Introduction
Two years before he became Prime Minister, in July 1995, Tony Blair flew halfway around the world to Australia to improve his relationship with Rupert Murdoch at the latter’s News Corporation conference. The gambit apparently worked, Blair was elected with the critical support of Murdoch’s Sun. Murdoch had to wait several years for a return on his “investment,” but it came when Blair launched a passionate attack on Murdoch’s critics after Lords passed an anti-Murdoch amendment to the Competition Bill in 1998. 1 Later, Murdoch’s News Corporation Investments, his main British holding company, came under investigation by a multi-nation task force for tax evasion. Although the group’s profits over a decade, roughly between 1989 and 1999, added up to £1.4 billion ($2.1 billion), it had paid no net British corporation tax, a shocking revelation even by corporate standards. 2
On the other side of the Atlantic, back in 2011, billionaire Warren Buffett was complaining that he paid too little in taxes. While he and his fellow super-rich were paying about 15% in taxes on their income, his secretary and much of the middle class were in the 15 or 25% brackets. Moreover, the middle class had to pay substantial payroll taxes as well, something the super-rich avoided because most of their wealth was in capital gains earned in the market. But, as Buffett acknowledged, Congress was billionaire-friendly. 3
When governments set tax rates, they are making decisions about who will prosper and by how much. A government that takes 90 cents out of each dollar above a threshold, as the United States did in the Eisenhower years, is deciding to limit the wealth that people can accumulate from their earnings. Likewise, a government that taxes the poor on their first dollar of wages, as the United States does with the Social Security and Medicare taxes, is deciding to limit or eliminate the ability of those at the bottom of the income ladder to save money and improve their lot in life. The rules that governments set for their tax systems, and the degree to which they enforce them, also affect who prospers. Congress lets business owners, investors and landlords play by one set of rules, which are filled with opportunities to hide income, fabricate deductions and reduce taxes. Congress requires wage earners to operate under another, much harsher set of rules in which every dollar of income from a job a savings account or a stock dividend is reported to the government, and taxes are withheld from each paycheck to make sure wage earners pay in full. 4 (David Cay Johnston)
Taxes: Subsidizing the Super-Rich
The taxation system is the result of public policy, but in recent decades (and months) it has largely become a casino game, played especially well by the super-rich. When David Cay Johnston studied the US tax system in 2003, he concluded that the poor, the middle class, and even the upper middle class were subsidizing the very rich. His conclusions were widely challenged, followed by a consensus that he was essentially correct. What is tragic is that some fifteen years later, what Johnston asserted is today even truer: the tax system has become a lucrative subsidy of the super-rich, enabling them to amass a greater percentage of national wealth than at any time since the Great Depression, in both the USA and the UK.
The super-rich have long insisted that they pay more than their fair share of taxes when all taxes are considered. But this is demonstrably untrue even if we consider only income taxes. At the lower end, a substantial part of the UK and US populations pay little or no income tax , but that is because their income is too low for them to have any income tax obligations. But beyond the lowest income earners, the near poor on up through much of the middle classes still pay more taxes relative to their incomes than the super-rich because in recent years, while income taxes on the super-rich were declining, and much of the income of the top 1% was being shifted to lower taxed capital gains—20% in the USA and 28% in the UK—regressive taxes such as Value Added and National Insurance in the UK, and consumption or sales taxes and payroll taxes in the USA, have escalated. Moreover, the top income tax bracket has stayed relatively low in the USA at 39.6 at percent (37% in 2018 as a result of the Tax Cuts and Jobs Act ), a tax rate that applies to anybody who makes $1 million or $100 million. In other words, there is no progressive taxation rate at the upper echelons of the income scale. In the UK the top income tax bracket is 45%, considerably higher than the top capital gains bracket.
Thus, while the super-rich take a burgeoning share of the national income, they have managed over time to reduce or avoid taxes levied on them. The British government collects only 26% of its revenue through income taxes, while Value Added and National Health Insurance account for 35% of British government revenues. 5 In the USA, the federal government collects 46% of its revenues from income taxes, 33% in social insurance or payroll taxes, and less than 11% in corporate income taxes; state and local governments also collect a regressive sales tax, often as high as 10% and in some states levied on food. 6 In the USA and the UK, therefore, the poor and middle classes end up paying more of their modest to meager incomes in taxes—relative to their incomes—because of indirect and regressive taxation, and payroll taxes.
What this means for the populations of both the USA and the UK is that as the divide between the corporate elite super-rich and everybody else widens, as more and more of increasing income goes to the 1–93% in the case of the USA since 2008 if we are to believe Anthony Atkinson —the population overall becomes poorer. As the super-rich become richer, everybody else suffers: as the 0.1% avoids or escapes taxation, everybody else has to pay more taxes.
So how did we get here? How did the tax system become a public lottery? When neoliberalism was embraced by Ronald Reagan ’s administration, and by Margaret Thatcher ’s in the UK, this meant the deregulation of markets and privatization of public goods; put bluntly, the end of the state-directed economy and public provisioning. It meant replacing the welfare and developmental state with the lean, mean “competition” state. Translated, this meant that people were on their own. 7 Neoliberalism replaced public provision and social citizenship with trickle down economics and so-called personal responsibility. It revoked the social contract that had been in place for four or more decades. And neoliberalism meant the shedding of taxes by the super-rich (as much as possible), who now argued that taxing their corporations was a double tax. Or that taxes on them were not only unfair—it was after all their money—but were harmful to economic growth, which depended on the capital of the super-rich for investment, the basis for all those jobs. The budgetary deficits that followed from diminishing tax returns from the super-rich also elicited a new response from them: the welfare state, they said, was bankrupting everybody. But we already know that was false: people were increasingly on their own. If they were going to get anything, it had better be from the income they earned.
Given what would be a massive tax giveaway from the Reagan administration onward—with some fillips when Democrats occupied the White House—and given the withdrawal of a protective state, the top 1% (1.3 million households) in the USA have come to own almost half (and still increasing) of the stocks, bonds, cash, and other financial assets of the country. They still pay taxes, of course, large sums, but they have managed to shed a good part of the burden and shift it onto others. In 2000, the wealthiest 1%, households with adjusted gross incomes of more than $313,000, earned almost 21% of all reported income and paid more than 37% of individual federal income taxes, a tidy sum. Yet even in 2000, when all federal taxes are considered, including those on Social Security, gasoline, and alcohol, as well as income and estate taxes, the share paid by the 1% becomes much more modest, dropping to about a fourth of total federal tax revenues, not much above their share of reported income. 8
But this is only part of the story. The super-rich get much more than their share of government largesse when tax revenues are spent, and they also benefit from the large and growing regressive taxation—sales taxes—which taxes everybody at the same rate, and reduces what the rich pay in taxes as a percentage of the total. When all taxes are counted, and not just federal income taxes, the poor are taxed almost as heavily as the rich, and more heavily than the super-rich. For three or more decades the wealthy elite have shifted more of the tax burden onto others: the less they pay, the more everybody else pays. The ultra wealthy can do this because they have good attorneys who know how to rewrite the tax rules, or to conceal money, or to simply shift money to where it is likely to be taxed least.
Big Business: How It Evades Taxes
All this moves the burden of taxation downward, and it makes the USA and the UK ever more unequal. Consider the US Corporations, as one instance, lowered the portion of their profits that go to federal income taxes from 26 cents on the dollar in 1993 to 22 cents in 1998, although the official federal corporate income tax rate remained unchanged at 35%. For the last quarter of the twentieth century corporate profits grew a third faster than corporate income taxes. 9 Since David Cay Johnston published Perfectly Legal, in 2003, it has become commonplace for corporations to move their tax home abroad while keeping company headquarters in the USA. This simple device can eliminate a corporate tax bill in the USA altogether. But the modern corporation does not have to establish a tax home abroad. It can keep its tax home and company headquarters in the USA, and still evade taxation. That is because companies can move intellectual property such as patents, trademarks, and title to the company logo to entities organized in tax havens in far-flung places like Bermuda, the Cayman Islands , Cypress, and Nauru. In fact the list is long, seemingly endless, to where corporations can move and conceal their real income and assets.
