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PORTSIDE  November 2011, Week 1

PORTSIDE November 2011, Week 1

Subject:

Tax Havens Cost the Middle Class Untold Billions

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Date:

Tue, 1 Nov 2011 21:16:14 -0400

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Tax Havens Cost the Middle Class Untold Billions 

Posted by Kenneth Thomas at 2:57 AM
Middle Class Political Economist
Tuesday, November 1, 2011

http://middleclasspoliticaleconomist.blogspot.com/2011/11/tax-havens-cost-middle-class-untold.html

As I argued yesterday, when taxes are reduced for one group,
government must raise taxes on someone else, run bigger
deficits, or cut programs. Tax havens, jurisdictions with
strong secrecy provisions and low or zero tax rates, are one
way that rich individuals and corporations reduce their tax
payments, both legally and illegally. A recent book by Ronen
Palan, Richard Murphy, and Christian Chavagneux summarizes
the latest work on tax havens and contends that they form a
central part of the global economy. Tax Havens: How
Globalization Really Works presents data that 30% of
multinational corporations' foreign direct investment passes
through tax havens like Bermuda, Ireland, or Luxembourg,
overwhelmingly for tax purposes. Tax havens, then, are far
more central to the global economy than we generally suppose.

How much does this cost average taxpayers? In a separate
report, Murphy calculated that wealthy individuals have
roughly $11.5 trillion in tax havens, which at a 7.5% rate of
return would generate $860 billion in income each year. If,
on average, these people faced a 30% marginal tax, that would
come to $255 billion annually that the rich avoid in taxes.
Needless to say, this is a best guess, since the value of
these assets is not disclosed publicly. See his report for
more details on how he generated those figures.

That's just individuals. The situation with corporations is
murkier still. While corporations set up subsidiaries in tax
havens for the obvious purpose of reducing their tax, Palan
et al. say there is no solid estimate of the overall cost of
these activities. The Government Accountability Office
reported in 2008 that of the largest 100 U.S. companies, 86
had subsidiaries abroad, and 83 of these had subsidiaries in
tax havens. Bank of America had 115 subsidiaries in tax
havens, including 59 in the Cayman Islands. Citigroup had a
whopping 427 tax haven subsidiaries, including 91 in
Luxembourg and 90 in the Cayman Islands. Goldman Sachs only
had 29, 15 in the Cayman Islands.

I mention the Cayman Islands because President Obama has long
been a critic of tax havens, saying during the 2008 campaign
of Ugland House in the Cayman Islands, "Either this is the
largest building in the world or the largest tax scam in the
world. And I think the American people know which it is."
Palan et al. report that the Caymans are the sixth largest
financial center in the world, with $1.9 trillion in assets
in December 2007. However, since taking office, the President
has not succeeded in passing a version of the Stop Tax Haven
Abuse Act, which in its original form he co-sponsored with
Carl Levin, Norm Coleman, Ken Salazar and Sheldon Whitehouse.

Tax havens could not exist without the financial services
industry, which provides the tax lawyers, accountants, and
other professionals who make it possible for the rich and
corporations to reduce their taxes. Collectively, they and
their clients are the 1%. Occupy Wall Street has highlighted
the abuses benefiting them, and tax havens are most
definitely part of their pattern of abuse. Tax havens have
proved amazingly resilient, however, and it will take
sustained political pressure to shut them down. 

___________________________________________

Portside aims to provide material of interest to people
on the left that will help them to interpret the world
and to change it.

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