Tax havens exacerbate inequality and prevent millions from meeting basic needs
There’s a belief that if you tax the rich less, everyone wins. The belief seems counter-intuitive. If you tax those who earn the most less, won’t it increase inequality and result in more wealth filtering into the hands of the rich? Not according to trickle-down economics. Tax cuts will encourage spending and invigorate the economy; investors will buy more companies and stock, banks will increase lending, and owners will invest in their businesses and hire more workers. By allowing the richest to reinvest their wealth back into the economy, rather than placing it into the hands of the incompetent government to waste, it will stimulate economic growth, which will translate into higher incomes for all. Taking this logic further, tax havens that allow rich people to avoid tax altogether must be great news for the rest of us. They enable rich people to make even more investments that sees wealth filter through the rest of society.
Based on this argument, it should come as a relief that tax avoidance is rife. The Pandora papers exposed the financial secrets of the rich and famous. From politicians to royal families to celebrities, the richest syphon money into tax havens to avoid paying taxes. A recent IMF report on the financial consequences of tax havens estimates up to $36 trillion is held offshore by individuals. Tax losses from global individual income are estimated at around $200 billion a year. Corporations are also in on the act. American Fortune 500 companies held an estimated $2.6 trillion offshore in 2017. Collectively, tax havens cost governments between $500 billion and $600 billion a year in lost corporate tax revenue.
So how does tax avoidance running into the trillions benefit the rest of us? Well, 13.4 percent of households in the UK (3.8 million) can’t afford to keep their homes warm in winter. In the European Union, nearly 9 percent of people in employment are at risk of poverty. This helps explain why 1.5 million Germans are supported by food banks. In America, 40 percent of respondents to a 2019 Gallup poll said they are either running into debt or barely making ends meet. An estimated 12 million Americans use high-interest payday loans. 70 percent of people who get these loans use them to pay for basic expenses like rent and utilities. The picture is bleak in developed countries but in developing countries, it’s plain ugly. 850 million people don’t have enough to eat. Oxfam estimates 11 people die from hunger every minute. 770 million people still don’t have access to electricity. One in three people doesn’t have access to clean water.
Put simply, tax havens don’t benefit the rest of society. The effect of taxing the rich less is that, unsurprisingly, the rich get richer. Rather than a trickle-down effect, the impact of mechanisms that allow rich people to avoid taxes on their vast incomes (and wealth) is that inequality increases without having any significant impact on jobs or growth. In fact, rather than being reinvested back into the economy, it’s more likely the richest are spending the money on, oh, I don’t know, themselves. Take the Moonrise yacht, which is valued at $220 million. I’m not suggesting the owner has financed the cost of that yacht through tax havens, but such lavish purchases hint at the fact rich people aren’t altruistic; they spend their money on their own enjoyment.
So what do tax havens have to do with sustainability? From a social perspective, tax havens have led to a growing divide between the have’s, a tiny minority who seemingly have it all, and the have not’s, that is, everyone else who either barely making ends meet, or, aren’t able to meet basic needs at all. Achieving a sustainable society is all about meeting human needs within environmental limits. To meet needs, we need better mechanisms to distribute wealth. Making tax havens illegal and utilising the trillions of dollars stored in them would clearly go a long way to achieving this. The benefits don’t stop there. The conventional argument for how to end poverty centres around more economic growth through a more connected world economy. The idea is that more growth will lead to increasing incomes which will eventually lead to everyone achieving a certain standard of living.
The argument supporting even more growth is flawed when the rules of the game are set up to ensure the rich take a disproportionate amount of the wealth generated from that growth. That’s why globalisation has failed in developing countries. All that’s been achieved is that rich people have more avenues to get even richer, leaving the poor as poor as ever. The same goes for developed countries. Poverty isn’t for a lack of wealth in high-income countries, but a lack of distribution. What makes calls for more economic growth even more questionable is that economic growth seems incompatible with creating sustainable societies that provide goods and services within limits. This is because, unless growth becomes absolutely decoupled from environmental impacts, a scenario that is demonstrably not possible, achieving increases in output requires more energy and resource inputs to make the stuff that ends up being sold to consumers. In other words, more growth is directly linked to environmental impacts increasing. At a time when impacts must decrease so that we produce all of the goods and services needed by humanity within the limits set by the natural world, it’s unclear how more growth is the solution to our problems.
The fact there are no calls to make tax havens illegal shows that we’re not really all that serious about creating sustainable societies. The word ‘transformation’ is being thrown around more and more often, but transformation merely serves as a buzzword with no substance. The dominant narrative remains focused on incrementalism that seeks to create an illusion of change. Meanwhile, under the surface, the status quo goes unquestioned. Little wonder as well, because the rich have the influence, power and resources to ensure such a narrative remains silenced. While there have never been so many people dedicating their life work to achieving sustainable societies, we’ve never been further away from achieving that goal. Inequality continues to increase, and so does our dependence on the natural world to sustain levels of economic growth that are supposed to be increasing prosperity for all. The result is that every conceivable environmental metric is getting worse, and we continue to hurtle toward a future of unrest, chaos and unimaginable suffering. It would seem that the risk of such a future is far more palatable than daring to question tax havens. After all, while they may appear unjust, always remember, when you tax the rich less, everyone wins.