Gwynne Dyer: Enslaved by taxes? Not necessarily

One of the best tax-avoidance tactics in the late Roman Empire was to sell yourself into slavery. You didn’t really have to work as somebody’s slave, of course—it was more like rock star Hotblack Desiato being “dead for a year for tax reasons” in Douglas Adams’s wondrous confection The Hitch-Hiker’s Guide to the Galaxy—but with the legal status of slave, you were exempt from taxation.

Nowadays the legal manipulations used to avoid taxation are less dramatic, but they are spectacularly effective. James Henry, former chief economist at business consultancy McKinsey and a member of the board of directors of Tax Justice Network, has just published a report, “The Price of Offshore Revisited”, that estimates the amount of wealth hidden in tax havens by the super-rich at a minimum of $21 trillion: i.e. $21,000,000,000,000.

It might be as much as $32 trillion, he adds, but greater precision is impossible when the whole point of holding money overseas is to keep it secret. Henry came up with this range of numbers by sifting through data from the Bank for International Settlements, the International Monetary Fund, the World Bank, and private sector analysts—and it does not even include yachts, mansions, art works and other forms of wealth held overseas.

It doesn’t matter. The point is that it’s a very large amount of money: equal to the annual Gross Domestic Product of both the United States and Japan. Some of it is the laundered proceeds of crime, and much of it is money stolen from national budgets by corrupt national elites (an estimated $306 billion from Nigeria, $798 billion from Russia, $1,189 billion from China), but most is deposited by the respectable super-rich of the West.

Henry’s report, published in The Observer last weekend, calculates that almost half of the minimum estimate of $21 trillion is owned by just 92,000 people, some of whom pay no tax at all. A number of very small places (Liechtenstein, Cayman Islands, Jersey) and a few larger countries like Switzerland make a good living by providing these secret tax shelters, and work very hard to protect their clients from exposure.

Back home, the “high net-worth individuals” also enjoy the services of “a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting, and investment industries,” said Henry. We always sort of knew about it; now we know the scale.

Information of this sort is dangerous. It annoys those who merely work for a salary or an hourly wage, and whose taxes have to fill the gap created by the defection of the super-rich. It might even destabilise the established social order. But the British government, at least, knows how to deal with that sort of thing.

Less than 48 hours after Henry’s revelations, British politician David Gauke, one of the Treasury ministers, went public with the assertion that the lower orders cheat on their taxes just as much as the rich. “Getting a discount with your plumber by paying cash in hand is something that is a big cost to the revenue and means others must pay more in tax,” he said.

Well, yes. Paying cash to a tradesman to get a discount (knowing that he will then not report this income to the tax authorities) is something that many people reading this article will have done. It is tax avoidance—and since there are a great many more of us than there are of the super-rich, these little private deals do add up to a serious loss of tax revenue. Let him who always insists on a receipt cast the first stone.

David Gauke was almost philosophical about it. “Tax avoidance is not a recent problem,” he said. “In the fourth century AD, the Roman Emperor Valens had to make it illegal for individuals to sell themselves into slavery to avoid tax. And while this particular ruse seems to have fallen out of fashion, there will always be some who seek to shirk their civic duty.”

But it’s clear enough to ordinary people that ultra-rich people who avoid taxes on vast sums of money by employing expensive experts to hide their wealth overseas fall into a different category from the electrician who wants to be paid in cash. And hard-pressed governments, desperate for more revenue, are beginning to go after the tax havens.

Britain has made a deal with the Swiss authorities in which UK residents with undeclared assets in Swiss banks can make a one-off payment to the British Treasury of between 21 and 41 percent on their total assets, clear the slate, and remain anonymous. The Swiss will then levy a withholding tax of 27 to 48 percent on future money going into those accounts, which will also go to Britain.

Germany has negotiated a similar deal, although it is still awaiting ratification by the Bundestag (parliament). The US government has taken a different tack, demanding that Swiss banks hand over information on thousands of undeclared accounts held by American citizens. The heat is definitely on, and yet....

Yet while all this was going on, the amount of wealth that is managed by the top-10 private banks, most of it held overseas in secret accounts, has more than doubled in the past five years.

Comments (11) Add New Comment
jonny .
Paying a tradesman cash is not breaking the law. It is the tradesman who breaks the law if they dont report the income. I always require a receipt, and I suspect they dont report their income, but I cant make them do it. And they all require payment by cash. Practically no one accepts checks anymore, and tradesmen dont have debit/credit machines.
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Coach Dobbs
There would be a bit less motivation to avoid paying taxes if governments were more responsible with our money.
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HellSlayerAndy
Makes no sense?

Gauke WANTS to go after 'tax cheats' so he said what HE said about slavery and plumbers?

then...

"And hard-pressed governments, desperate for more revenue, are beginning to go after the tax havens."

NO!!!!!! They are NOT!!!
You just wrote a column saying as much!!!

Ya..anyway about that 21T NOT being 'tapped' instead of free zero interest money being currently printed on the backs of slaves?

Idiot.
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M. Bizon
All the more reason to simply opt out of the whole system. Form local economies. Barter. Trade. Produce things. The Beast of Mammon needs the current system to keep going. Stop feeding it.
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delia ruhe
I was very impressed with something Sheila Bair said on Bill Moyers' show last week: "If you want to go invest money in the stock market, fine, but why should the taxes on you be less than on the guy who works for a living?"

If you wanna stop tax cheats on the bottom, first stop them at the top.
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miguel
There is a lot of money that is just digital code stashed away, and that isn't very secure in todays' climate - whether hackers, or rising sea levels.
Miguel
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Morty
"There would be a bit less motivation to avoid paying taxes if governments were more responsible with our money."

What makes you think they aren't? For all of the misguided decisions (selling off BC Rail, cutting the GST, etc.) what makes you think our money isn't spent wisely? Or, more accurately, more wisely than it would be in the private sector? Governments have been elected on platforms of "finding efficiencies" for years, yet none of them have managed to do so. Even the amounts identified by our auditors-general represent small, small fractions of government spending. Do you honestly think, say, GM has managed its money better than our governments have? What about Goldman Sachs? Lehman Brothers? Enron?

It's easy to blame governments for your choices, but let's not ignore the fact that they're your choices—and quite frankly, they're not rooted in fact so much as rationalized by popular misconception.
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GZLFB
Rather than chase after "tax havens" the Government could drop the tax bills each year. They over charged, they lost business.
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Jinho Choi
Tax religions. This action yields two benefits: charlatans will exit the trade; billionaire churchmen will sell divest themselves of "yachts, mansions, art works and other forms of wealth held overseas". Common people win by avoiding tithes and keeping our children safe.
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miguel
How many tradesmen send their income offshore? I figure they spend it in the economy they occupy.
Miguel
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GZLFB
Religions can't be separate of state if taxed, this would give them a right to be and demand representation, that would deny us any potential secular state. Although there may be a case to doubt the status of preachers not taking poverty vows.
Miguel do they have a choice to send it over sees or not? Although it may a clever man to look middle to low income if hiding it abroad.
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