You pay for this through higher taxes, reduced services or your rising share of our growing national debt. You also pay for it through incentives in the tax system for companies to build new factories overseas and to reduce employment in America. These trends to lower taxes on wealthy people and on corporations are aided by new rules allowing capital and goods to flow freely around the world, while immigration and employment laws limit any mass movements of workers and ever-tougher rules against union organizing give capital an advantage over labor in setting wages. 10
What it costs the average citizen is obvious: the tax burden has shifted, and that means there is less revenue that flows into the public treasury, and therefore either government services must be reduced, or taxes increased! And it is now evident where those increases come from. Not the corporations that have just shed their taxes, but the average citizen who must ante up for what has been lost in revenue because of the tax evasion of the super-rich.
Besides moving assets, capital, or jobs abroad to low tax regimes, there are many loopholes corporations can take advantage of at home. A report by Citizens for Tax Justice, published in June 2016, found that 315 Fortune 500 companies used what is called the stock option loophole to avoid, collectively, $64.5 billion in state and federal taxes over a five-year period between 2011 and 2015. The five biggest offenders, also among the largest and most profitable and most recognizable firms because of their vast clienteles and outsized profits, were Facebook, Apple, Google , Goldman Sachs , and JPMorgan Chase . 11
Robert McIntyre, executive director of Citizens for Tax Justice, explains how this tax loophole works: “Corporations in some cases give executives millions in stock options and then they ask taxpayers to help pick up the tab by taking tax deductions.” 12 Most big companies grant privileges allowing CEOs and senior management an option to buy a company’s stock at a favorable price and time determined by the company. To help executives maximize gain, a company typically selects a time in the past when the price was low. Executives—and others—can then exercise their option in the future whenever the price is higher: the executive pockets the difference as “compensation.” When executives exercise these “stock options ,” corporations can legally take a tax deduction for the difference between what the employees pay for the stock and what it is “worth,” the higher price at the time of the exercised option, although it costs nothing for a corporation to grant the option. Since taxpayers do not get to vote on executive compensation, they don’t have the right to decide on the real worth of executives. They cannot even veto the “subsidies” since by law, without the intervention of Congress, companies get to decide on the worth of their executive leadership. Facebook, one of the biggest users of this tax loophole, managed to reduce its federal and state tax bill between 2011 and 2015, by 70%. 13
Counting executive compensation in any form as a company expense is shameful but it is legal, which is why it is practiced by so many corporations. But there are other techniques that companies can use to commit “legal fraud,” and the tax savings quickly add up. Oxfam America has concluded that corporate tax evasion costs the American taxpayer $111 billion annually, a figure so astonishing that it hardly seems credible. 14 Yet even this amount seems small when compared to other forms of tax evasion.
Tax Havens: How Taxpayers Unwittingly Subsidize Big Business
So how do corporations avoid paying their share of taxes ? One of the more insidious methods is called “earnings stripping.” This is a device whereby a subsidiary in a high tax country like the USA or the UK borrows from a subsidiary in a low tax country, enabling the parent company to pay artificially high interest rates to itself. For the global company everything nets out, profits on one side match losses on the other. No real business activity has occurred, but the company’s global tax bill has been reduced accordingly.
The corporate tax avoidance that is most costly to taxpayers is called a tax inversion, which occurs when a company renounces its US “citizenship” by buying a foreign subsidiary in a low tax country—or jurisdiction—where it then reincorporates. In many cases nothing changes about the actual business, the new “inverted” company retains its headquarters in the USA and still conducts business there as always, enjoying all the advantages of the US market without the tax obligations. This practice is so obviously a ploy, that when Pfizer attempted to merge with Allergan—which was registered in Ireland , a tax haven because of low corporate taxes—in early 2016, to radically reduce its tax burden in the USA, the Obama administration moved to block Pfizer . Treasury issued a new set of rules mandating that Allergan shareholders had to own 40% of the combined company for Pfizer to get the full benefit of the inversion, a criterion they could not meet. And that was the end of the merger, but only a single instance and a lonely success for government.
Elsewhere, the story is similar: profits have disappeared where actual economic activity is occurring—only to reappear in tax havens . In 2012, according to US Internal Revenue Service (IRS) figures, US companies reported $104 billion in profits in Bermuda, though this figure hardly represented real economic activity there, where sales accounted for only 0.3% of total global sales for the same companies and the share of total number of employees or wage costs was no more than 0.02%: the profits however represented 1884% of Bermuda’s GDP. 15
Bermuda is just one tax haven, there are many more around the globe that multinationals are using to shelter profits. US corporations as a whole have reported that 43% of their earnings come from five tax haven jurisdictions, although these same countries accounted for only 4% of the companies’ foreign workforces and 7% of their foreign investment. 16 In 2012, alone, US corporations shifted somewhere between $500 and $700 billion in profits from countries where actual economic activities took place to countries with lower effective tax rates. 17 The new alignment meant that about 25% of US multinationals’ reported total gross profits were transferred offshore, away from where the profits were earned. 18
For over three decades the share of US corporate use of tax havens has been escalating. According to University of California economist Gabriel Zucman, tax haven use has increased tenfold since the mid-1980s. 19 Tax havens have only one use, to dodge taxes and to boost profits. It is not just immoral; however, it is also lethal, one of the chief causes of inequality, and not only in the USA and the UK. Tax dodging by multinational corporations benefits only the rich and the politically powerful and it comes at the expense of everybody other than the richest elite. This small plutocracy, which always complains about Big Government, employs a vast army of lobbyists, insuring that the same companies are the largest beneficiaries of taxpayer-funded support. 20
A 2016 report by Oxfam America based on the fifty largest public US corporations documented just how cozy the relationship between Big Business and government has become. It showed how political influence could be rewarding in the form of loans, bailouts, grants, and even tolerance for if not outright support of the corporate use of tax havens . Between 2008 and 2014, the fifty largest US companies received $27 in federal loans, loan guarantees, and bailouts for every dollar they paid in federal taxes. Most of that money was paid back, but that did not save the millions of families that lost their homes and the millions of individuals who lost their jobs because of the financial collapse caused by many of the same companies. 21
Between 2008 and 2014, these same fifty largest companies spent about $2.6 billion on lobbying. The return was good; they received almost $4 trillion in federal loans, loan guarantees, and bailouts—on terms that were not available to anybody but these corporations. The top fifty earned almost $4 trillion in profits between 2008 and 2014, very profitable years for them in the aftermath of the Great Recession , yet they used offshore tax havens to lower their overall tax rate to 26.5%—according to Oxfam—well below the federal statutory tax rate of 35% and below average levels paid in other developed countries. 22
But even these figures overstated what US corporations paid in corporate taxes. When one subtracts what was paid to states, localities, and especially foreign governments, then effective federal corporate tax rates in the USA came to only 10% of gross profits, a sum that may easily be much lower since disclosure rules are weak, to the advantage of multinationals that can shift earnings to foreign jurisdictions without fear of reprisal. 23 A study in 2014 by the Citizens for Tax Justice, based on five years of data, concluded that Fortune 500 companies paid an effective corporate federal tax rate of only 19.4%, slightly above half the 35% US statutory rate. 24 But even accepting Oxfam’s higher effective corporate tax rate of 26.7%, Oxfam concluded that companies underpaid taxes by $337 billion between 2008 and 2014, a period when the US federal government was underwriting corporate losses in the trillions of dollars and making taxpayer money available north of $10 trillion dollars in federal loans, loan guarantees and federal bailout programs. 25 Economist Kimberley A. Clausing has argued that corporate profit shifting cost the taxpayer between $77 and $111 billion annually prior to 2012, and rising thereafter. 26
The statutory federal corporate tax rate in the USA, in 2017, stood at 35% on all profits no matter where they were earned around the globe. But these taxes were only owed after money earned abroad had been repatriated back to the USA. At the end of 2017, more than $2.5 trillion dollars were held abroad, where they were reported by corporations as “permanently invested,” and therefore untaxed. But do not conclude that corporations had no access to profits being held abroad. They could still access that money by borrowing in the USA without paying any taxes simply by using offshore assets as collateral. 27 And since the interest on borrowed money was tax deductible, borrowing was essentially free. Even when the Tax Cuts and Jobs Act was passed, reducing the maximum corporate tax rate to 21%, that was hardly an incentive to repatriate corporate profits to the USA. Not when corporations were paying few if any corporate income taxes.
