are extraordinarily adroit, not to say brazen, at holding governments to ransom. Yet when their houses-of-cards come crashing down around their heads, bankers are happy to call on taxpayers to dig them out of the wreckage.

Clearly something needs to be done to make bankers pay their way in the communities where they operate. At the same time, financial markets need to be shaped in ways that will protect us - and the bankers- from their "irrational exuberance" (Alan Greenspan's famous phrase being a polite way of talking about a toxic combination of greed and foolishness).

The International Monetary Fund has invited submissions from civil society and others on how banks might be taxed in future. These submissions form part of a consultative exercise in advance of the IMF issuing a report to the G-20 Summit meeting in Canada later this year on how bankers can contribute towards the cost of the chaos they have caused.

In cooperation with our colleagues at Christian Aid, the Task Force on Financial Integrity and Economic Development, Tax Research UK (lead authors of the report) and the Trade Union Congress of the UK, we have submitted a report which recommends significant reform of taxation of banks, not simply as a means of raising additional revenue, but also to shape the activities of banks in ways that will make them less harmful and more tax compliant.

Our core recommendations include:

1. A tax on foreign currency exchanges.

2. A tax on derivative trades.

3. A tax on share transactions.

4. An accounting standard to require banks to report their profits and losses, tax paid and limited balance sheet information for each jurisdictions where they operate.

5. Global adoption of a General Anti-Avoidance Principle to strengthen the position of tax authorities wanting to challenge sophisticated tax avoidance structures used by banks to shift profits to low or zero tax jurisdictions.

6. Binding Codes of Conduct for banks requiring them to adopt tax compliant policies.

7. Limitations on the time period that banks can carry forward their losses incurred during financial crises for offset against future profits.

8. Limitation on the amount of bonus distribution that can be offset against profits for the purposes of reducing the bank's tax liability.

We don't claim these recommendations will wholly solve the problem of bad bankers, but they will go some way towards remedying the appalling culture of greed and anti-social behaviour that has engulfed the banking industry.

You can read our report and recommendations here. Read Richard Murphy's additional points on the incidence of taxing bankers here.

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Sunday, February 14, 2010

Swiss want tax fraud and evasion charade eliminated

A survey for SontagsZeiting and Le Matin Dimanche in Switzerland found that Swiss people favour eliminating the "ridiculous" (as one Le Matin expert interviewee called it) distinction between tax evasion and tax fraud (which involves using false documents for deceptive purposes.) This is sensible.

Less fortunately, Swiss voters want to keep bank secrecy, which has kept hundreds of billions of dollars of foreign dirty money under wraps (see latest Swiss estimates here, and our general page for worldwide estimates here.) They also rejected the notion of automatic exchange of information. Read more in French here, in German here, and in English here.

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New study: developing nations lost $100bn per year just from re-invoicing

A new report from Global Financial Integrity in Washington studies re-invoicing and concludes that:

"The average tax revenue loss in developing countries was between US$98 billion and US$106 billion."


Re-invoicing, a form of trade mispricing, happens when goods leave a country under one invoice, then the invoice is re-directed to a country such as a tax haven where the price is altered, then the revised invoice is sent to the importing country for the purposes of clearing and payment.

TJN's director John Christensen, a former private sector practitioner in the secrecy jurisdiction of Jersey, where he also worked as a government economic adviser, has observed this practice being carried out as a matter of routine. Raymond Baker of Global Financial Integrity notes of the "pinstripe infrastructure" involved in this practice that:

"Thousands of companies provide helpful mispricing services to tens of thousands of their overseas customers in hundreds of thousands of transactions moving billions of dollars into Western accounts. .” High income countries have an opportunity—and even an obligation—to change the conditions and mechanisms which facilitate these illicit financial flows and severely hinder development.

After all, there are two sides to this equation: an outflow, but also a corresponding inflow, much of which is channeled into the richest countries in the world."

The latest GFI estimate is consistent with a Christian Aid report in May 2008 which estimated that developing countries lose $160 billion per year from transfer mispricing and false invoicing.

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The IMF: time for a rethink

Deep, deep below the surface momentous changes are happening in the world of political economics. For thirty years the ideas of a school of economics generally known as 'neo-liberal economics' have reigned supreme. That reign has ended in chaos.

Neo-liberalism, which is basically a re-run of the thinking of late nineteenth century Europe, became so dominant that most people, including politicians, journalists and even some economists, are scarcely aware that other schools exist. How many university economics faculties, for example, offer serious courses in ecological, or post-Keynesian, or institutional, or Marxist, or feminist economics, to name just a few of the possible alternative schools of thought that can be drawn on?

Such ignorance is no longer tenable: the entire intellectual basis of neo-liberal economics, which rests heavily on ideas such as unceasingly rational human behaviour and an almost metaphysical belief in the perfection of markets, has been so discredited that no-one, and we mean no-one, can dig it out from the wreckage of its own hubris.

For those of us with an interest in such things, signs of the tectonic shifts underway are plain to see. It is a truth universally acknowledged, for example, that the rescue package designed and implemented in 2008/09 to save the global banking system from itself was Keynesian in conception. Its success came as no surprise to those who have studied Keynesian economics and understand that governments must play the key role in rectifying market failures (those who only studied neo-liberal economics might need to look that term up).

Governments around the world are converting en masse away from neo-liberalism to a more interventionist position - though neo-liberals, like zombies, have an alarming capacity for just keeping going. But we have not quite returned to the position of the period from 1950s through to the mid-1970s when even conservative US President Richard Nixon felt obliged to declare: "we are all Keynesians now."

Amongst the ranked cheerleaders of the failed neo-liberal school of economics, the International Monetary Fund was an early and powerful convert. The IMF led the way in enforcing the orthodox policy prescriptions of the neo-liberal school, which in a nutshell required central banks to use interest policy to target a fixed inflation rate, with minimal use of other policy tools - especially tax policy and regulation - to intervene in the activities of markets. Well, whoops, that didn't work did it?!!

A fresh report from IMF researchers, Rethinking Macroeconomic Policy, does exactly what it says on the front cover: it reflects on the IMF's core intellectual platform of recent decades and concludes that, among other things, government regulatory tools and fiscal policy - the way that governments raise and spend money - have a positive role to play in economic policy-making. This involves intervention both during upturns, when stabilisers are required to prevent over-heating, and during the downturns when public spending needs to rise to compensate for falling demand elsewhere. Well, no shit Sherlock, the heterodox economists among us will be saying, but trust us when we say that this little insight has potentially earth-shattering consequences.

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