Africa subsidises the rest of the world by over $40 billion in one year, according to new research

Global Justice Now press release:

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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.
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The Case for a Financial Transactions Tax

The report argues:

  • A financial transactions tax could likely raise over $105 billion annually (0.6 percent of GDP) based on 2015 trading volume. This estimate is roughly in the middle of recent estimates that ranged from as high as $580 billion to as low as $30 billion.
  • The full amount of this tax would be borne by the financial industry, and not individual holders of stock or pension funds and other institutional investors. Evidence suggests that trading volume is elastic with respect to price, meaning that any drop in trading volume resulting from the tax would reduce costs for end users by a larger amount than the tax would increase them.
  • It is reasonable to believe that the industry would be no less effective in serving its productive use (allocating capital) after the tax is in place. This means that one of the primary effects of the tax would be to reduce waste in the financial sector, reducing costs while having little or no effect on its principal purpose: to allocate capital effectively.
  • The revenue raised through an FTT would easily be large enough to cover the cost of free college tuition (among other social programs), although if nothing were done to stem the growth rate of college costs, it would eventually prove inadequate.

The report also notes that the financial sector is the main source of income for many of the highest earners in the economy. This means that downsizing the industry through an FTT could play an important role in reducing income inequality.

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The effects of poverty costs the UK £78bn a year

The Joseph Rowntree Foundation (JRF) estimates that the impact and cost of poverty accounts for £1 in every £5 spent on public services.

The biggest chunk of the £78bn figure comes from treating health conditions associated with poverty, which amounts to £29bn, while the costs for schools and police are also significant. A further £9bn is linked to the cost of benefits and lost tax revenues. …

The JRF report, called “counting the cost of UK poverty”, estimates that 25% of healthcare spending is associated with treating conditions connected to poverty.
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UBI isn’t really about welfare spending: It’s about tax policy. And it is affordable.

This would be a sound argument if it didn’t miss the point. UBI isn’t really about welfare spending: It’s about tax policy.

UBI is an unconditional cash transfer, which means that you get money from the government to spend however you want. That’s an unusual government spending program. In the US, besides Social Security, the government usually either spends money on a service (like health care or education) or gives conditional cash in the form of things like food stamps.

But the government also spends a lot of money each year on cash transfers through “tax expenditures,” which is the money the government doesn’t collect in taxes because of exclusions in the tax code. Except for the Earned Income Tax Credit, those expenditures almost always help the rich more than the poor. By replacing them with UBI, we would create a more progressive system. That, not the elimination of all government programs, should be the starting place for debates about UBI. Continue reading

Tax Justice: Millionaires Less Mobile than the Rest of Us

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

“Modern corruption has a white face”

But it is peanuts compared to the much bigger sums that are raked in by the lawyers, accountants and other silky advisers who base themselves in the City of London and use Britain’s network of crown dependencies and overseas territories in Jersey, Guernsey, the Caymans and the British Virgin Islands.

Until the UK stops encouraging, advising and facilitating guilty men and women looking to stow their shady cash offshore, corruption will continue to flourish.

Modern corruption is a suit in a Panamanian office, who takes that general’s billions and sends it on to a private bank account, no impertinent questions asked along the way. It is the Mayfair estate agent who sells that multimillion-pound townhouse to an oligarch. It is that accountancy firm in the City that fills out the paperwork structuring the rich man’s affairs so that the money goes through one of their far-flung branch offices to wind up in a trust in the tax-free zones of the Caymans or the British Virgin Islands.
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Tax Justice Focus – The Corruption Issue

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.”

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American corporations received 27 times more from the governement than they paid in taxes

Oxfam America took a close look at the way large, profitable companies use offshore tax havens and other methods to slash their corporate tax rates in the US rather than pay taxes where the majority of their business takes place.

The report, “Broken at the Top,” found that the 50 largest companies in the US have $1.4 trillion hidden in tax havens while at the same time receiving trillions of dollars in tax payer-funded loans and subsidies. The tax practices of these corporate behemoths cost Americans an estimated $111 billion per year and cost developing countries another $100 billion a year.

Apple, the world’s second-largest company, was the company with the greatest amount stored abroad — $181 billion in three subsidiaries. Next in Oxfam’s league table was General Electric, with $119 billion stored in 118 tax haven subsidiaries, followed by Microsoft which had $108 billion kept overseas. Continue reading

The Panama Papers are not about Tax Avoidance

One of the few people in the world who has a well-informed insider’s perspective who is also happy to speak out about it is Brooke Harrington of Copenhagen Business School, who took the remarkable step of actually obtaining a professional qualification in wealth management to pursue her studies. As she told our Taxcast recently:

“Tax avoidance was really only the tip of the iceberg. I didn’t realise how much bigger the problem is. Really what wealth managers do extend much more generally to law avoidance. And that creates problems of legitimacy for whole governments: it’s bad enough that people think they are getting shafted because the rich aren’t paying their fair share of taxes: it’s quite another matter when you say there is one law for the rich and one for everyone else and they are not the same: that is the sort of thing that can potentially topple governments.”

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The implications of th Panama Papers

The Panama Papers show “the weakness at this stage of the international community,” Robertson argued. “That community has finally a few years ago set up an international court to deal with atrocities. We have quite a good organization in Vienna that inspects potential nuclear developments. We have taken some action against trafficking in humans and drugs. But we haven’t really tackled international tax avoidance. We haven’t tackled the secret movement of the money of the wealthy for various often nefarious, sometimes legitimate purposes. And that’s the real problem.”
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We can afford a universal basic income

The Tax Justice Network estimates the global elite are sitting on $21–32tn of untaxed assets. Clearly, only a portion of that is owed to the US or any other nation in taxes – the highest tax bracket in the US is 39.6% of income. But consider that a small universal income of $2,000 a year to every adult in the US – enough to keep some people from missing a mortgage payment or skimping on food or medicine – would cost only around $563bn each year.

A larger income, to ensure that no American fell into absolute abject poverty – say, $12,000 a year – would cost around $3.6tn. That is a big number, but one that once again seems far more reasonable when considered through the lens of the Panama Papers and the scandal of global tax evasion. Because the truth is that we have all been robbed, systematically, by the world’s wealthiest people, for decades. They have used those stolen dollars to build yet more wealth for themselves, and all the while we have been arguing with ourselves over what to do with the leftover pennies.

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Costs of tax evasion/avoidance

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

Is Taiwan the new Switzerland for Asia?

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.”

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The U.S. “is effectively the biggest tax haven in the world”

After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota.
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A conversation between David Graeber and Thomas Piketty

On capital, debt and the future of capitalism.

Soak the Rich

The Sorry State of Corporate Taxes

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. …
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Corruption is by far not the main factor behind persisting poverty in the Global South

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.
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Tax Justice Focus: The Finance Curse

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