The Case Against Global Tax Havens

Recently, a report about global injustice released by the global justice advocacy groupTax heavens 1 Oxfam revealed that 62 of the world’s richest individuals owns as much of the world’s wealth as the poorest half of humanity. In their report “An Economy For The 1%”, Oxfam appoints the economy for the 1% as the reason for this unprecedented inequality. This is an economy that the rich and powerful have skewed in their favour, and one big factor of this skewing is global tax havens. But why should these tax havens be a subject of concern? And what can be done? The purpose of this essay is to answer these questions, and through this inform and introduce the reader to the subject, while arguing for global equality and justice.

To be able to argue against tax havens, we firstly need to establish frames in which to define and identify them. A tax haven can be defined by two factors: Low taxes and high secrecy. The low taxes are a self-explanatory part. Tax havens offer low taxes in comparison to the taxes that their utilisers want to escape, and that’s why they are so attractive in the first place. The level of secrecy that a tax haven can provide to the utiliser is also important, since these kinds of operations often move in judiciary grey zones and murky business, and are often not looked upon positively by regulators of cheated governments and populations.

 Why then should tax havens be criticised? The most obvious and direct argument is that they are unfair. Every dollar that is saved through tax havens is by definition money that otherwise would have gone to state coffers and from there, in an optimal situation, to finance common welfare that everyone benefits from, like education. This is especially true in developing nations that even with tax revenue often suffer of chronicle shortages in financing welfare and development. Oxfam estimates that approximately 30%, or 500 billion USD of the wealth of rich Africans, is hidden in tax havens. According to numbers from Trading Economics that is only 68 billion USD less than the total 2014 GDP of Africa’s largest economy, Nigeria, and in the report from Oxfam we are told that this costs African states 14 billion USD per year in lost tax revenue. To put these kinds of numbers into a human perspective, Oxfam assessed that these 14 billion USD could finance healthcare that would save 4 million children and employ enough teachers to educate every child in Africa. But it is not just in the developing world that tax avoidance trough tax havens is a threat to welfare and progress. Also in the developed world tax avoidance results in losses of billions of dollars in tax revenue, and Reuters recently reported that the British branch of seven of the ten biggest investment banks in London did not pay any tax in 2014. This is then contrasted with years of austerity for the welfare states of Europe. While politicians are constantly seen on TV stating that we cannot afford a high standard welfare and a humane refugee policy, banks that annually makes billions in profit do not pay any taxes.

The report from Oxfam does not just point out the fact that the world is unacceptably unequal, but it also discusses why this is the case. It damningly observes that tax havens are not an isolated phenomenon, but a part of a broader agenda to warp the economy in favour of the rich. This agenda consists of policies like privatization, deregulation and financial secrecy that can be summed up in the term “market fundamentalism”. These policies are said to encourage economic growth and therefore benefit everyone. But in reality they are designed for and by the rich, confirming and consolidating inequality by crafting an economy that works for the rich against the poor, an inequality that in the long term also actually hurts economic growth. The global web of tax havens is an important part of this rigging since it has allowed companies and individuals to transfer their wealth, secure it, and use it away from public scrutiny and regulation. It is then no coincidence that numbers from Oxfam reveal that corporate investment in this web of tax havens was four times larger in 2014 than in 2001, running parallel with the consolidation of market fundamentalism and neoliberalism in the service of global capital. One example brought up by Oxfam is the contrast between labour and capital, where the proportion of national income has decreased for labourers while it has increased for the owners of capital, and where this inequality has been amplified by the capabilities of the owners of capital to avoid taxes trough tax havens.Tax heavens 2

But what is the case for tax havens and the policies accompanying them? The main argument legitimatising the existence of tax havens is that the money saved through them will later be used to invest in the rest of the economy, driving growth and in turn benefit us all. This is usually termed the “tricle down” effect, and it is definitely a legitimate assumption of what should be the effects of tax havens. At first glance it might also seem like this is the case, but in reality the policies of tax havens and deregulation have rather led to the opposite, a “trickle up” effect. Analysing the numbers from Oxfam on development and growth of global wealth in the past decade shows us that simultaneous to privatization, deregulation, and the accompanied tax avoidance, the distribution of wealth accumulation have been incredibly unequal. Since 2000 the poorest half of humanity has only received 1% of the global increase in wealth, while the richest 1% has received half of it. And while the world’s 62 richest individuals have seen their wealth increase by 542 billion USD since 2010, the poorest half of humanity has seen their wealth fall by 1 trillion USD. Meanwhile estimates being referred to by Oxfam put the amount of private wealth hold offshore at 7.6 trillion USD. Sure, millions have been lifted out of extreme poverty in the last two decades, but Oxfam points out that if that growth had been more equal an extra 200 million people could have passed the extreme poverty line, or 700 million if the poor had benefited more from growth than the rich. And it is important to note that a majority of those being lifted out of extreme poverty still lives in poverty, not just as extreme. We have experienced amazing growth in the last decade, but a trickle-down effect is all but present. It is also highly questionable if this growth can even be attributed to the simultaneous deregulation and privatization, or the simple logic of economics that growth will take place where it is possible.

If we do not want a world ruled by a few super rich oligarchs we need to do something about global tax havens now. The tax havens allow for the rich to escape from paying their fair share of our common welfare, but most importantly empowers them by shrouding their dealings in mystery. So what exactly can we do about tax avoidance and havens? We, especially the developed world where these tax havens emanate from, should pressure our leaders and legislatures to put an end to tax havens trough regulation, controlling, and if necessary, blacklisting. Tax havens are the result of deliberate decisions, and can therefore be ended by deliberate and conscious struggle. But once again, tax havens are not an isolated phenomenon and they are not the only example of the rich using their resources to empower and enrich themselves even more. Quintessential tax havens are a cause of greed, and they are only one piece in the massive and exploitative jigsaw puzzle that is global capitalism. If putting an end to tax havens is supposed to have any lasting and real effects it needs to be a part of a broader progressive and socialist agenda to take back the power and decision making over our societies and lives from the global jet-class and the neoliberal market-fundamentalist political establishment.

Melker Akerlind is a student at the Fredrika Bremer highschool in Sweden.

Disclaimer: This Post reflects solely the author’s opinion and do not represent the platform as a whole

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