Calling for New Global Rules, Economists Decry Financially Useless Tax Havens

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Calling for New Global Rules, Economists Decry Financially Useless Tax Havens

'The abuses are not only shocking, but staring us directly in the face'

Londoners protest against UK Prime Minister David Cameron after it was revealed that he had a stake in his father's offshore trust. (Photo: The Weekly Bull/flickr/cc)

Hundreds of top economists on Monday released a letter stating that tax havens hurt the global poor and have no economic justification, urging world leaders to abolish offshore secrecy.

"The existence of tax havens does not add to overall global wealth or well-being; they serve no useful economic purpose," the letter reads. "Whilst these jurisdictions undoubtedly benefit some rich individuals and multinational corporations, this benefit is at the expense of others, and they therefore serve to increase inequality."

Winnie Byanyima, executive director of Oxfam International, which helped organize the letter, warned that "millions of the world's poorest people will continue to be the biggest victims of tax dodging until governments act together to tackle tax havens."

The letter—signed by Capital in the Twenty-First Century author Thomas Piketty, economics Nobel Prize-winner Angus Dean, and Nora Lustig, professor of Latin American Economics at Tulane University, among others—comes just ahead of an anti-corruption summit set to begin this week in London, where UK Prime Minister David Cameron remains under public scrutiny for his own connection to offshore banking activities exposed in the Panama Papers leak last month.

The economists are demanding governments agree to new global rules that would require companies to publicly report taxable activities in every country where they operate.

"Tax havens do not just happen.....These havens are the deliberate choice of major governments, especially the United Kingdom and the United States, in partnership with major financial, accounting, and legal institutions that move the money," said Jeff Sachs, another signatory and director of Columbia University's Earth Institute.

The letter continues: "The secrecy provided by tax havens fuels corruption and undermines countries' abilities to collect their fair share of taxes. While all countries are hit by tax dodging, poor countries are proportionately the biggest losers, missing out on at least $170 billion of taxes annually as a result."

In fact, a new analysis by Columbia University professor James Henry for the advocacy group Tax Justice Network, also released Monday, finds that offshore havens have "siphoned" more than $12 trillion from emerging economies, such as Russia and China.

The Guardian sums up the report's findings:

Oil-rich countries including Nigeria and Angola feature as key sources of offshore funds, the research finds, as do Brazil and Argentina. Henry said the owners of this hidden capital were often so keen to secure secrecy and avoid their wealth being appropriated back home, that they were willing to accept paltry financial returns rather than investing it in ways that might promote economic development. Charging just 1% tax on this mountain of offshore wealth would yield more than $120bn a year, almost equivalent to the entire $131bn global aid budget.

Henry similarly concluded that it is up to wealthy nations to reform their tax avoidance loopholes. In light of the upcoming London summit, he told ABC News that there is a "laundry list" of things Cameron can do, "starting with the beneficial ownership registration of companies and trusts, getting rid of the financial secrecy that pertains to them, and having stiffer penalties for all the so-called enablers who are facilitating this."

Cameron recently escaped a parliamentary investigation after admitting he had a personal stake in his father's offshore trust, which he sold before taking office in 2010. The Panama Papers revealed that Ian Cameron's trust, Blairmore Holdings, had avoided paying UK taxes for more than 30 years.

A comprehensive, searchable Panama Papers database will go live on Monday.

"The abuses are not only shocking, but staring us directly in the face," Sachs continued. "We didn't need the Panama Papers to know that global tax corruption through the havens is rampant, but we can say that this abusive global system needs to be brought to a rapid end. That is what is meant by good governance under the global commitment to sustainable development."

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