How do tax evasion and tax avoidance create economic and social inequality?

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I am speaking at a conference in the Austrian parliament in Vienna this morning. This is, broadly speaking, what I am going to say (and please note moderation may be slow as a result of this activity):

The fight for tax justice:

How do tax evasion and tax avoidance create economic and social inequality?

Richard Murphy

Professor of Practice in International Political Economy, City, University of London

Vienna, January 30 2017

Tax abuse

  • Tax avoidance is supposedly legal – it exploits loopholes in the law
  • Tax evasion is illegal – it involves straightforward lying to tax authorities
  • Both have the same purpose
  • To free-ride the state and other citizens whilst enjoying the collective goods that they create
  • That’s why both are rightly called tax abuse

How tax abuse happens

  • Tax abuse happens in secret
  • No one wants to be found out to be cheating
  • Large companies hide tax avoidance in their accounts
  • Tax evaders hide their money
  • Both commonly use tax havens

What tax abuse does in companies

  • Encourages tax manipulation for short term gain
  • Encourages cash shifting to tax havens
  • Encourages investment in lobbying for lower tax rates, not investment in jobs, goods and services
  • Reinforces financial speculation as a source of earnings, not making things

What tax abuse does to individuals

  • Encourages them to move money to tax havens, and then it gets stuck there
  • Encourages the creation of trusts and foundations managed by very risk averse accountants and lawyers
  • Concentrates wealth in the hands of a few, even in families
  • Actually prevents inheritance : money stays out of use offshore for generations
  • Creates a culture of wealth preservation not risk taking

What tax abuse does to markets

  • Denies them the information they need to allocate capital efficiently
  • The opacity tax abuse needs increases risk for all market participants
  • Increased risk increases required rate of return for investments
  • That reduces the amount of funding for investment and so market activity

The result?

  • Wealth concentration increases
  • Risk taking reduces
  • The demand is for rents and secure returns so real investment reduces
  • Lower investment means fewer jobs and lower productivity and so lower wages
  • We lose GDP
  • We lose tax revenue
  • We lose business opportunity
  • We cease to generate real wealth from production
  • We live in perpetual economic slump
  • People feel progressively worse off
  • Whilst a tiny minority get ever richer by extracting rents from the rest of us

In summary

  • Capitalism is killing itself from within because of its dedication to tax abuse
  • That’s costing us all our well-being and our chance to fulfil our potentials
  • Left alone our chance to share in the real wealth of this world