Tax Havens, Offshore Subsidiaries, and Lobbyists
Globalization is not the cause of corporate tax evasion, but it makes it much easier for corporations to reduce tax obligations or to evade them altogether. But concealing money and profits abroad where they are taxed at lower rates—much lower in most cases, under 5%—is made possible because of public policies which enable multinationals to shift profits abroad without fear of litigation at home. It is the rules which govern globalization that are the problem and large companies have the legal expertise to help craft those rules, and the political clout to defend them.
In 1986, Congress amended a law that had been designed to prevent corporate cash hoarding offshore. With the passage that year of the so-called Tax Reform Act, there were no more obstacles: corporations could hold unlimited amounts of untaxed earnings offshore with complete impunity, regardless of where those earnings—and ultimately profits—were made. It was a veritable gold rush, only now the mining was underwritten by the federal government and, ultimately, the taxpayer. 28 By 2016, Fortune 500 companies collectively were hoarding more than $2 trillion offshore in “subsidiaries” predictably and typically located in tax havens , where they remained legally invisible, or “hidden,” from federal tax claims. 29 Since US law does not require corporations to have any physical presence in offshore locations like the Caymans other than a post office box, often the so-called offshore subsidiary retains a US billing address. A single small office building in the Caymans has served as the registered address for 18,857 companies. 30
The British have the same kind of reporting system as the USA, and with many of the same results. It really doesn’t matter much whether Labor or the Tories are at Number 10 Downing Street. Consider Labor under Tony Blair and Gordon Brown . The Blair Government feared jeopardizing the status of the UK as a favored destination for inward investment, so there was a disincentive to use taxation as a means of social reform and redistribution in favor of the sort of people who normally vote Labor. The result was inevitable. In the absence of restraint, corporate tax avoidance ballooned. It has been calculated that the UK was losing—well into the Blair government’s tenure—somewhere between £97 and £150 billion per year in corporate tax receipts. As late as 2014 there had been little if any tax reform. According to tax expert Richard Murphy, the UK tax gap that year was £114 billion and still rising. 31
None of this was accidental or unintended: the new thinking of New Labor was intentionally creating a business friendly culture that it claimed vital to wealth creation, and this meant making the UK attractive for foreign investors by maintaining a low tax regime. Accordingly, two years after reducing staff overseeing corporate tax avoidance, and in response to Big Business, Treasury projected a sea change that would make tax officials less obstructive to potential investors in the UK. Chancellor Brown announced that henceforth he wanted a system that exhibited greater trust in companies and that was more responsive to the needs of business. 35
Brown was responsive to business as promised: the UK was successful in helping the rich to avoid taxation. Things were hardly different in the USA. When the US Senate launched an investigation in 2008 of twenty-seven large multinationals with large amounts of cash theoretically “trapped” offshore, it found that more than half of that wealth was already invested in US banks, bonds, and other assets. 36
In the USA, because of weak disclosure rules, some 1600 subsidiaries revealed by the top fifty Fortune 500 companies to the Securities Exchange Commission (SEC ), represents a relatively small number of the total subsidiaries used as offshore repositories. The reason is that the SEC requires companies only to disclose “significant subsidiaries,” wherever the investment in the subsidiary is more than 10% of the total consolidated assets, or the income from the subsidiary exceeds 10% of the corporation’s total (global) consolidated income. 37
Since there is no limit to the number of subsidiaries that a corporation can establish, it seems credible (inevitable) that they could distribute assets in havens as widely as needed to meet such minimal standards of compliance. In fact, in 2014 the four largest US financial institutions collectively disclosed 1858 subsidiaries to the SEC , but much larger numbers were disclosed to the Federal Reserve Bank (FED) because it required fuller disclosure. The FED was notified that the same four finance corporations actually were using 10,688 subsidiaries to house their offshore assets. 38
One might conclude that the FED has relatively full information because of its set of rules. But this is not the case either. Most large companies are not required to disclose their foreign subsidiaries to the FED . The result is a vast web of legal concealment, purchased at a bargain price when one compares money spent on lobbying to maintain weak reporting rules of assets held offshore, and low effective tax rates.
The top 50 companies spent roughly $2.7 billion on lobbying from 2008 – 2014. That means for every $1 they invested in shaping federal policy through lobbying, they received $130 in tax breaks and more than $4000 in federal loans, loan guarantees and bailouts. 40
The more companies spend on lobbying, the less they spend on taxes. Some of the large investment banks like Citigroup , which had to be bailed out during the great financial crisis of 2007–2008, didn’t pay any taxes because of heavy losses incurred. But many other headline companies received tax breaks based on declared profits. Google , for example, received just under $17.2 billion in tax breaks for the period 2008–2014, paying an effective tax rate of 20.2%. But it held $47.4 billion offshore in two declared subsidiaries, and this money was not subject to taxation until it was repatriated to the USA, if ever. Apple, Inc., for the same period, showed $231 billion in profits, and self-reportedly paid a total tax of almost $60 billion, for an effective tax rate of 25.9%. However, as we shall see below, it received tax breaks worth more than $21 billion and held more than $181 billion untaxed or “deferred” offshore in three declared subsidiaries. 41
Tax dodging may help the balance sheets of corporations and improve the value of company shares, but it is costly to the average taxpayer who is subsidizing the tax breaks of multinationals. Losing up to $111 billion each year in corporate tax revenues means less money available for investment in education, infrastructure, research and development (R&D), less revenue to create jobs or to spend on poverty reduction programs. It also means, inevitably, regressive taxes to replace revenues lost to corporate tax dodging, and this in turn means higher taxes on the dwindling means of middle-class families, and especially on the poor and near poor, who also have to pay escalating sales taxes—caught in the vice of company tax evasion.
In the last sixty years, in the USA, the share of government revenues supported by corporations has dropped by two-thirds. In fiscal year 2014, the US federal government collected $320.7 billion in corporate income taxes, which was 10.6% of the federal government’s total revenue. This sounds like a lot, and it is, but consider that corporations paid 32% of total government revenues in 1952. The difference is not accidental, it is the result of deliberate policy choices that are bought and paid for by large corporations, or special interests that have the clout to reduce their tax bill, too the discernible disadvantage of tax payers who have bailed out too many financial institutions. 42
This easily can be demonstrated by a quick glance at payroll taxes—a regressive tax supporting Social Security and Medicare , levied at 15.3% of all earned income on all employees up to a cap of $118,500—in the USA, and what percentage they have contributed to total federal revenues. In 1950, the share of payroll taxes in total federal revenues was something just below 10%, a modest figure that reflected a higher share of taxes borne by companies. But during and after the Great Recession , payroll taxes as a percentage of revenue for the federal government rose above 40%, and then stubbornly persisted at levels just below 40%. 43
Put in larger perspective, corporate tax evasion and lower rates of corporate taxation, not only enriches those who are already wealthy, it makes the rest of us much poorer. It is yet another means by which the corporate super-rich is subsidized by everybody else, one more example of how wealth is moved north toward the ultra wealthy. Oxfam America estimates that the annual $111 billion lost to corporate tax evasion could have lifted 60% of all poor children in the USA out of poverty or, alternatively, created an additional 620,000 jobs rebuilding the crumbling infrastructure in the USA. 44
It is this narrative that helps to explain why globalization has not lifted all boats. Today, 60% of the world’s trade occurs inside multinationals, but it is these same companies doing much if not most of the tax avoidance. With few if any restraints from their governments, large corporations cut or avoid taxes by shifting money between jurisdictions, creating artificial paper trails. Multinationals send profits into tax-free havens, and they move costs into high-tax countries. At the same time, these maneuvers do not appear in corporate annual reports. Under current accounting rules, corporations can bundle their results, consolidating them into one figure from a number of countries, whether profits, debt, or tax payments. A company can show its profits coming from Africa, but there is no way to know which countries they came from. In this way, trillions of dollars can and do disappear. No citizen in a country can actually know what a company does, he cannot even know if a company really operates in his country, what it does, and how profitable it is. 45
Today, about half of world trade assets pass through tax havens . Over half of all bank assets, and a third of foreign direct investment by multinationals are routed offshore. “Some 85% of international banking and bond issuance takes place in the so-called Euromarkets, a stateless offshore zone …” 46 Almost every multinational uses tax havens and the largest users by far are on Wall Street.
