A new study says the U.S. is now the third most secretive country for offshore finances, trailing only Hong Kong and Switzerland. While recent U.S. laws force banks and other firms to disclose assets of American citizens, Washington has been criticized for failing to share that information with other countries. The Tax Justice Network says, quote, “Though the U.S. has been a pioneer in defending itself from foreign secrecy jurisdictions … it provides little information in return to other countries, making it a formidable, harmful and irresponsible secrecy jurisdiction.” A 2012 study on the offshore economy estimated wealthy individuals and their families have between $21 [trillion] and $32 trillion of hidden financial assets around the world in offshore accounts or tax havens. The actual sums could be higher, because the study only dealt with financial wealth deposited in bank and investment accounts, and not other assets such as property and yachts.
Harold Crooks and James Henry talking:
I was approached with the offer to make the film by a well-known Canadian producer, Nathalie Barton, who had been contacted by a Canadian fiscal expert, Brigitte Alepin, who had written a number of books on the imminent collapse of public finances in the Western world, and they asked me if I would be interested in taking on the project.
And after I thought about it a bit, I realized that the issue of taxation is actually a lens through which we understand power—who has it, who doesn’t and whether the average person has a hope in hell of getting ahead in life. And once I had that perspective on it, I was happy to take on the project.
the multinational companies and banks make this point all the time about being legal. You know, that dodges the fact that a lot of this regulatory business when it comes to corporate tax is very complicated, that these companies are intimately involved in influencing the law, and that, essentially, the international corporate tax system has devolved to a situation where it’s a question of whether you can set up the right subsidiaries in Ireland or Luxembourg or Bermuda, shifting billions of dollars offshore to tax havens. And there’s no longer a clear line between tax avoidance and tax evasion.
direct estimate of this is at least $100 billion a year of lost tax revenue to the U.S. Treasury. We also, I think, are undermining the stability and the development of many countries around the world by essentially being one of the world’s largest tax havens. You know, it’s very common for wealthy Mexicans or Argentinians or Brazilians to put their money in New York as opposed to their own countries. And we made it a business not only to solicit this money, but also to conceal it and make sure that it’s tax-free when it gets here.
the significance of the interactions is the culmination of a story with which the film begins. The film begins with the creation of offshore world—and I’ll try to do this very, very quickly. And we need a historical context for this. The British Empire collapses after the Second World War. London, which had been the capital of global finance up to that point, needs to find a new way to maintain its position as the capital of global finance. What it begins to do is transform its colonial dependencies, particularly in the Caribbean and other places, into secrecy jurisdictions or tax havens. That begins in the late ’50s and ’60s.
When we get into the 21st century, the high-tech corporations, the major high-tech corporations of the cloud economy, like Google, you know, like Amazon, etc., etc., have devised ways for gaming the system so that they are able to put their most valuable assets—the patents and intellectual property to their technology—and book them to a tax havens, where nothing is going on, with the result that hundreds of millions—and now, you know, there’s this estimate that over $2 trillion—of untaxed U.S. corporate profit is booked offshore. Well, offshore is really a fiction. It’s a legal and accounting fiction. The money is actually not there. It’s merely on a separate set of books in New York or London or Paris or New Haven.
And the point of all of this, is that the offshoring of the world’s wealth is undermining some of the major social innovations of the 20th century—the middle class, Social Security. These are things that never existed before the First World War. And they’re very, very dependent on a whole interconnected bunch of things—progressive taxation, to start with—all of which is being undermined by this offshore world that is now being gamed to the tune of trillions of dollars.
there’s a global tax justice movement. It recognizes this is a global haven industry that we’re fighting, not just an archipelago of individual havens. And there’s all kinds of tax reform that we need to put on the agenda, going forward. But this is not something that’s going to be made in Washington. It’s going to be something that citizens have to get involved in.
Occupy contributed to awareness, but I think, you know, we’ve got to make the focus on tax, because otherwise we have, essentially, these people are becoming citizens of nowhere, for tax purposes, and they have extraordinary representation without taxation.
Harold Crooks talking:
I actually interviewed Piketty one year before he was maybe the most noted and famous economists on the planet. And the reason I went to Paris to interview him was that at that time, within a much smaller circle of academics and policy people, what he was best known for was his study of income inequality in the United States.
And what he discovers, and what he—we illustrate in the film as he talks about it, is this curve that goes from 1913 to the present. And what we see in that curve is the decline of income inequality from the First World War up until the Thatcher-Reagan era, the Thatcher-Reagan counterrevolution against the social welfare state—in the States called, you know, the New Deal and all that sort of thing—and then its acceleration from that period up to the present, so that we return to levels of income and wealth inequality that are equivalent to what was in place at the beginning of the First—around 1913, before the First World War.
