I'm amused to read a typical right wing response to Tax Justice's new report - The Price of Offshore Revisited, which suggests that as much as $32 trillion of wealth may be located in tax havens - is to suggest that the problem could be solved by cutting the rate of tax on the wealthy.
Let's just think through the logic of that for a moment. What Eric Jackson, who suggested this in Forbes, is in effect saying is that the best way to reward those who have in very many cases broken the law by hiding their wealth offshore so as to undermine the state to which they do not wish to contribute is to undermine the state in its own backyard instead. We should next be expecting them to suggest that the best way to beat burglars is to ban locks. The logic would be identical.
There is, of course, a much better logic, akin to reinforcing the locks. That requires three things. The first is to demand automatic information exchange from all tax havens - so they have to disclose which people from another state have interests in bank accounts, companies, trusts and foundations in those places. That would immediately make hiding cash there near impossible.
Second, offshore wealth hidden in tax haven trusts and companies has all to be attributed to the person who put it there - including to their estates if they've since died. It doesn't matter if they don't get the income from offshore. That would be their choice after all. They should be taxed on it in their home state anyway. And it should be subject to a penal tax rate. And if there is no income a deemed rate of return on asset value should be applied instead and that should then be taxed instead.
Third, those who do not cooperate should be subject to onshore asset forfeiture. And their right to use domestic courts to enforce their claims on offshore wealth should also be denied to them.
Yes, these proposals are penal. They are meant to be. Society has to expect its leaders to comply with the law. And if they don't examples have to be made of them. That's why penal policies are justified.
But there's another good reason for this. Do this and domestic tax rates will suddenly look very attractive indeed. As they are already for the very wealthiest. They just have to realise it. And they may need a little help from policies like these to appreciate that. And we need to supply these lessons because without such incentives to come onshore the 0% of offshore abuse will always be more attractive than an onshore positive rate of tax - as all who suggest policies of the sort Mr Jackson has proposed know all too well. Which is why we have to see his proposal for what it really is - which is just another attack on the state, and not a serious tax proposal at all.
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Item #1 (automatic exchange) is both a non-starter and a bad policy.
To start with, many locations referred to as tax havens will simply refuse and there is very little that can done about it, as demonstrated by the European Commission’s increasingly desperate efforts to impose this standard on Luxembourg, Austria and some non-EU states led by Switzerland. Not even the United States are asking for automatic exchange, but only for exchange on (group) request.
It is a bad policy, because tax authorities need an avalanche of data about as badly as they need a bullet in the head. What tax authorities need is revenues. The best way to generate these revenues is to apply a withholding tax at the source, at a rate negotiated with the so-called tax haven.
Of course they can refuse
But we must then withold tax from all payments into their economies
Should solve the problem
As for the data – it’s mere existence will give 90% + compliance. That will beat the current 50%
So as ever -you’re just wrong
Richard this appeared in our paper, The Australian, yesterday( Heavy-handed tax office needs cultural change http://www.theaustralian.com.au/business/opinion/heavy-handed-tax-office-needs-cultural-change/story-e6frg9if-1226435172729 ). It was written by Tony Smith, spokesman on tax reform for the Coalition (Cousins of the Tories in the pacific). These are the salient passages from his piece:
“Of course, taxes are the price we pay for civilisation. A taxless world would degenerate into the state of anarchy described Thomas Hobbes …Yet for a tax system to be constructive, it must be fair, stable, efficient and predictable. And it must be remembered that governments generate no wealth, and thus have no money of their own….An optimal taxation system will achieve a balance between the requirement to collect sufficient revenue for legitimate governance and the need to preserve the private-sector golden goose that is the ultimate source of our prosperity…an incoming Abbott government will adopt a conscious strategy of driving a cultural metamorphosis within the ATO. Treasury spokesman Joe Hockey has announced a plan to appoint four additional second commissioners. These positions would be part-time roles filled by individuals who have experience from the real world of business. And they will assist the ATO in comprehending the needs of the private sector far better than now is the case. This is the first instalment in a suite of policies designed to ensure that the legitimate collection of taxes serves not to stifle prosperity but enhance it.” This is the govt we have to look forward to in about a year’s time – a mirror image of the Tories in the U.K.. No prizes for guessing how the Liberal-NP coalition will reform our tax system.