Wednesday, March 05, 2008

TJN's new comment article in the Financial Times: Stop this Timidity in Ending Tax Haven Abuse

We have already commented several times on the fast-changing mood in the world of international taxation: we appear to have reached, as Richard Murphy has pointed out, a tipping point. TJN’s director John Christensen and senior adviser David Spencer have just remarked on this in a nice comment piece in today’s Financial Times. The article argues that a mountain of political capital has been recently building up in the fight against tax havens, but

The world risks wasting this political capital on the wrong targets. We are pursuing the timorous policies of a past age to tackle tax havens.

The piece comes in the same FT edition as another article entitled “EU majority backs clampdown on tax havens” which is most welcome, not least because the UK – which has for years played a spoiler role in the tax haven debate – has indicated its intention to support the clampdown. Given the outrage now emerging in British newspapers about tax abuses, this development is perhaps less surprising - but we will be watching them very carefully, of course. We are also heartened by this story, illustrating how "the French government plans to use its presidency of the European Union this year to crack down on tax havens."

We will not report TJN’s entire FT article here - please read the whole thing instead. But we would like to expand on some of the points.

Perhaps the most important one is this. Current initiatives to crack down on tax havens, such as those pursued by the OECD, have been watered down so badly by vested interests that they are not only ineffective, but they have legitimised the illegitimate. Perhaps the most important element to note here – and this is one of TJN’s most important policy areas – is that these schemes only ask for countries to exchange tax information with each other on request. As the article says:

In other words, you must know what you are looking for before you request it. This is shockingly inadequate. We need the automatic exchange of tax information between jurisdictions and all developing countries must be included.

Pro-tax haven lobbyists argue very loudly that if automatic information exchange were enacted, nobody would have any privacy. The argument is entirely, absolutely, bogus.

First, our governments already require us to exchange all our tax information with them – you are breaking the law if you don’t report your income and pay your taxes. Why ever should we allow a small, charmed section of society to opt out of this perfectly normal and healthy democratic bargain? This is about transparency, not control, and anyway taxation makes governments healthy and responsive to citizens’ needs. Second, in our experience those who use tax havens to preserve the secrecy of their financial affairs are not the campaigning journalists, human rights fighters and oppressed citizens, but the kleptocrats, dictators and cronies who are oppressing them. End offshore secrecy, and the world will be a freer, happier, and better governed place.

Automatic exchange of tax information – alone - would tranform the planet, and make it a better place. If enacted, it would also help restore the world’s faith in globalisation itself, which for many good (and some bad) reasons has been getting a very dirty name of late.

More on this shortly.

As an aside, in this context, we would like to highlight this rather comical press release from a group of wealthy and high-profile lobby groups in the United States, which attacks TJN after we had the audacity to host a briefing on Capitol Hill on Offshore Tax Evasion. In the press release we are accused of threatening groups such as homosexuals in Saudi Arabia and elsewhere, and the lobbyist Grover Norquist admits that “the U.S. is a tax haven”. It may seem odd to be highlighting the arguments of our opponents, but what we have come to realise is that these stupendously wealthy institutions simply have no answers to the agenda we are creating. We will happily continue to dissect all their arguments in this and future blogs.

Separately, we should also point out that John Christensen also has a letter in today's Guardian newspaper, concerning Tesco's tax tricks.)


Anonymous Anonymous said...

Thank you very much. This was a great help.

9:19 am  
Anonymous Anonymous said...

"First, our governments already require us to exchange all our tax information with them – you are breaking the law if you don’t report your income and pay your taxes."

Yeah but the reason the IRS doesn't pursue people who are breaking the law is because the cost in terms of legal fees and time spent in our court system make it uneconomical. It would cost more than we would recieve.

However most tax evasion is done legally. "Closing loopholes" won't accomplish anything because capital will always gravitate toward environments with the lowest tax burden.

I'll put it another way:

Our tax code is 66,000 pages. Hmmm, it seems like year after year of adding and ammending to our tax code has caused more tax evasion, not less. if 66,000 pages won't do it, neither will 1,000,000 pages.

The only way to get rid of tax evasion is by not having a tax.

So instead of taxing savings and investment, we should tax consumption. That would cause people who save in other parts of the world to want to save and invest in the US.

Alot of people say a decrease in consumption would be harmful to our economy.

They are correct and incorrect at the same time. They are right that alot of businesses that rely on discretionary spending will suffer.

But they are incorrect on a bigger point: We have had a long period of time where consumption > income. This is evident in low interest rates, complexity in financial instruments designed to obscure debt, and an increase in borrowing. Eventually we will have to start postponing consumption on a macro scale and micro scale in order to payback our present consumption. There is simply no other way around this.

Our economy must shift from a consumer to a producer. The only think that keeps us from a competitive advantage is our tax code. I would rather see it in a bank being used by someone to start a business then by some politician or federal bureaucracy.

11:10 pm  

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