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Much more wealth is leaving the world’s most impoverished continent than is entering it, according to new research into total financial flows into and out of Africa. The study finds that African countries receive $161.6 billion in resources such as loans, remittances and aid each year, but lose $203 billion through factors including tax avoidance, debt payments and resource extraction, creating an annual net financial deficit of over $40 billion.
Stanford University researchers teamed with officials at the Treasury Department to examine every tax return reporting more than $1 million in earnings in at least one year between 1999 and 2011. They found that while 2.9 percent of the general population moves to a different state in a given year, just 2.4 percent of millionaires do so. Even more striking is that for the most “persistent millionaires” (those earning over $1 million in at least 8 years of the researchers’ sample), the migration rate is just 1.9 percent per year. As the researchers explain: “millionaires are not searching for economic opportunity—they have found it.” …
In other words, Florida is only one of the nine states without broad-based income taxes that seems to possess any kind of special allure for high-income taxpayers. Given that reality, the study notes that “It is difficult to know whether the Florida effect is driven by tax avoidance, unique geography, or some especially appealing combination of the two.” In any case, this study refutes the notion that repealing state income taxes can transform a state into a magnet for high-income taxpayers: it’s simply not playing out that way in eight of the nine states without such a tax. …
This research, of course, should all but kill the thesis that you just have to cut taxes on rich folk for fear they’ll flee to more hospitable climes. But this thesis is just too convenient for too many wealthy people, and it’s been successfully put out of its misery many times before – then sprung back to life the next time around. This isn’t the last we’ve seen of it.
New Research Shows Millionaires Less Mobile than the Rest of Us
As Guest Editor David Whyte (How Corrupt is Britain?) comments in his editorial:
“We are overwhelmed by the scale, frequency and variety of corruption cases in Britain, from police manipulation of evidence, to over-charging in out-sourced public contracts, by way of cash-for-access scandals involving prominent politicians and price fixing, market manipulation and fraud in key sectors of the economy.”
TJN has long held the view that Britain is at the forefront of the global supply side of corruption. Ten years ago TJN’s director John Christensen slammed the Transparency International Corruption Perceptions Index for corrupting perceptions of corruption, arguing that:
“The elephant in the living room of the corruption debate is the role played by the global infrastructure of banks, legal and accounting businesses, tax havens and related financial intermediaries in providing an offshore interface between the illicit and licit economies.”
According to The Hidden Wealth of Nations, a recent book by University of California, Berkeley economist Gabriel Zucman, the answer is that tax evasion costs governments approximately $200 billion per year.
Zucman also estimates that tax avoidance by U.S. corporations — which, unlike tax evasion, is generally carried out in the open and is technically legal — costs governments an additional $130 billion per year. (European and Asian corporations have the same incentives to avoid taxes, but there is not enough data to estimate its scale.) …
Zucman’s estimates on tax evasion and avoidance are straightforward.
First, he conservatively calculates that, as of 2014, at least $7.6 trillion of the world’s financial wealth — or about 8 percent of the world’s total financial wealth of $95.5 trillion — was “missing.”
His reasoning is that the world’s assets should be an exact mirror image of its liabilities, but are not. If the U.S. sells $1,000 in government bonds to a foreigner, that $1,000 liability for the U.S. should show up as $1,000 in assets for the foreigner’s country. However, countries’ national balance sheets record much more in liabilities than assets.
Here’s the Price Countries Pay for Tax Evasion Exposed in Panama Papers Jon Schwarz
Shocking but not surprising, considering their recent political history.
This is a speculative blog based initially on a couple of conversations with people in the industry, with some supporting evidence.
A (slightly tidied-up) conversation we’ve just had went along these lines:
“You’ll never guess what is the new Switzerland for Asia. And I mean big time. The Asian money is heading there. Banks set up there as its a financial centre that doesn’t tax foreigners. And its perceived as safe, and not a signatory to the CRS [The OECD’s Common Reporting Standard.] TAIWAN.”
On capital, debt and the future of capitalism.
“The Sorry State of Corporate Taxes,” February 2014, Citizens for Tax Justice
Profitable corporations are supposed to pay a 35 percent federal income tax rate on their U.S. profits. But many corporations pay far less, or nothing at all, because of the many tax loopholes and special breaks they enjoy. This report documents just how successful many Fortune 500 corporations have been at using these loopholes and special breaks over the past five years. …
Jason Hickel, “Flipping the corruption myth,” Al Jazeera, 1 February 2014
Many international development organisations hold that persistent poverty in the Global South is caused largely by corruption among local public officials. In 2003 these concerns led to the United Nations Convention against Corruption, which asserts that, while corruption exists in all countries, this “evil phenomenon” is “most destructive” in the global South, where it is a “key element in economic underperformance and a major obstacle to poverty alleviation and development”.
There’s only one problem with this theory: It’s just not true.
“Tax Justice Focus: The Finance Curse,” Tax Justice Network (TJN), 23 September 2013
The latest edition of Tax Justice Focus, edited by Daniel Hind, Nicholas Shaxson and John Christensen, explores the Finance Curse, a phenomenon rather similar to the Resource Curse afflicting resource-rich economies. Evidence continues to mount suggesting that, far from being an asset, a large and globally ‘competitive’ financial sector, above a certain size, becomes a drain on the rest of the economy. Continue reading