Michael Galant: It’s time to shut down tax havens

“Freeports” — special locations where the world’s richest can hoard their valuables tax free — are increasingly common.

By Michael Galant

Tribune News Service

For many Americans, February is tax time — or at least the time they are reminded of their need to pay taxes, now that the forms are all in. That means millions of people are starting to sift through piles of paper hoping they won’t owe more than they can afford.

Meanwhile, for a certain segment of the population, this concern is greatly lessened by the strategic use of tax havens.

“Freeports” — special locations where the world’s richest can hoard their valuables tax free — are increasingly common. These include a high-security warehouse in Switzerland’s capital city of Geneva that brims with the treasure of the global elite: gold, jewelry, diamonds, the finest French wines, priceless historical artifacts, and irreplaceable renaissance paintings (many stolen).

But freeports are just one manifestation of a larger shadow financial system built for the few on the backs of the many. Other tax havens are jurisdictions where tax rates are low and financial systems opaque. These include such well-known havens as Switzerland and the Cayman Islands, but also others closer to home, in Delaware, Nevada and Wyoming.

Corporations and the 1 percent exploit these havens, using legal loopholes and accounting sleight-of-hand to avoid paying their fair share.

Gabriel Zucman, a University of California economics professor, estimated in 2017 that the United States loses close to $70 billion annually in corporate tax revenue due to tax havens, an amount equal to nearly 20 percent of the total corporate tax revenue collected each year.

Each dollar lost is a dollar that can’t be spent on health care, education, or combating climate change. While teachers must strike for livable wages and politicians claim we just don’t have the money for single-payer health care, these billions are not being collected from those most able to pay.

Much of this money finds its way into the political process. In less than two years, seven-hedge fund leaders, all regular tax haven users, gave more $60 million in political contributions, according to the Center for Responsive Politics.

Apple, the tax avoidance poster child, publicly refused to repatriate its haven-held funds until the corporate tax rate was cut. With the Trump administration’s signature tax plan, the company got its wish, allowing it to bring back $252 billion in cash that it held abroad.

Wielding the threat of tax avoidance, corporations force governments into a destructive competition over who can offer the lowest tax rates — a global race to the bottom.

Tax havens also make it harder to hold the wealthy accountable. While attending Harvard as a grad student, I learned from an investigative report by The Intercept that the university was invested in a hedge fund holding nearly $1 billion in Puerto Rican debt, which had been kept hidden through tax havens.

The harm is not limited to America. According to Zucman, the ultrawealthy hold $8.7 trillion, almost 11.5 percent of total world GDP, in tax havens. Every year, developing countries lose to illicit financial flows more than ten times what they receive in foreign aid.

It doesn’t have to be this way.

Beneficial ownership laws, like the one recently passed in the United Kingdom, require corporations to stop hiding behind accounting trickery and make their ownership public. Country-by-country reporting requires transnational corporations to declare where their profits are made (and where they should be taxed). Automatic information exchange agreements obligate countries to share financial information so that profits can’t be secretively shifted. And a World Financial Registry would systematize this information sharing, rendering tax evasion next to impossible.

Ending tax havens won’t bring about a political system free of corporate influence. But it’s a necessary step.

Michael Galant is a graduate of the master of public policy program at the Harvard Kennedy School of Government.