In 2008, the Government Accountability Office (GAO) reported that two-thirds of American and foreign companies doing business in the USA avoided income tax obligations to the federal government between 1998 and 2005, although corporate sales totaled $2.5 trillion for the same period. Studies soon afterward suggested the problem was only getting worse. 47 Offshoring concealed trillions in cash, was lowering government revenues everywhere, and was making markets inefficient by increasing government revenue deficits and decreasing transparency, while shifting new tax burdens onto the middle and poorer parts of the population. The result was increasing social inequality and increasing social pathologies, everything from disease to crime. As journalist Nicholas Shaxson put it, “wealth [was] transferred from poor taxpayers to rich shareholders,” without anybody producing a better product, not even a better banana. 48
Tax havens essentially amount to government subsidies, made worse by the fact that the tax burden is shifted back to those with less wealth and less able to afford payment of taxes. The use of tax havens dramatically reduces economic efficiency. Again, Nicholas Shaxson explains why: “Companies and capital migrate not to where they are most productive but to where they can get the best tax break. There is nothing ‘efficient’ about any of this.” 49 When the British Virgin Islands , with fewer than 25,000 inhabitants, hosts more then 800,000 companies, or when greater than 40% of all foreign direct investment into India comes from Mauritius, it seems obvious enough that the greatest beneficiaries are the companies hiding assets in the British Virgin Islands and Mauritius, which benefit from non-taxation in their home countries, as well as non-taxation in these islands: the result is double non-taxation. 50
Tax havens are so pervasive and so widely used by the British—and by Americans—that Nicholas Shaxson has persuasively argued they represent a reconstituted British Empire. In fact, the British Empire never disappeared; its governance was simply taken over by the banks from the British government. If Shaxson is correct, then the great liberal order that was reconstituted after WW II, the Open Society and the era of humanism going back to the Enlightenment, might not be so liberal after all. Here are some data to ponder. The Cayman Islands , a leftover from the colonial days, and a British Overseas Territory today, hosts more than 80,000 registered companies, three quarters of the world’s hedge funds, and has $1.3 trillion in registered deposits. Though possibly sheltering more money than any other tax haven, the Caymans are only one among many in a vast network of tax havens , many of them British or formerly British. These include the Bahamas, Dubai, Gibraltar, Hong Kong, Ireland , Singapore, and even the Turks and Caicos Islands. 51
While the British elite uses the offshore system to move money around the globe, enjoying the benefits of double non-taxation, the USA top 0.1%, the corporate elite, does much the same, often using the same British network to evade US tax levies. A GAO report in December 2008 found that Citigroup had 427 tax haven subsidiaries, of which 290 were in the British network. Morgan Stanley had 273 offshore subsidiaries, of which 220 were in the British network; and News Corporation had 152, of which 140 were in the British zone. 52
But what Britain has done … is to retain a large degree of control of the vast flows of wealth in and out of these places, under the table. Illicit capital flight from Africa, for example, flows mostly into the modern British spiderweb, to be managed in London. In both the French and the British systems, powerful interest groups in the old colonial powers have built secret financial relationships with the local elites, creating global alliances with each other against the ordinary citizens of these poor countries—and against their own citizens too. 53
We already know that the USA roughly parallels Britain. The US network is the stepchild of the war in Vietnam, when the USA faced massive debts and financial and banking interests became critical to help cover the enormous deficits that followed. The collapse of the post-WW II financial order in the 1970s, the detaching of the dollar from gold, and the end of capital exchange controls—the birth of foot-fancy capital—permitted massive capital flight to wherever money could command the highest interest rate, and at the same time be subjected to low tax regimes eager to borrow the cash troves suddenly on offer. Sound familiar? Welcome to the open era of tax havens , capital flight, and non-taxation of the owners of piles of global wealth, all representing the $100 billion plus per annum escaping the public treasury in the USA via tax havens . As we know, the era of the tax haven has been, in the UK and the USA, the era of lower economic growth, recurring economic crises, stagnation or worse for most Americans and most citizens living in the British Isles, while wealth at the top of the pyramid soars. In sum, the free flight of capital toward lower tax regimes and higher interest rates has given a free pass to the owners of immense wealth not bound by national boundaries or by public interest and the common good.
Apple Incorporated: The High Art Tax Avoidance
Apple Incorporated says that it pays 26% corporate taxes in the USA. Apple also insists that it pays all of its taxes to Ireland —where it has subsidiaries—which has a 12.5% corporate tax rate, as opposed to the 35% statutory corporate income tax rate in the USA. But the European Union (EU) denies Apple is a good citizen. It says Apple has cheated for years, resulting in an effective corporate tax rate for Apple of only 0.005% in Ireland , back in 2014.
So who is right? Certainly not Apple, which has benefited from a tax deal it made with Ireland that the EU says is illegal, not to mention unethical, even by the low standards of corporate behavior. So how did Apple get away with it and win the gold medal for tax evasion, for which it has yet to apologize after being slapped with a €14.5 billion tax bill? Apple devised a method well known to multinational corporations. It created two subsidiaries in Ireland , Apple Operations International (AOI) and Apple Sales International (ASI), which together effectively owned most of Apple’s intellectual property (IP) . Those companies then licensed Apple’s IP to other global subsidiaries, which earned their income from licensing agreements. That meant that when an Apple iPhone was sold in China , Apple’s Chinese subsidiary would transfer profits to the Irish company holding the rights to the IP : in this case that meant primarily AOI. Under international laws, Apple did not have to disclose the percentage of the iPhone sale subject to IP licensing fees but, as Robert Willens, a Columbia Business School professor has lamented, the profit earned on the sale in China was then shifted to the Irish subsidiary. 54
That is the point when Apple’s side agreement with the Irish government was implemented, which also triggered the European Commission ’s disagreement with Apple. This was because when Apple brought its IP profits to Ireland via licensing agreements, the EU insisted Apple should be taxed at the already low Irish corporate tax rate of 12.5%. But Apple resorted to an old accounting trick, whose legality was challenged by the EU. Under a murky side agreement with Ireland , the vast majority of Apple’s profits were remitted to its “head office”— otherwise known as AOI—which had no address anywhere, a kind of “virtual” global company that was not physically located in any country and was not subject to taxes anywhere, including Ireland and the USA. Apple responded to EU objections, arguing that the head office had legitimately earned profits that were tax exempt and, moreover, Ireland was a sovereign country that could make whatever tax arrangements it wished with Apple. The head office, since it did not have an Irish address, or any address, could hardly be taxed by Ireland . 55
Transfer pricing refers in this context to the prices charged for commercial transactions between various parts of the same corporate group, in particular prices set for goods sold or services provided by one subsidiary of a corporate group to another subsidiary of that same group. The prices set for those transactions and the resulting amounts calculated on the basis of those prices contribute to increase the profits of one subsidiary and decrease the profits of the other subsidiary for tax purposes, and therefore contribute to determine the taxable basis of both entities. Transfer pricing thus also concerns profit allocation between different parts of the same corporate group. 56
The head office, the European Commission concluded, was a ruse. It existed only on paper and was created for the sole purpose of tax evasion. Apple’s argument that it paid low, almost nil taxes, in exchange for investing in and creating thousands of jobs in Ireland , was dismissed. The EU pointed out that AOI had no employees in its home office in Ireland —not to mention an address or actual premises that any real employees might actually have inhabited. The most that the head office had was a board of directors that met occasionally. The head office was a fraudulent device to minimize or avoid taxation by claiming it was not a tax resident anywhere, including Ireland . The European Commission concluded that the side arrangement between Apple and Ireland was void, and therefore Apple owed the EU some €13 billion in back taxes. 57
The case made by the European Commission was based on revelations in 2013 stemming from US Senate public hearings and illustrated how Apple had successfully been able to evade corporate taxes. In 2011, Apple recorded profits of €16 billion through its home office in Ireland . Under a ruling by the Irish authority only about €50 million of that was considered taxable in Ireland . That left a considerable sum of €15.95 billion untaxed. This meant that Apple paid less than €10 million in corporate taxes in Ireland in 2011, an effective rate of about 0.05% on its overall profits for the same year, a sum considerably less than the (already low) Irish statutory rate of 12.5%, which would have created a tax bill of €1.45 billion for 2011 alone. 58 In subsequent years, Apple’s—and the home office’s—profits climbed still higher, but because of the agreement between Apple and Ireland —taxable profits in Ireland did not rise. Apple’s effective tax rate paid to Ireland actually decreased to 0.005% in 2014.
