Economics, Politics, Society

International Tax Compliance

The biggest problem the world faces should go without saying: climate change. Human behaviour is changing the climate to the extent that it will be harder for people to inhabit certain parts of the world, and that will cause all sorts of other problems.

But that problem is long-term, no matter how immediate it seems to climatologists or people who feel it as an immediate problem. It has different impacts on different people and most people have trouble contemplating the actual effects – or even believing if it is real – unless it affects them.

I live in a well off city, in a well off, underpopulated country. It’s a city that is 76 metres above sea level at the lakeshore and slopes up considerably as you walk away from the lake. I don’t know how many metres my home is above sea level, but it’s more than 80.

I am nearly 40. I have no children.

All of this is to say: climate change won’t affect me the way it will affect others, unless the worst predictions come true and changes happen sooner than some expect. I will be dead long before the worst of it.

I still try to reduce my carbon footprint but it’s out of a sense of duty, not out of a sense of fear.

But there’s another important problem that affects me right now as much as it will affect me in the future. And it actually affects our ability to fight climate change.

That problem is “tax avoidance”, a polite way of saying legalized tax evasion.

But when I say “tax avoidance” I don’t mean the tax evasion performed by people who just don’t pay their taxes or even the tax evasion of organized crime – though the latter is a massive problem.

What I mean by tax avoidance is when rich people and large corporations move their profits overseas in order to avoid paying taxes they are legally obligated to pay.

This kind of tax evasion, called “tax sheltering”, is thought to be responsible for US$8.7 trillion in lost government revenues worldwide in 2017. That number is so unbelievably large we can’t even conceive of it.

It’s over 10% of the entire world’s GDP, which is perhaps a better way of thinking about it, since 10% is a much easier number to deal with than a number in the trillions.

This money isn’t lost exactly, much of it is reinvested or spent at some point, the idea that it is all just sitting in anonymized savings accounts in offshore banks is more of a caricature than the truth.

But the important thing is that the money is inaccessible to the society in which it was earned – that it is not taxed by that society, that much of it – likely most of it – will never be spent in that society.

Instead the money, and the interest on that money, benefits other people – the person who earned the money, of course, but also the people that person pays to hide it, and the people in the whichever economies the money is hidden in.

Tax shelters are tax shelters because they make money.

Ending Tax Avoidance

There is only one way to stop tax avoidance. Personally, I don’t think it’s very pretty.

Humanity needs an enforceable international tax avoidance treaty with teeth.

The treaty needs to be signed and ratified by a super majority of the world’s countries, including a majority of the G20.

The majority of ratifiers of the treaty need to be open societies. (A treaty which is primarily backed by dictatorships, monarchies and theocracies isn’t going to have any moral legitimacy.)

And the treaty needs to be backed by an independent, global information network. And perhaps even an enforcement agency (i.e. a police force).

It’s not pretty for at least two reasons:

The first reason is that it’s pipe dream.

It’s hard to imagine a treaty like this, regardless of its wording, which would be supported by the UK – a tax shelter itself – or the US – which contains regional tax shelters and where the rich appear to run things – unless it’s utterly toothless (like our climate accords).

And it’s hard to imagine a treaty without the support of the US having much success. (Though I can imagine an EU-led treaty that gets strong international support without the support of the US and Russia. It’s harder to imagine such a treaty not backed by China.)

Second, though the information network may not be that scary to electorates, an international tax police force should scare the living shit out of a sizeable portion of the electorates in the most important signatory countries.

It doesn’t matter whether or not the police force will ever come for these people. Just the idea of the police force being able to come into their country and sanction their rich would likely terrify enough of the nationalist Right in enough countries as to prevent such a force from ever being created.

But what’s the alternative?

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