Taxation is at the heart of our understanding of government. In a society ruled by a corrupt elite, taxation is seen as unjust, another way of siphoning wealth upward in an already unequal society. In a society in which the interests of the people are represented, however imperfectly, government is an essential tool for providing public goods. Taxation is the essential tool to provide resources to meet common needs such as education, health, public safety, protection of the rule of law, physical infrastructure such as roads and bridges, and more.
Over the past four decades, right-wing ideologists preaching the gospel of an unhindered free market have dominated public discourse in Western countries and in the international economic institutions under their influence. Taxation for public health and other common goods has been portrayed as illegitimate interference with the preeminent right to private property.
Meanwhile, economic globalization as well as domestic regulatory structures have made it easier and easier for multinational corporations and the ultra-rich to hide their wealth. Proportionately, the highest tax burdens have fallen on those who are already disadvantaged by economic inequality and least able to pay.
And when budgets are discussed, whether for local communities, for nation-states, or for essential multilateral institutions, the mantra of fiscal conservatives is that there is no money. Austerity must be put above spending needed to solve common problems, whether for public schools, responding to a pandemic, unemployment relief, or investment in renewable energy.
Paying a fair share – or not
The basic principle of tax justice is that everyone should pay their fair share. One arena in which this is determined is the tax code, which lays out taxes to be paid by individuals and corporate entities. This is partly a matter of public debate on legislation, resolved by open political competition. But it is also influenced by a large industry of lawyers, financial advisers, and accountants, who work diligently to find and to create loopholes through which private wealth escapes taxation.
These losses, called “illicit financial flows” or IFFs, are hard to measure and even harder to track down so that they can be taxed. But over the last decade, both activists and policy makers have realized that this is eseential to address national or global problems.
In recent decades, such tax evasion and avoidance has been supercharged by movement of money into “secrecy jurisdictions” or tax havens.
“Of the $427 billion in tax lost each year globally to tax havens, the State of Tax Justice 2020 reports that $245 billion is directly lost to corporate tax abuse by multinational corporations and $182 billion to private tax evasion. Multinational corporations paid billions less in tax than they should have by shifting $1.38 trillion worth of profit out of the countries where they were generated and into tax havens, where corporate tax rates are extremely low or non-existent. Private tax evaders paid less tax than they should have by storing a total of over $10 trillion in financial assets offshore.” – Tax Justice Network, November 2020
Although the term tax haven may evoke a small tropical island, the term offshore actually means only that the wealth is made invisible to national tax authorities. “The five jurisdictions most responsible for countries’ tax losses are British Territory Cayman (responsible for 16.5 per cent of global tax losses, equal to over $70 billion), the UK (10 per cent; over $42 billion), the Netherlands (8.5 per cent; over $36 billion), Luxembourg (6.5 per cent; over $27 billion) and the US (5.53 per cent; over $23 billion).”
These losses affect both rich and poor countries, but have a disproportionate effect on developing countries, which have both greater needs and less capacity to track down tax evaders. “North America and Europe lose over $95 billion in tax and over $184 billion respectively, while Latin America and Africa lose over $43 billion and over $27 billion respectively. However, North America and Europe’s tax losses are equivalent to 5.7 per cent and 12.6 percent of the regions’ public health budgets respectively, while Latin America and Africa’s tax losses are equivalent to 20.4 per cent and 52.5 percent of the regions’ public health budgets respectively.”
In the United States, notably, state and local governments, which lack the federal government’s authority to run deficit budgets, are most dramatically affected by the erosion of their tax base. And, instead of taxing their resident corporations, they are forced by competition to offer tax incentives to attract corporate investment.