Author Nicholas Shaxson (Treasure Islands) does not disguise how he feels about the corporate tax haven system. “It is a hugely regressive force,” he says, adding that it takes money and income away from “ordinary people and [gives] it to the wealthiest members of society.”
By some estimates, the United States loses $100 billion every year to foreign tax havens, though Shaxson emphasizes that most people still don’t really grasp the enormity of the problem. When they hear the term “tax havens,” many people envision a handful of billionaires sunning themselves on a remote beach somewhere, martinis in hands. The real problem is actually much larger and closer to home.
There now exists an entire parallel network of business conducted by huge corporations that actually mirrors the behavior of international crime organizations. Over half the world trade is now routed through tax havens. “You have this zone where you have big corporations and criminals rubbing shoulders with each other,” says Shaxson. This system has a double effect, he explains. First, it creates incentives to break the law at a corporate level, but it is also “going to provide huge political cover for the criminals themselves when you get the corporations protecting the tax havens and protecting secrecy.”
And this isn’t just happening on sandy beaches, he explains. “The biggest tax havens are big, rich countries, particularly the United States, the United Kingdom, Switzerland—of course, the Cayman Islands is very big too—but also countries like Ireland and Luxembourg, Luxembourg is absolutely huge. Very few people talk about it when they’re thinking about tax havenry.”
General Electric, which paid no federal income taxes in 2010, even though it raked in $14.2 billion in profits (and another $3.2 billion in tax benefits), is a huge fan of aggressively moving profits offshore to Luxembourg, and also Bermuda and Singapore.
Many people might not realize that the United States itself is a tax haven. Tax havens are basically playgrounds in which the rich and well connected can do whatever they want, and those playgrounds can exist anywhere. “There are all sorts of things that the United States offers; particularly, there are tax exemptions, tax loopholes, that attract a lot of money to the United States,” says Shaxson. “Someone from Latin America can put their money in the US and earn income there tax-free.” The amount of dirty money attracted into the United States has been estimated at $3 trillion.
Several US territories are now engaged in a race to the bottom to see who can provide the most tax loopholes and lowest tax rates to rich people and corporations in order to drum up business and revenue for badly indebted states. Most promise a cloak of secrecy, which is really what big corporations love. They want to know they have the right to operate however they please without meddlesome regulators breathing down their necks. Wyoming, Nevada and Delaware are the leaders in this area, according to Shaxson.
For example, Nevada and Wyoming have no corporate income tax (Delaware charges no income tax on corporations not operating within the state). Zero. If you’re a corporation in Nevada or Wyoming, and an out-of-state corporation looking to do business in Delaware, you get to enjoy all the state-provided services (police protection, public roads to transport your merchandise and employees, etc.) but you don’t have to contribute a penny to the society housing your business.
Tax havens also played a major role in the economic crisis, Shaxson explains. The root of the subprime scandal was Wall Street’s ability to skirt regulations, and corporations were able to do this by partly operating overseas in London (the UK is itself a huge haven) that allowed them to grow offshore at a rapid pace. Meanwhile, the race to chip away at regulations wasn’t only occurring between havens (US and UK) but also between states. The competition resulted in a complete gutting of the regulatory system, and the collapse soon followed.
All the while, corporations bullied and threatened politicians and the public into supporting their dangerous behavior. “You have so often heard ‘Don’t tax us too much. Don’t regulate us too much or we’re going to go off to Switzerland,’” says Shaxson. “This is this kind of competitive threat, and politicians very often give in to these kinds of threats…. This is a competitive race to the bottom with financial deregulation has been a major, major factor in the financial crisis that erupted around 2007, and it’s affected countries all around the world.”
Some of the countries the tax haven scams have damaged are already the most vulnerable societies. In Treasure Islands, Shaxson explains that for every dollar of aid the world spends in developing countries, ten dollars leaves again by the back door.
He’s referencing research done by Global Financial Integrity, a nonprofit research and advocacy organization located in Washington, DC. GFI found that in 2008 the illicit financial flow leaving developing countries reached $1.2 trillion. The donations in foreign aid from all wealthy countries, combined, are $100 billion. This means that the illegal flow of capital from impoverished countries (in which tax havens are a huge factor,) outnumbers the aid coming into these areas by ten to one.
To Shaxson, the tax haven system is about so much more than the specific figures of how much revenue is being lost, though I would argue during a time when poor people are being asked to sacrifice their already meager means, it is also a crucial point. Politicians, including President Obama, have offered only empty rhetoric so far on the issue of tax havens, and while they dally, the two-tier system of taxation, in which poor people pay while lavishly wealthy corporations run off with billions in untaxed profits, continues.
“It is about the degradation of financial regulation,” he says. “It is about the ability of elite, and particularly financial elite, to escape their financial responsibilities to society, and to continue to play this game of heaping the risks on the shoulders of taxpayers, and taking all the rewards for themselves.”