[what about before those time? 19th century, 18th centuary, 17th centuery? Nobody knows about these time and critizism? Its shame that he used the same name of an old book.]
Now, what’s critical about that is, progressive taxation, for reasons we don’t have time to go into now, but was actually invented during the First World War—ideas about equality of sacrifice and conscription of wealth. And that was the platform—and the spread of progressive taxation throughout the 20th century, up through the Second World War, was the platform or underpinning of the development of a middle class and a prosperous working class.
The offshoring of the world’s wealth totally blows a hole in that. And so, even as we have politicians—President Obama himself, a half a year or so ago, described income inequality as the defining issue of our age. And politicians claim that they’re committed to doing something about it. But they do not admit the extent to which they do not have the tools to do anything about it. And that is because of the hole that the offshoring—the unregulated global space in which money is allowed to operate that has blown a hole in what I call the major social innovations of the 20th century: the middle class and Social Security.
James Henry talking:
This is contagious, that if the elite and the largest companies on the planet can get away with moving their wealth and assets offshore to jurisdictions, you know, where they’re not paying tax, then ordinary citizens are going to begin to increase their noncompliance with tax code. And we’ve seen that since the 1970s. The United States was probably the pioneer in progressive taxation—on income tax 1913. You know, for years and decades, we had a very progressive income tax, wealth tax. But this is partly—this inequality has been man-made, person-made. It’s been increasing since the Reagan era. And we’ve also seen an explosion in the haven industry since that very period. So it isn’t high taxes that are driving people to havens. It is the havens that are driving progressivity down.
Harold Crooks talking:
the United States, from the First World War up until the advent of the Reagan era, had very, very high levels of marginal tax on individuals and significant taxes on corporations. But with this space that’s been created, this offshore space, corporations and lobbyists and their allies in the major accounting firms have been able to undermine that by moving—by moving amounts of wealth almost beyond measure.
James Henry talking:
the notion that this is “offshore” is a fiction, in a sense. The key havens here for financial assets are actually onshore. It’s Switzerland, the United States, the U.K. and its spiderweb. And so, there’s very little money sitting in the Cayman Islands compared to what’s invested in first-tier financial markets. The developing countries are actually net creditors of the First World when you add up all the assets that are offshore.
in the 1970s and ’80s when there was a developing world debt crisis. And our biggest banks were big lenders to Mexico and Brazil and Argentina. They also set up, at the same time, under-the-cover private banking operations to take money out of these countries. So they were building these huge mechanisms for protecting the wealth of the elite of the developing world. So it was an involvement, I think, of the United States in that whole system that goes back at least as far as the 1950s. But, you know, there’s really three camps here that have been playing a lead role. It’s the U.K., the United States—Switzerland is another huge player, especially in kleptocracy. And this has to be viewed really as a global industry that we’re up against. It’s not just an archipelago of individual havens. It’s a network, and a seamless network.
Harold Crooks talking:
corporate income tax itself remains a very politically problematic issue, because multinational corporations today, as someone says in the film, surround the nation-state the way the Roman Legion surrounded Asterix the Gaul’s village in the comic book, it’s very, very difficult to mobilize ordinary people around corporate income tax issues. But it is—what we’re finding is, organizing people around the issue of financial transaction taxes, which then become Robin Hood taxes, which have all sorts of positive societal uses, is something that really has legs. And there’s a tremendous amount of activism, not only in the United States, but around the world.
And what is critical about what Sam has introduced here is that it’s understood that in the 21st century, to restore—to reconstruct a system of progressive taxation, which is necessary for the restoration of an equitable society, we have to find new ways—new forms of taxing and taxes on wealth, tax on finance. And so, the financial transaction tax, or, as other people know it, the Robin Hood tax, is a very, very important issue for ordinary people to be thinking about and organizing around. And so, that’s why it’s in the film.
[please dont say Robin Hood tax, it is WallStreet SALE’S TAX. Call it like that.]
James Henry talking:
there’s tremendous money on the wrong side of this issue. We just saw two weeks Carl Icahn threaten to set up a $150 million fund to influence Congress. On corporate taxes, to reduce them further, to eliminate the corporate income tax almost completely. So, what’s going on here is that, you know, this is a global problem. The Sam Holloways of the world are coming out of the woodwork to stand up and say, “This is enough.”
The Robin Hood tax, in a nutshell, would be a very tiny percentage of every currency purchase, of every stock transaction. It would be almost unnoticeable to the retail investor, like 0.0125 percent that would be collected every time there’s a trade. What we’ve seen is an explosion of trading and speculative trading in the last decade. You know, there’s now darknets that control 85 percent of all stock transactions. These are controlled by the top six banks. So the financial transactions tax was originally proposed by James Tobin of Yale, and actually Keynes back in the ’30s, in order to slow down this kind of fast capitalism that’s just pure speculation.
