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The Huge News You Missed from the G8 Summit


Headline coverage of the recently concluded G8 summit largely missed one of the more promising developments: the world’s biggest economic powers pledged to combat tax dodgers and the culture of hiding wealth offshore and underground, away from the taxman. The Economist has the story:

On June 19th Swiss lawmakers voted down a bill that would have enabled Swiss banks to co-operate with US authorities in their pursuit of American tax dodgers. But automatic exchange of tax information now seems increasingly likely to become the global standard. As the summit opened, ten British dependencies with large financial sectors, including Jersey and the Cayman Islands, agreed to sign a multilateral convention on information-swapping. That was important for David Cameron, the British prime minister, who had been under pressure to show he was bringing Britain’s offshore satellites to heel.

On tax avoidance by multinationals, the leaders endorsed an initiative by the OECD, which will be put to a G20 finance ministers’ meeting next month in which countries such as Brazil, China and India will also take part. The OECD reforms are intended to make it harder for firms to shift profits to low-tax countries. The G8 leaders also called on multinationals to make a full disclosure to the taxman over how much tax they pay in different countries.

The problems of “stateless wealth” and “stateless income” really do need to be addressed. There are two ways to do this, and they both have to be employed to deal effectively with the problem. First, as liberals and statists love to argue, we need to get better and more transparent information on who owns what and to make it harder to hide wealth under shell organizations and similar tax avoidance structures. This will not only bring more income into the tax system, but will also make life a bit harder for drug traffickers, terrorists and other criminals who want to exploit the dark crannies of the global financial system for devious purposes. The second step, which conservatives like and liberals generally don’t, is to reduce the excessive tax levels on both corporations and individuals that create huge incentives to move money around.

The G8, not surprisingly, is much more interested in number one than number two. This is a misguided approach. Unless we do both at the same time, the problem is likely to continue.

[Cayman Islands image courtesy of Shutterstock]

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  • Corlyss

    12 years ago, the US had the lowest corporate and personal income taxes in the OECD. The rest were beating up on the Caymans and the US to “harmonize” their tax systems with the high taxers so capital wouldn’t nestle so comfortably in so-called tax havens. Now, the US has the highest corporate taxes in the organization and we’re the one’s chasing moles to squeeze more money out of the productive. Sad.

    • bpuharic

      A convenient fiction to bring out the violins for the poor, suffering corporations. THey’ve riddled our tax code like Swiss cheese and the EFFECTIVE corporate tax is a standard deviation below the OECD average

  • foobarista

    Ick. We should go to a simple domestic consumption tax and not bother with this game.

  • lukelea

    In the literature of economics a graduated expenditure tax (GET) is widely acknowledged to be the fairest and most efficienct way to raise large amounts of revenue, when measured in terms of the effect of the general welfare of the society as a whole. Unfortunately implementation was impossible before the advent of computers and the world wide web. That’s because a GET requires that every bank and borkerage account in the world be registered to its owners the way IRA accounts are registered today. In fact a GET tax works much like the IRA system except there are no limits on annual contributions and no penalties for early withdrawals. It’s like an income tax except that income not spent but saved is taxed only in the year it is spent.

    There are no national solutions to the problems of taxation, falling wages, and the redistribution of income from labor to capital in the new global economy. All the developed economies face essentially the same set of problems. They have a common interest in ending secret bank accounts, overseas tax havens, and shell corporations. If they worked together they could all implement GET’s, do away with the income and sales tax, capital gains taxes, even the so-called death tax. Treat all income the same. Tax only what is consumed, not what is produced. Penalize people for what they take out of the pot, not what they put in.

    GET for GATT is one way to put it.

  • ljgude

    Well, as long as the rich can hire accountants and lawyers smarter than the government’s things ain’t gonna change. I think reform on the scale proposed by lukelea below is the kind of comprehensive reform needed to

    • bpuharic

      Who needs to buy accountants when, in the US, the rich can buy elections?

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