In 1980, Apple created Apple Operations International , which acts as its primary offshore holding company but has not declared tax residency in any jurisdiction. Despite reporting net income of $30 billion over the four-year period 2009 to 2012, Apple Operations International paid no corporate income tax to any national government during that period. 60
Apple Sales International buys Apple’s finished products from a manufacturer in China , re-sells them at a substantial markup to other Apple affiliates, and retains the resulting profits. Over a four-year period from 2009 to 2012, this arrangement facilitated the shift of about $74 billion away from the United States to an offshore entity with allegedly no tax residency and which may have paid little or no income taxes to any national government on the vast bulk of those funds. Additionally … Apple makes use of multiple US tax loopholes to defer paying US taxes on $44 billion of offshore income, or more than $10 billion of offshore income per year. As a result, Apple has continued to build up its offshore cash holdings which now exceed $102 billion. 61
The Senate Memorandum provided a graphic illustration of just how little Apple was paying in corporate taxes globally. In the years 2009–2011, pretax earnings were $38 billion, but the total paid in taxes was a miniscule $21 million, or a tax rate of 0.06%, a figure that is consistent with what we have observed above. The inevitable conclusion, which was reached by the Senate investigation, was that Ireland was providing a tax haven for Apple, helping it to “legally” shed almost all tax obligations. 62
Some critics have called this cheating. Here is why. AOI is a holding company and is the ultimate owner of most of Apple’s offshore entities. Coincidentally, Apple, Inc. directly owns 97% of AOI and holds the remaining shares indirectly. AOI was incorporated by Apple as early as 1980, though Apple, according to the Senate investigation, claimed it was unable to locate historical records explaining why it had incorporated in Ireland to begin with. What was known was that AOI shared a mailing address with several other Apple affiliates in Cork, Ireland , but AOI had no physical presence there or at any other address. Moreover, between 1980 and 2013, when the Senate conducted its investigation, AOI had no employees in Cork. In fact it had no employees anywhere. Yet AOI accounted for 30% of Apple’s net revenues worldwide, despite having no address, or building, or employees. AOI also did not have a tax residency, or a tax home, which explains why, between 2009 and 2011, it paid no taxes at all. Notified in summer of 2016 that Apple was in arrears on its taxes to the EU by some €13 billion, CEO Tim Cook expressed astonishment and anger. After all, how could Apple or its subsidiaries owe taxes to Ireland when AOI was not a tax resident of Ireland ? Easy to see why he is the CEO, isn’t it? But not for the EU, which insisted that Ireland did not have the right to reach side agreements with Apple, Inc., or AOI to all but abolish any tax liability in Ireland . The EU was finally ready to litigate. 63
But if the EU was willing to go to court to recoup corporate taxes from Apple, the USA meekly succumbed to the logic of CEO Tim Cook . The US administration even managed to defend Apple: how could the EU claim back taxes if Apple’s AOI had no employees, no address and nothing tangible to sell in Ireland ? Good question, right? But then how could it be that Apple also had no profits?
Though the USA was conveniently angry with the EU, there must have been other reasons as well. Indeed, it turns out there were. The USA was accepting statements made by Apple itself. The company had consistently reported compliance with a high tax rate in the USA, something around 26%. Not state taxes, because Apple, Inc., are registered in the state of Nevada, which has no state corporate tax . So the 26% reported by Apple was for federal taxes. The reality is that the company has probably paid more like 2 or 3% in federal taxes, despite its claims otherwise. Under current US tax laws, American corporations can defer paying taxes on foreign made profits until those sums are repatriated back to the USA. When Apple says it is paying 26% tax rates, it is declaring the rate it would likely pay should it bring its profits to the USA. But it can defer those taxes forever, or at least until Congress declares a tax holiday, as it did in 2005 when it agreed to tax corporations at a 5.25 tax rate on repatriated profits. 64
Apple is not alone, as we have noted above. In late 2016, there were some $2.1 trillion in corporate profits in offshore tax-deferred accounts, a cash hoard that was held by 358 large US companies in 7622 subsidiaries. That means that the practice of tax deferral by parking vast sums of money abroad is widespread, a convenient dodge for US global corporations in their race to the bottom. Besides Apple, Cisco, Google , Microsoft , Oracle, and Pfizer , among others, keep large cash piles out of reach until they can get Congress to give them a pass or a tax holiday. 65
Of the several trillions of dollars held abroad, thirty corporations hold about 67% of that cash. This means that even if the already discounted tax rate of 26%, which Apple claims to be paying in taxes, were collected on all corporations, the US Treasury would be about $520 billion richer, a sum that could both help alleviate the tax burden of many Americans, and also literally transform US education, or rebuild infrastructure, or promote the greening of America. Or even the re-industrialization of America. Again, it’s communism (or rentier capitalism) for the rich and unfriendly capitalism for the rest of us, signifying another massive transfer of income and wealth from us to the super-rich.
The Great Tax Shift from the Rich to the Rest: Individual Income Taxes
The major shift over the last four decades, from the mid-1970s to 2016, has been to tilt the burden of taxation ever more to the “south” despite the cries of the rich and their assertions that they are paying too much in taxes. If you believe it is easy being rich, just think about the problems maintaining multiple residences around the world, paying off large veterinary bills, higher tuition for your children at private schools, and the selfish demands of the middle classes and working classes who demand higher taxes on millionaires and billionaires.
A glance at the top 400 families in the USA shows a shift in the membership of this exclusive club. But it also reveals that the super-rich—or those in this exclusive coterie—have actually reduced their income tax bill as a percentage of their total income. That is because Congress, which is beholden to the corporate elite, the 0.1%, has smiled at the good fortunes of the super-rich as long as benevolence comes the way of Capitol Hill.