Darknets are the—that’s the place most stock transactions and most bond transactions are taking place right now. You don’t see them. They’re not retail stock exchanges like the New York Stock Exchange. They’re off the radar. And the SEC and the CFTC, these are regulatory agencies that are trying to get a hold of this activity. But these have grown up in the last five years. It’s basically submerged all of the most important trading activity that’s going on in the world economy, something like $60 trillion a day in derivatives that’s not visible. But the tax idea is that enormous revenue is at stake. But we could also slow down some of the speculative activity, that’s completely nonproductive.
British Labour MP Margaret Hodge says to the vice president of Google—”We’re not accusing you of being illegal. We’re accusing you of being immoral”
Harold Crooks talking:
historically economics and the teaching of economics was rooted in moral philosophy. What is an economy for? You know, who is it to serve? And we have to—we have to come back to addressing that issue. And the inequality issue is going to force us to do it. And as Jim says in the film, reverse-engineering the kinds of taxation and the forms of taxation that are appropriate for the 21st century are technical issues. We can find Jim and a lot of other people—David Cay Johnston, who is a frequent guest on your show, is looking into forms of progressive taxation for the 21st century. But the political will has to be there. And political will is ultimately a—you know, comes out of moral and ethical considerations. So, you know, that is where we’re left.
Jaron Lanier talking:
Kodak had hundreds of thousands of employees—really good, solid, middle-class jobs. Kodak and Polaroid both went bankrupt. The new world of photography is Instagram, which had 13 employees and sold for a billion dollars to Facebook. Facebook is a giant public company controlled by one person. So what we’re seeing is the use of digital networks to create intense, unbelievable, unprecedented concentrations of wealth within the market system, which is no longer the market system at all.
James Henry talking:
I think in addition to inequality, the world community faces unprecedented collective costs. We have climate change, at least $100 billion a year that’s going to have to go to countries that are most affected by that. We have huge security problems all over the planet. We have the newly announced Sustainable Development Goals for fighting poverty. These are very costly collective expenditures. If we’re going to allow the richest people on the planet and their companies to basically offshore all their wealth and not pay taxes, then the costs of those collective expenditures are going to fall on the middle class and the poor. You know, historically, the progressive income tax really arose to pay for war efforts that we didn’t want to just put on the backs of the poor. I mean, everybody was funding World War II, World War I, as, you know, legitimate defenses against fascism or against imperialism. This, I think we’re in a period where we have mounting global costs and global problems, and we have to fund those through the tax system. We’ve tried other ways of funding, through debt and through inflation. Those don’t work. We need the tax system to become progressive again.
Harold Crooks talking:
we’re definitely going back to that time. And it’s in the data of many economists, who says we’re going back to pre-First World War era’s levels of inequality. And I would just like to echo or reiterate I think the most profound point that Jim just made. Progressive taxation came into existence when the nations of the Western world were facing a huge crisis. And the crisis was the First World War, that was shaking societies to the roots. The young were going off to be slaughtered. And the rich and wealthy were asked to sacrifice equally on the home front. And I think—and the point that Jim was making: What are the equivalent challenges of the 21st century which we face as a global—as a global civilization? And we know what they are. They’re climate change, species extinction, inequality—and the list goes on and on. And I see the tax justice movement as responding to the crises of the 21st century by trying to bring about the restoration of progressive taxation throughout our societies and beyond, because, as Jim said, there is no other way, really, practically speaking, of confronting these multitude of crises.
[we are already back in time. inequality is greater than Roman empire.]
James Henry talking:
some of the world’s smaller countries have taken—seized the opportunity to try to become tax havens, and Ireland is one of them that’s been playing this game. But what they realized was, this actually got them into a lot of trouble, because kind of a finance curse in addition to being a resource curse. So if you look around the world today, Ireland is still recovering from the depths of the 2008 financial crisis. Ireland, you know, is basically now recognizing that it was a mistake to attract all this funny money and that it’s no substitute for a real strategy.
Another key player here is China. In the last—in 2014, there was more than $350 billion of capital flight from China going to these havens, going to the United States, Australia, other property markets. In August alone, $200 billion flew out of China. So they’re beginning to recognize that this world system of offshoring of wealth and allowing just unfettered discretion to multinational companies and investors is, you know, a system that we can’t afford. It’s outrageous, actually, for the poorest people on the planet to have to put up with the costs of climate change and development and security, and seeing the rich sort of wander off and enjoy a lifestyle on an unprecedented level.
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Harold Crooks
director of the new documentary, The Price We Pay.
James Henry
economist, lawyer, and senior adviser with the Tax Justice Network. He is former chief economist at McKinsey & Company. He’s interviewed in the documentary, The Price We Pay.
— source democracynow.org