Tax Flight, Tax Avoidance and the Contribution of the Rich to Society
Multinational businesses cause the greatest losses through tax flight and tax avoidance. Between $21 and $32 trillion are invested in tax havens. Whoever can buy expertise and services can utilize tricks and tax havens. Tax flight is a problem for democracy. Without tax revenues, politics renounces on creative possibilities. Without state investment programs, the Internet, GPS and the touch-screen would not exist.
TAX FLIGHT, TAX AVOIDANCE AND THE CONTRIBUTION OF THE RICH TO SOCIETY
By Silke Otsch
[This blog-article published on September 29, 2015 is translated abridged from the German on the Internet, http://blog.arbeit-wirtschaft.at.]
Parties that polemicize against refugees with cost-arguments promote tax flight of the rich as in advocacy of banking secrecy. Criticizing the rich is hardly encouraged although they profit disproportionately from tax flight and tax avoidance. This is a democratic problem. A coalition of elites influences legislation so counter-strategies should be followed.
THE RICH PROFIT DISPROPORTIONATELY FROM TAX FLIGHT AND TAX AVOIDANCE
Multinational businesses cause the greatest losses through tax flight and tax avoidance followed by rich private persons. Sums in the triple-digit billions up to one trillion euros are annually withdrawn in the European Union. Between $21 and $32 trillion are invested undeclared in tax havens out of worldwide private wealth of around $160 trillion... In the US, the top one percent of the population possesses 52\% of corporate wealth. The rich profit indirectly from the tax flight and avoidance of businesses. Tax havens have an indirect effect on tax systems. They encourage lowering tax rates on business profits and on the general tax on capital income of 25\%.
TAX PRIVILEGES THROUGH WEALTH AND GEOGRAPHICAL POSITION
Whoever can buy expertise and services of specialized technicians, banks, law offices or auditors can utilize tricks and tax havens. Until the turn of the millennium, black money could be hidden through simple techniques like accounts with banking secrecy. With expansion of information exchange, tax avoiders now need more expertise. Banks and law offices demand fees or minimum investment sums for this expense. The fees start at 500,000 euros. According to the tax flight model, the expense is worthwhile for investments of 5-10 billion euros. Experts assume tax flight increases among owners of massive assets.
Tax havens and businesses of the tax flight branch are above all in the global North... Poor countries have few resources to build functioning tax authorities. Multinational businesses and rich elites use their wealth for tax minimization. Advances in regulating tax flight benefit states of the North first of all. International tax affairs involve the OECD, the "Club of the Rich," not the UN.
TAXES, DEMOCRACY AND THE POWER OF DONORS
Tax flight and avoidance is above all a problem for democracy. Public services like education, health care, infrastructure, culture or social services are available to many citizens. Without tax revenues, politics renounces on creative possibilities. Politics should implement long-term projects and speed up innovations. Without state investment programs, the Internet, GPS and the touch-screen would not exist. Funds can have macro-economic effects like economic measures or resource distribution around different groups of the population. Funds are allocated in the economic cycle between the real economy and financial wealth. In Austria, taxes reduce inequalities in the primary distribution of resources...
According to the theory of critics of taxation, businesses would give on a voluntary basis when taxes are lowered. However facts demonstrate the opposite. Donations are far below the saved tax funds, even in countries with high fundraising revenue like the US. If two percent of the Austrian GDP is lost through tax avoidance and flight, that is equal to 5 billion euros...
Even higher repayment in the form of donations should be judged as ambivalent because donors exert social-political influence. The influence of the US billionaires Charles and David Koch is a frightening example. These two influence politics through think tanks, donations of billions in election campaigns, support the Tea Party and organizations denying climate change.
MANIPULATION OF LEGISLATION BY THE OFFSHORE COALITION
Non-observance of tax laws is not because of the complexity of tax systems or location competition. A coalition of the beneficiaries influences legislation in the long-term with intensive support from other social forces. This offshore coalition includes:
• tax fugitives and evaders motivated by financial advantages and money-washing possibilities
• service providers (banks, law offices, auditors) with interest in income and (labor-) markets
• politicians who expect potential support by financial- and economic elites, avoid conflicts, act ideologically or are poorly informed
• lobbies and think tanks that inveigh against payment and ideology-driven conduct
• bureaucracy and authorities that are hindered in carrying out their activity, cooperate with the regulators and expect financial incentives (change of job, corruption)
• journalists and academics who offer justifications through convictions, financial incentives (advertisements, royalties or career advantages)
• voters who tolerate practices out of opportunism or ignorance.
Changing practices requires a long breath because organized and well-supplied organizations and groups of persons have great interest in maintaining offshore services. Alongside fighting tax avoidance and flight, the primary distribution of incomes and assets should be intensely leveled so inequalities do not first arise. Tax systems should be simplified and harmonized with minimum standards. Politics should plead offensively for public funds. These funds are needed for a social-ecological transformation on the national plane and for the North-South perspective.
Citizens for Tax Justice, "Offshore Shell Games 2014," The Use of Offshore Tax Havens by Fortune 500 Companies, 56 pp
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