The great tax shift began when Ronald Reagan was president, when he enjoyed a partnership with the Democrats in 1983. When the Republicans won the House in 1993, the shift accelerated, and soon was showing up in the official statistics. In 2003, the IRS reported returns for the 400 highest income Americans for the years 1992–2000, the years of the Clinton administration and the stock market bubble, disclosing that the minimum needed to make the list more than tripled, rising from $24.4 million to $86.6 million. The list of course had changed, only 21 taxpayers made the list every year—signifying the rise of some fortunes because of the hi-tech bubble. 66
Still, even if a few names had changed, the top was rich indeed. The top 400 taxpayers in the year 2000 received 1.1% of all the income in America, more than double the 0.5% share of the top 400 in 1992. The average income of the group in 2000 was almost $174 million, nearly quadrupling the $46.8 million average in 1992. The rich, especially the super-rich, were getting even richer, and there seemed to be no limit. Yet the share of their income going to federal income taxes actually was shrinking. The top 400 paid an average of $38.6 million each in federal income taxes in 2000, some 22.2 cents on the dollar, down from the 26.4 cents on the dollar paid in 1992 and 29.9% in 1995, when it peaked. How did this compare nationally? The tax liability of the 400 was only notionally above the overall federal tax burden of 15.3 cents on each dollar of income. During the eight years of the Clinton administration, the income tax burden for the average American rose about 18%, but for the super-rich it actually fell 16% even as their incomes were rising spectacularly. 67
So what made this possible? The answer is Congress, which in all its benevolence promoted a tax cut for the rich in 1997, though it was widely represented by Congress and the media as a tax cut for the middle classes. Among the tax cuts that year was a sharp reduction in the tax rate on long-term capital gains, which happened coincidentally to be the source of two-thirds of the incomes of the top 400—and much the same for the entire top 1%. The capital gains tax —levied on stocks, bonds, precious metals, and properties—was reduced from 29.19 to 21.19%. 68 Another law in 1997 featured an item that was good news for tax cheats, those who might otherwise have been on the 400 list had they reported their full income. Previously, the IRS had been able to find tax evaders whose reported income seemed too little to warrant their lifestyles. This had forced some to conceal their wealth, resorting to lavish lifestyles abroad, where they might be more difficult to detect. The new law specified that the IRS could no longer follow the trail, for example, if a middling income did not seem consistent with private jets and million dollar junkets and flashing trinkets. Congress had ruled that the IRS could no longer audit the rich just because of their lifestyles. This moved Lee Shepperd, a tax lawyer specialist who critiqued tax law for Tax Notes, to quip that the law “should be called the mobsters and drug dealers tax relief act of 1997.” 69
The super-rich still thought they deserved more, and Congress, ever pliant, agreed. After all, the rich were smarter, more creative, and job providers, and anyway weren’t they still paying more than their fair share of income taxes? President George W. Bush thought so. He understood the problems of the rich, being a multi-millionaire himself. The first round of tax cuts in 2001 lowered the top 400’s share of income going to taxes even further, slipping to about 21% of income, and then in the subsequent tax reduction of 2003, to 17.5 cents on the dollar, not much more than the average paid by all Americans as a percentage of their income. What had made this reduction possible? Yet another decline in capital gains taxes to about 15%, complementing the reduction of the highest marginal individual tax rate from 39.6 to 35%. In just a matter of a little more than a half-decade, the rich became richer than ever, primarily by reducing capital gains taxes on stocks, bonds, and property, where most of the assets of the rich were held. The Reagan years were profitable, the Clinton years lucrative, but the George W. Bush years were a real boon for the upper reaches of the wealthy in America. 70
How the UK Super-Rich Evade Taxes
When the Coalition government under David Cameron came to office in 2010 in the UK, it shared much of the worldview that had characterized several decades of American policy makers: lower taxes on the rich so they would conceal less of their money, giving them an incentive to come clean by declaring more of their real earnings and leading to more revenue for government. This bit of snazzy Robin Hood logic might have fooled the rich themselves, maybe they believed their own rhetoric, but capping the top income tax rate at 45%, as the British did in 2013, did not convince the International Monetary Fund (IMF) that the British were doing the right thing. Or Danny Dorling , either, who countered that “the alternative to putting the young into debt was to tax the rich.” 71 He advised much more than 45%. In fact the IMF advocated 60% as the optimum figure, anything above that would be a disincentive to growth, and an incentive to conceal income, and would also lead to a further shift of income toward capital gains, which are taxed much lower. But the rich think that 45% is outrageous, after all it is their money, why should they pay any taxes at all on what they earned, as one MP, Douglas Carswell, told Guardian journalist Owen Jones in an interview. 72
But the UK did not have to wait for David Cameron to find a Prime Minister who idolized the rich: they had Margaret Thatcher decades before Cameron came to office. Under Thatcher wealth was glorified, while those who didn’t have it quite obviously didn’t deserve it: “I believe the person who is prepared to work hardest should get the greatest awards and keep them after tax, that we should back the workers and not the shirkers.” 73
Had Mrs. Thatcher really backed the workers, the UK might have turned out quite differently, but the shirking rich were about to receive unprecedented tax breaks. And for the first time in generations, the government threw as much money as it could in the direction of the wealthy elite, especially the men of the City. In Thatcher’s first budget, the top bracket taxes of 83% on earned income and the 98% top bracket imposed on unearned income—capital gains—were reduced to 60%, while corporation taxes were slashed to 35%. Within a decade, in 1988, the chancellor at the time, Nigel Lawson , cut the top rate of earned income tax to 40%. 74
Geoffrey Howe , who served as Foreign Secretary for much of the 1980s, thought this the right thing to do. He believed the tax structure had to be changed to provide incentives to business, though he was honest enough to admit that he did not know the impact that cutting taxes on the rich would have on everybody else, though it seemed self-evident this would increase inequality in Britain dramatically. But Howe was correct when he observed that chances the super-rich would make money had been dramatically improved. 75
Reducing direct taxes on the rich meant revenues would have to be found somewhere else. “So they put up VAT, a tax on consumer goods,” explains Owen Jones. “The poorer you are, the more of your income goes on VAT.” 76 This was class war, unburdening the top 1%, and especially the top 0.1%, so they could make money, and paying for it by taxing those who could afford it least. Toward the end of the reign of the Tories , in 1996, the richest 10% of families with three children were more than £21,000 a year richer than when Thatcher came to power. 77 Income for each married couple in the top decile boomed upward some 65%: their taxes fell from over a half of their income to just over a third. 78 For almost everybody else, the bottom 90%, taxes on average went from 31.1% of their income in 1979 to 37.2% by the end of 1996. The real income of the poorest tenth in Britain virtually collapsed, declining 20% after housing costs. 79
The top income tax rate was raised to 50% in 2010, but when the Coalition government of David Cameron came to power, this was apparently too much to tolerate. Instead of raising taxes on the rich in order to bring the budget into balance, as virtually all rich countries had done—with the exception of the USA, which had also lowered the highest income tax rate when George Bush was president—Cameron cut top income tax rates to 45%. The reason? The rich would conceal less of their wealth and more taxes would be collected. Cameron could not understand why the top 1% should be taxed to give benefits to the poor anyway. The cure for all those welfare cheats was to cut their benefits: that was sure to create an incentive to work. This then was Cameron’s solution for all those shirkers: reduce benefits for the poorer sections of society so the rich could take more, a lot more. The cost of maintaining the rich meant less for everybody else, a lot less. As Danny Dorling put it: “When the 1% takes more there is less for the rest. In the UK the cuts required to preserve the position and wealth of the 1% are taking £19 billion a year out of the economy. The alternative to many of the cuts is to tax the 1% more, along with a few others at the top of society, at the same rate as the 1% are taxed in more equitable countries.” 80
But we have already seen that Cameron did precisely the opposite, he lowered the top marginal income tax rate to 45%. This made him even more of a miser than Margaret Thatcher . In the early 1980s, when she introduced a mild form of austerity, she raised 50p for every 50p that she cut in government spending. Cameron did quite the opposite, raising 17p for every 83p that Chancellor George Osborne cut, and what he did raise was mostly through VAT, a highly regressive tax that made the poor even poorer.
By contrast, in countries that are much more equal, and where states do not shift risk away from the elite rich and toward everybody else, top tax rates were well above what Cameron had instituted in the UK: 75% in France, 57% in Sweden , 55% in Denmark , 52% in Spain, and 50% in Austria, Belgium, Japan, and the Netherlands. And for those countries at 50%, the top rate kicked in somewhat below the sum of £50,000. 81 Again, Britain was not so palatable if you were not born into privilege: the lower 45% top income tax rate only was applied when £150,000 was reached.
To pay for the reduced top tax rate on the 1%, and the high-income threshold, Cameron had to find money somewhere. He did: it came from those who could afford it least. Of the £19 billion cut from public spending, a little less than a quarter came from incapacity benefit for the disabled, a sum that had just barely kept many out of poverty. Another quarter reflected cuts in tax credits that had formerly kept many working class families out of poverty. Another half billion pounds were removed from housing benefit, making the poor even poorer. 82 Simultaneously, while the rich continued to live high on the hog, as wealth again concentrated at the top, English hospitals were reporting a rise in cases of malnutrition, up from 3161 in 2008–2009 to 5499 in 2012–2013. The link between reduced benefits and the rise of hunger was manifest, but the super-rich saw it otherwise. Some blamed the poor for being hungry, as if poverty was the result of shirkers who enjoyed being deprived. 83 Implicit in this opinion was that the poor did not deserve to eat.
The Super-Rich Should Not Pay Taxes on Their Money!
