The hidden wealth of nations by Gabriel Zucman lays a great foundation for understanding the origins of tax havens and profit shifting, what drives them, and a possible solution.
I’ve talked a bit about what makes it possible, and the coverage of the Panama Papers has addressed the second point, but we still need more discussion about a solution. And Zucman’s is interesting.
Zucman’s plan comes in two parts – the creation of a global register of financial instruments, and a tax levied on the lot. The combination of the two would negate the benefit of profit shifting – the tax is global, and of secrecy – in order to claim deductions or benefit from lower local taxes you would need to file a return.
“imagine a global tax of 0.1% on the stock of wealth withheld at the source. This means that each year tax authorities, drawing on the information in the register, would deduct 0.1% of the value of all financial securities, bank accounts, and so on.”
“In order to recover what has been taken from them, US taxpayers, for example, would have only one solution: declare their holdings on their IRS tax returns. Subject to this declaration, they would receive a credit for any taxes that remain due—or see themselves reimbursed if they owe no taxes at all.”
It is the combination of these two ideas, really, that is the breakthrough. A global financial register alone won’t achieve much – we will have a comprehensive list of “owners” of financial instruments, but much of it will remain opaque as shell corporations and tax havens muddy the waters. By leveraging a tax, even if net revenue is zero, we gain. We force opacity.
“Without a wealth tax, there is a risk that even a global register might fail to identify who exactly owns what. Despite anti-laundering legislation that requires financial institutions to know who the owners of the wealth that they have in their accounts truly are, a not negligible portion of the securities could continue to be recorded in a register as belonging to trusts without a well-identified owner.”
It’s throughout this explanation of the solution, that you really see the hole in the plan. Zucman is constantly at pain to justify himself, that his ideas aren’t utopian – in fact, they are all currently in play on a smaller scale. Constantly referenced, the word utopia makes its presence uncomfortable.
What’s stopping us tackling tax evasion isn’t a lack of ideas – even if you don’t appreciate Zucman’s. It isn’t even sovereignty, as something like Zucman’s tax allows for states to set and differ in their policies. It’s that the people in power, many of whom benefit from the status quo, need to be convinced to do something. That’s the utopia.