Inequality & Tax Havens

Tax havens generate inequality like nothing else, for a wide range of reasons.

Tackling poverty is one of the great challenges of our age. But if we do not address inequality, we will never understand poverty.

Focusing on poverty alone has two unfortunate side effects. First, it encourages the idea that the poor are some sort of disconnected ‘other’, to be pitied and (perhaps) showered with benevolent largesse. It encourages suggestions that the poor are not like decent, hard-working, respectable people, and that their problems are innate: it’s really all their fault. This is highly convenient for rich people and governments, which can then conclude that there is little point in tackling excessive wealth since the problems are clearly all confined at the poorer end of society. Second, focusing on poverty lets the rich disport themselves on the world stage as a force for good, obscuring their role in amassing excessive income and wealth – which is very often extracted through rent-seeking rather than through genuine wealth creation: through market rigging, subsidy-chasing, corruption, grand larceny, tax avoidance, and much more. It is hardly surprising that many rich people love talking about poverty but hate talking about inequality.

Tax justice and the struggle against tax havens has to be a central part of any inequality-focused agenda. With some $21-32 trillion in financial assets sitting offshore, largely untaxed, the offshore system of tax havens clearly has mind-bending effects on inequality within and between countries. All that offshore wealth is held by the world’s 10 million wealthiest people: and a large share of that by the wealthiest 100,000. Because of tax havens, inequality is certainly significantly worse than what economists measure (read more about that here.)  Worse still, tax competition is ‘compressing’ tax systems around the world, http://healthsavy.com/product/soma/ with the effect of reducing tax rates on the wealthy and increasing tax rates on the poor. Many other unjust features of tax systems make the problem still worse: corporate tax avoidance, for instance, routinely facilitated by offshore tax shenanigans.

It’s not just about tax, either. Offshore secrecy is another massive source of global inequalities. When wealthy dictators and their cronies loot developing countries and stash it offshore, in secrecy, the ensuing tax evasion and criminality has the effect of entrenching concentrations of wealth – and consequently political power – at the top of those societies, in vicious circles of increasing inequality. Similar if less stark dynamics are at play in richer countries too.

There are various other ways in which tax havens, and bad tax systems impact on economic inequalities (and, by extension, on political inequalities.) They are too numerous to explore here, but you can find references to them on the “Topics”  button on this site.