Aside from the smugness of the 1% (and especially the 0.1%), there are good reasons not only to raise taxes on the super-rich, but also to tax them at a rate above 45%. That is because anything lower has only led to rent-seeking—extracting wealth from the real economy, not to growth in GDP or the economy overall, in both the UK and the USA. This seems to contradict the logic of neoliberalism . In fact, based on exhaustive data, Emmanuel Saez and Thomas Piketty have showed that the incentive for rent-seeking rises as top tax rates are cut. But they found something else even more disconcerting: increases in top 1% incomes come at the expense of the 99%! As Saez and Piketty discovered, top-rate cuts stimulated rent-seeking among the super-rich, but did not contribute to “overall economic growth.” Their data confirmed what we all intuitively know. There has been no positive correlation between cuts in top tax rates and real GDP-per-capita growth since the 1970s. The USA and the UK both made large cuts in top income tax rates—both were in the 70% range in the 1970s, falling below 40% during the Reagan and Thatcher years, and staying low thereafter—but neither country grew significantly faster than Germany and Denmark which did not reduce top income tax rates below 50% for Germany and 60% for Denmark . 84 What did Piketty and Saez advise as the optimal top income tax rate? Something like 80%! Or a return to the past, when the income tax rates in the 1970s in the USA and UK actually seemed to work best for almost all of us—all except the 1%.
The super-rich have become rich not because they are gifted but because they are able to reduce taxes on themselves (as well as to extract rents), which means that taxes rise for everybody else. That is simple math, not false theory, and it is the result mostly of policy. The wealth of the super-rich as a group has doubled over the last four or five decades (since about 1975), and a primary reason is their taxes have been lowered or simply evaded. Both top income tax and capital gains taxes in the USA and the UK have moved south, and the chief beneficiaries have been the super-rich: the lower the top tax bracket, and the higher the income threshold—where the top bracket kicks in—the greater the benefit for the 1% and even more so for the 0.1%.
The idea that capital income is ‘unearned’ is beneath contempt. You earn the returns on investment by working, delaying gratification and saving. The argument that an inheritance is unearned (so that we can take what we like in Inheritance Tax ) is just as weak: someone earned the money. 85
This small group find it enormously difficult to understand how other people feel or to appreciate a different point of view. … It is hard to become rich if you are not primarily looking out for yourself. Those who amass fortunes manage to do so partly because they don’t like sharing and see themselves as something special, as more careful with money, as being worth more than others. 87
Sharing is for others, and is anyway a kind of weakness, for which the strong and the deserving have no use. The implication is that the rich and the super-rich have had enough of sharing with the croppers beneath them.
Tax Relief for the Super-Rich? Raise Taxes on Everybody Else
Government needs revenues and they come primarily from taxes. The solution of the super-rich is to cut government spending, and lower taxes on them. Their argument is that government spends too much on the poor anyway, so why not reduce or even eliminate welfare programs providing government assistance to the clods? Shouldn’t the poor do more to help themselves anyway? And wasn’t this what Bill Clinton did when he eliminated cash grants for poor single mothers with children in 1996? In the years that followed, the US economy thrived, and the unemployment rolls declined. Reducing welfare is good for the poor, they then have to work instead of relying on the dole, which the rich argue is supported by their taxes. And why should the rich pay for student tuition for the middling sorts when students could borrow under various loan programs—often provided by the super-rich?
The argument can be inverted. The history of taxation on individuals has shown that the rich elite has managed to shed the burden of taxes quite well, in both the USA and the UK. In the USA, for example, the top income tax bracket under President Obama rose to 39.6%, a slight elevation from the George W. Bush era, but significantly lower than the period between 1933 and the late 1980s under President Reagan. During the 1950s under Dwight Eisenhower, the highest marginal tax rate actually reached 91%, and Eisenhower even preached against the greed of the rich as justification for taxing them at that rate. We know that the top marginal rate in Britain stands at 45% in 2018, slightly higher than in the USA, but significantly lower than the pre-Thatcher era when it was more than 70%.
But when we consider what the rich pay in capital gains taxes and factor that into the tax bill on the 1%, we find that this elite, and especially the top 0.1%, have managed to reduce their personal tax rates to the lowest point since the 1920s. Paul Krugman, relying on data from The Economic Report of the President, has shown that the top 0.1% of taxpayers in the USA have been able to reduce their tax bill, combining income and capital gains taxes, from slightly over 50% in 1960 to slightly below 30% in 2010. 88 And since we know that the sums of money held by the 0.1% abroad in tax havens have escalated, we can be confident that the real personal tax on the rich is much lower: they have the means to conceal their wealth because much of it does not come from income, which is easier for the IRS to trace. And while the tax bill for the super-rich has declined, even for what we can measure, it has actually gone up for the middle 20% of the American population, from about 14% of all income in 1960 to 20% in 2010. 89
It didn’t used to be this way. In 1913, following the adoption of the Sixteenth Amendment, the federal government in the USA began taxing incomes, gifts and estates. But these taxes came with an explicit promise: the basic means of sustaining life for the majority would not be taxed, the tax regime applied only to the economic elite. Those with surplus incomes would bear the burden of taxation. Originally, the idea was to tax capital more heavily than income from wages, it was considered morally offensive to take more money earned by hard work than money made by clipping coupons, or capital gains such as dividends and equities in the stock market. The levy of taxes to pay for World War I was called a “conscription” of money to pay for the conscription of soldiers into the army, both were considered necessary and fair. 90
Two principles were applied. The first was that taxes should be based on the ability to pay. And the second was that paying taxes based on capital gains, and wealth, as opposed to income, was actually a patriotic act and should be considered a moral as well as a legal obligation. The estate tax and the gift tax, which applied to wealth, were expanded, while the income tax was applied to a larger, but still minute fraction of Americans.
A little more than a generation later, several decades after the Second World War, the promise that only surplus incomes would be taxed was abandoned. Though only a minority of people were taxed during World War II, the war helped change the political understanding of what could be taxed, and by how much. Politicians understood the immense power, and the expanding uses of tax monies. When the war ended, Democrats, supported by many Republicans, expanded the income tax until it applied to most Americans and to most of what they earned. The new tax-based revenues were used to pay for the Korean conflict, and to build-up the military, but also to support education, build highways and finance advances in technology. 91
During the fifties and sixties, Congress did nothing as inflation eroded the value of exemptions for taxpayers, who now found themselves in higher brackets, which meant paying higher shares of their income in taxes. As this system became less tenable by the 1970s, tax shelters began to flourish. No longer just the province of the rich, they were now marketed to doctors, dentists, attorneys and many others, proving to be more a drag on the economy overall rather than a benefit. Meanwhile inflation, combined with an end to growth in real wages beginning in 1973, continued to push people into higher income tax brackets even as their take-home pay was stagnating.
Throughout the decade of the 1970s, and into the new century, government continued to grow, fueled by military spending on the war in Vietnam, increased local and state expenditures on public education, professionalization of police departments, and welfare spending on the poor and those unable or unwilling to work. Simultaneously, as government obligations increased, both domestically and internationally, Washington explicitly embraced a policy allowing the richest Americans to pay a smaller percentage of their income in taxes, to defer more of their taxes, and to report a growing part of their income as capital gains, which was taxed at a much lower rate. At the same time Congress began to collect more taxes from the middle classes to compensate what was lost from the higher tax rates where the 1% lived.
The Democrats were not unwilling collaborators in the tax sea change. In 1983, when they controlled Congress, they voted to raise Social Security taxes. Where it had been a pay-as-you-go system, taxpayers were now required to pay 50% more than the retirement and disability program’s immediate costs. The purpose of this was to build a trust fund that would pay benefits for more than three decades into the future. 92
But one cannot surmise from this that tax monies were locked away in a trust fund that would finance Social Security benefits. On the contrary, that is not how the super-rich think. Nor was it the policy of those on Capitol Hill, many of whom owed their office to the 1%, and even more so to the 0.1%. Instead, the new Social Security payroll tax monies were spent to finance tax cuts for the elite super-rich, a process that began in 1981.
