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
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I do hope it goes well. The EU needs strengthening particularly regarding tax given Trump and Brexit. I hope you can still keep up your European activities over the next few years.
It’s gone well today
A while back I attended the 85th birthday party of my mother in law along with my millionaire 3 property owning brother and sister in law who work in the City.
My BiL leaves the country (even though he has lived in a house in London since the late 1990’s) on a regular basis for tax reasons.
They have helped said Guardian reading MiL to put her money in trusts – a considerable amount – to enable her to enjoy the benefits of the cash that she has been given (not earned – given) but let someone else bear the tax responsibility for it.
I sat and listened to my BiL slagging off the state of the country and politely nodded at his points.
I have to say that the hypocrisy of it all rather put me off my food.
All of this was discussed as if it were completely normal and clever.
I have just finished reading Brooke Harrington’s book (Capital Without Borders). towards the end she focuses on how individual actions and decisons drive things forward and there it was right before me.
Money changes people. It really does. It posions them. Just having it and being able to spend it but see no lessening of your wealth as a result seems to be the goal.The way in which some of the guests spoke to the catering staff was awful.
I was glad to go home. I felt that I’d been on the presence of something really dirty. These were all English people, white and upper middle class.
It is all very well thinking that the problem lies only with the tax evasion industry and as Harrington says Government needs to tackle wealth management.
But what do we do with people’s greed – their attitudes? How do we get people to change their views because it all starts there – meeting a need for greed.
Brooke’s book is brilliant
And the denial of responsibility by those with wealth is one of the most unseemly aspects of modern life
Financial greed arises due a failure in the system of money which includes tax. The purpose of money is to facilitate economic exchange, and there should be no incentive to hoard money.
The tax system needs to be designed to reward economic activity rather than rent extraction. We grew up thinking that savings = investment but now savings = mostly asset price inflation. It achieves nothing but still gets a tax break.
Close all the tax havens, tax capital at the same rate as income, crank up fiscal stimulus until inflation hits 4%, then people will have to start putting their money to work or their fictional wealth will halve every 18 years.
A blog tomorrow morning will be on these themes – written Over the North Sea tonight
PSR
If your MiL is somehow using trusts to evade tax you should report her. Since income distributions from a trust would be taxable on your MiL and since income received by the trust is itself taxable on the trust and since there’s the 10 year charge it isn’t immediately obvious what tax advantages there might be. Unless i’ve missed something (Richard?)So they are clearly up to no good. Especially if your BiL works in the city and lives in London and yet is somehow not paying his proper fair share of tax. The UK would have primary taxing rights in such circumstances so he is obviously breaking the law too. Probably his employee too.
You should report them. Maybe a dawn raid would wake your MiL up to her responsibilities
Stevie.
Stevie
I have two children with one of the MiL’s daughters.
There would be a lot of trouble if I did that. It is a close knit family. It would be very strained and children do not need to grow up in an atmosphere like that. There is also some satisfaction that I also get in knowing that I am right about the hypocrisy of it all.
My sister in law who sets up the trusts works for a well-known investment bank so would be well versed in flouting the spirit of the law. If I remember correctly, the IB proactively tells its employees how to do this sort of stuff in staff newsletters and the like. Both in-laws have paid jobs that will of course be taxed as we all are but the income on investments is another issue. Whether this constitutes avoidance or evasion I am not sure.
I have let it be known that I disapprove but then you are confronted by noses going up in the air and a rapid change of subject.
What I find galling however is what my in-laws behaviour tells me about being asset rich and cash poor.
They must be over leveraged in some sense so they manage their tax affairs in order to give them extra cash to deal with their ‘investments’. So the world of debt – a debt based economy – is a threat to the role of tax in society – that is my conclusion. Debt destroys the value of money – including tax revenue.
Employer. Not employee. Darn predictive text.
Given the above, particularly the ‘gains’ remaining out of use, what I don’t get is – Just What is the Point?
It’s a numbers game
My pile is bigger than yours
That’s it
Exactly.
It is as simple as that. And it seems addictive too.