activism corporate responsibility development economics politics wealth

Closing down the tax havens

Tax is a dirty word to many of us. It represents the grasping hands of governments. We resent taxation and feel burdened by it.

We shouldn’t. At least, not usually. Tax is one of the few mechanisms of redistribution that works. When implemented progressively, it serves not just to pay for public services, but to reduce inequality. Welfare or social services are in effect a transfer of wealth from the rich to the poor, through the state.

Of course, redistribution sounds great to those on the receiving end, and terrible to those who will be net contributors – the rich. To avoid seeing your wealth passed on to others, there’s always the tax haven. These are small territories where little or no corporate tax is paid. Register your business there, or your permanent residence, and you get to keep a larger share of your profits.

The internet has made is much easier to move money around, so offshore banking is a growing business. There are now around 35-40 such countries to choose from, and they are well used by the rich, and by terrorist and organised crime syndicates. According to the Tax Justice Network, “tax havens are heightening inequality and poverty, corroding democracy, distorting markets, undermining regulation and curbing economic growth, accelerating capital flight from poor countries, and promoting corruption and crime around the world.”

Patience is running out on tax havens. Last year the union Unite urged the government to make the rich pay for the credit crunch by closing down tax loopholes. Barack Obama has pledged to deal with them, since the US currently loses $345 billion dollars in revenue through tax avoidance.

As he does so, he may run into some trouble with the British government. Tax havens are clustered around the Caribbean, the West Indies, and the tiny European countries of Andorra and Monaco and Lichtenstein, but the UK is the most important country involved. Somewhat bizarrely, the UK is responsible for around a third of tax havens, from the baliwicks of Jersey and the Isle of Man to remnants of empire in Gibraltar, the Cayman Islands, Bermuda, or Montserrat. According to George Monbiot, “Britain retains these colonies for one purpose: to help banks, corporations and the ultra-rich to avoid tax.”

Most shockingly, The Royal Bank of Scotland runs offshore banking on British islands. Since the bank was just nationalised, the government is now defrauding itself. If that makes you angry, read Monbiot’s article on ‘pin-striped pirates‘. It includes the news that the UK, along with Lichtenstein, thwarted efforts to reform tax havens in the recent Doha round.

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  1. Since the government is so “adept” (please read; irresponsible) at spending my tax dollars, I am in full support of the rich utilizing tax havens to keep more of what already belongs to them. Tax havens aren’t necessarily for the “rich” rather then the intelligent. It costs about $500/year to open a non-resident corporation located in the Caymen Islands and even less to open an account at one of the many offshore banking facilities in Georgetown (GC). This isn’t a “rich” thing, it’s an “intelligence” thing. I have worked very hard at becoming successful (college degrees, MBA, certifications, experience, etc), why should I have to pay more, percentage wise, taxes then my friends who dropped out of high school??? Those against offshore tax havens are simply jealous or pissed off that they don’t make enough money or weren’t smart enough to think/do the same thing.

  2. I’m not going to argue with that kind of attitude. Let me repeat the words of the Tax Justice Network:

    “tax havens are heightening inequality and poverty, corroding democracy, distorting markets, undermining regulation and curbing economic growth, accelerating capital flight from poor countries, and promoting corruption and crime around the world.”

  3. inequality… great word! So how is a 35 year old man with a college education, a masters degree from Havard, his own business, and 15+ years of experience equal to the 35 year old, unemployeed High School drop out???

    Tax Havens are NOT the inequality of our society… education is! Educated people are, for the most part (read… not all the time) more successful and make more money. Thus they are constantly burdened by our own government to carry the rest of society who choose NOT to better themselves in some form or fashion.

    Here’s an idea… you want equality??? Tax everyone the same!!!! %15 across the board… no matter how much you make with no loopholes. You make $1M…. $150K in taxes. You make $100K… $15K in taxes. THAT’S EQUALITY!!!! But it will NEVER happen because that would essentially be a tax break for the rich and the left wing liberalist/democrats would never let that happen… even though it’s the best answer for a struggling society.

  4. If we’re talking about tax havens, they allow rich people to pay proportionally less than the poor. Progressive taxation is quite a different debate.

  5. Your so full of crap your eyes are brown!

    My salary in 07 was $900K… of which I paid approximately $405K in taxes!!!! I also gave $25K in charitable donations. For a total “out of pocket” experience of $430,000!! Knowing that my hard earned tax dollars were helping pay for unemployed health care, crack addicts, and illegal aliens made my entreprenuerial blood boil!

    Then I opened a non-profit charitable organization in Georgetown GC and donated half of my salary the following year.

    My salary in 08 was $1.2M… of which I paid approximately $292K in taxes BUT donated over $125K to charities (of my choosing… not every failed social program on the books). For a total “out of pocket” experience of $417,000. Not much of a difference EXCEPT my money went to people I deemed as worthy and deserving.

    Progressive taxes… your an uneducated blogger trying to pass off someone else’s liberal words and ideas as your own. Go away, come up with something new or somewhat original then come back and blog all you want. Until then, keep living in your socialist world and blaming everyone but yourself for your own shortcomings.

  6. Wow, looks like the idea of progressive taxation strikes a nerve there. Not my ideas, and I make no claim to them whatsoever. It’s a term in the public sphere and I feel entitled to use it. I get the impression I’ll be wasting my breath explaining, but read up on the tax policies of the Scandinavian countries if you want to see it done well.

    I can understand why you feel frustrated, I’m sure I would too if I was paying that much in taxes. But you have a choice too. You can rail at the ‘crack addicts and illegal aliens’, or you can look at schools, highways, national parks, international aid programmes, art galleries, public libraries, the fire department, and a hundred other good positive places where your tax dollars went.

  7. Thanks for taking the time to debate this, I feel strongly about it and love learning additional on this topic. If attainable, as you gain experience, would you mind updating your blog with more data? It’s very useful for me.

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