A decade and a half later, in 1997, with Republicans controlling Congress, taxation of the middle classes was expanded when the income tax system was modified again. Though the changes were hardly reported in the media, they represented a substantial shift in the tax burden, away from the super-rich and toward everybody else. Then the initial Bush tax cuts in 2001, as we have seen, represented a giant subsidy of the 1% by the middle and upper middle classes, especially for the upper tenth of 1%, the richest 130,000 taxpayers in the USA. This was exactly the reverse of how the tax cuts were represented, as a gift to middling taxpayers, the result of so-called trickle down economics. By any metric this was false. According to Center on Budget and Policy Priorities’ (CBPP) figures, based on Congressional Budget Office (CBO) estimates, the Bush tax cuts were a major driver of federal deficits—a legacy that is likely to continue for two decades or more because 82% of the Bush tax cuts were made permanent in 2010, when they were renewed by Congress. 93
The estimates of the CBPP and the CBO actually understated the real cost to the middle and upper middle class taxpayers. That is partly because of the (additional) cost of the wars in Afghanistan and Iraq, for the years 2001–2008, at $673 billion. Never mind that the war in Iraq was a war of choice, and that it also was a war declared by the corporate super-rich, some of whom were direct beneficiaries. But this figure, which is itself a conservative estimation, omits mention of how the war was financed. Certainly not by the super-rich: they had a tax gift thanks to the Bush administration. If one adds the total deficit caused by the Bush tax gifts for the years 2001–2008, the sum comes to $1.955 trillion. Part of that is for the so-called relief for the middling taxpayers. But the top 1% took fully 30% of the tax relief and that means they were taxed almost $600 billion less than they would have been, had George Bush not reduced their tax obligation. That means also that for the year 2009, when the part of the Bush tax cuts in the federal deficit was $371 billion, the 1% accounted for more than $110 billion, or 30%, of that deficit. 94
But if you want a more accurate accounting of what the ultra rich and their acolytes are costing the USA, then you have to add the following costs: the war in Iraq, a war of choice, which continues to have an overhang cost of $150–$200 billion per year through 2019; the economic recovery measures taken after the Great Recession of 2008, largely caused by greedy banks and their penchant for gambling in derivatives, at a cost minimally of several trillions of dollars, mostly in 2009–2010; and the Great Recession itself, to a great extent caused by bank deregulation in 1999 and the sub-prime loan fiasco—also the instruments and policies of the 0.1%—creating federal budget deficits since that have consistently been around 25% of the total budget because of shortfalls in the economy and in revenues. In sum, the super-rich are expensive, their privileges cost the majority of us in treasure, and the costs are enduring. When one simply adds the sums presented here, the conclusion is staggering. The super-rich do not add to our wealth, they extract it as best they can, often with the complicity of the government, compounded always by the unfair tax system.
Inheritance and Wealth Taxes: How the Super-Rich Became Shirkers
In Britain, what historically had made the super-rich safe and more secure was simply that they were less wealthy. Inheritance tax was low a century ago, but was introduced by Parliament, itself composed of the rich, to help protect the wealth of the nation, a large part of which belonged to MPs in Parliament.
Inheritance taxes were simply unavoidable, they were needed to help pay government war debts, which, as Danny Dorling reminds us, were because of wars started by the ultra-wealthy. “The First World War began as an argument within an aristocracy and European royal family that simply could not imagine its consequences.” 95 One could extend the illustrations almost indefinitely. The American intervention in Vietnam was largely a quarrel between factions of the super-rich over how much to extend US hegemony. The second war in Iraq was a conflict of choice by the corporate elite nervous about the future of oil supplies and revenues. The result in both cases was massive debt, but much of this debt, as we have seen, fell on the shoulders of the middle classes, at roughly the same time as the collapse of the dot.com bubble in 2002, followed a half-decade later by the Great Recession . The super-rich prefer that others pay for the wars they start.
In Britain, back in 1894, Death Duties had a maximum rate of 8%. In 1914, with the commencement of WW I, they became Estate Duty, which had a maximum rate of 20%, rising to 40% in 1939 and 80% in 1949. The reason for the high figure in 1949 was that in 1945 the first government—perhaps in British history—not consisting of rich men came to power. But the precedent had been established. Death Duties became Capital Transfer Tax in 1975, with a maximum rate of 75%, falling to 60% in 1984. In 1985, it was renamed again, and became more prosaically known as the Inheritance Tax . In 1988 the Inheritance Tax was capped at 40%, where it stands today. 96
So why were inheritance taxes reduced after 1970? Because the super-rich gained increasing control over political parties, and because they could afford to employ teams of lobbyists who had influence in the centers of power. In the USA and the UK, the super-rich paid a growing percentage of their money to protect, well, their money. Their assets were growing well into the 90s, but so was their ability to reduce their tax bill.
In the 1980s, income taxes were reduced dramatically in the USA. The UK, always admiring its American cousin, followed suit. We know the result: unprecedented income and wealth inequality, and then the Great Recession . Many economists in the USA and the UK did not agree that there was any correlation between inequality and the collapse, and thought there was even less connection between reduced tax bills on corporations and the super-rich, and inequality. But at least one country, Ireland , where the crash in 2008 was devastating, believed that the reckless behavior of the 1% had led directly to the disaster of the Great Recession . In just five years, between 1995 and 2000, the 1% doubled their share of the national income. No doubt they thought they deserved it. 97
Many others among the Irish did not agree. In 2013, a wealth tax was proposed that was to be levied on everybody living in Ireland with assets greater than €1 million. Into 2014 the Irish had not levied the wealth tax , but the Irish government did increase the capital gains tax , up to 33% maximum in 2012, and a domicile levy of €200,000 on anybody with property whose worth was greater than €5 million. 98
The original suggestion in Ireland was that the 1% should be subject to an annual wealth tax rate equal to 0.6% of their wealth. Most developed countries currently levy taxes on income—including capital gains. By comparison, less than 1% is levied directly on wealth across the Organization for Economic Cooperation and Development (OECD) , although tax on interest accrued is a minor wealth tax in current use. 99 However, during 2013, a wealth tax that would have been European-wide was proposed, though it was not implemented. 100 The German government, in 2014, subsequently proposed that debtor countries like Ireland should impose a wealth tax more firmly, an emergency capital levy as the Germans put it in a monthly report. 101
A quarter century earlier, in 1990, half of all OECD countries had a net wealth tax , but by 2000, only a decade later, that number had declined to a third of OECD nations, and since then the number has fallen even further: Finland, Iceland, Luxembourg, Spain, and Sweden , all abandoned their wealth taxes after 2006. However, given the fiscal emergencies that occurred in 2007 and afterward, Iceland, Ireland , and Spain, decided to reintroduce wealth taxes to cope with their financial emergencies. 102 The results demonstrated just how significant an impact wealth taxes could have on inequality (and economic growth) when such a tax is imposed. In Iceland, for example, a wealth tax of 1.5% on net assets exceeding 100 million kroner ($950,000) for married couples was adopted in 2010 for four years. As a result, the disposable income of the 1% virtually collapsed in one year, dropping from 20 to 10% of all income, but by 2014 Iceland’s growth was rising by 5% GDP annually. 103
Spain reintroduced a wealth tax in 2012, levied between 0.2 and 2.5% of global net income for residents. By 2015 the Spanish economy was growing fairly robustly, reaching 3.2 GDP growth that year. 104 The conclusion? Wealth could be taxed without hurting economic growth overall. In a word, wealth taxes were fair, helped reduce inequality, and had a positive impact on GDP.
According to economists Thomas Piketty and Anthony Emmanuel Saez , intermittently levying a wealth tax of 1% on wealth exceeding $20 million would make the US economy both more equitable and more efficient. In other words, more equality would produce more demand, more spending, and ultimately more jobs. They concluded that for the year 2012 a wealth tax of 1% would have raised $80 billion; over a decade it would raise more than $1 trillion. 105
The very mention of a wealth tax , or an inheritance tax , makes the ultra wealthy tremble with fear. Just hint at a mansion tax—as Ed Miliband, the erstwhile head of the Labor Party , did—and the 1% go into shock: how will they pay for the butler and the driver? Yet, as we learn from Skandia, a global wealth management business, many of the very richest, the multi-millionaires, inherited their wealth. In a survey conducted in 2012, based on 1503 of their super-rich clients, Skandia found that 436 lived in the UK, of whom 94% were British. Despite their extreme wealth, more than 20% said they were no wealthier than their parents and 31% said they had become millionaires before they reached thirty. Of those who had started their own businesses, the majority had done so before they were twenty-five, mostly with the help of their parents. 106 As we have seen repeatedly, the rich and the super-rich often do not get rich through their own efforts, but once they have acquired their wealth they are very adept at defending and preserving it. 107
So much so that the super-rich in both America and Britain now behave like emergent aristocracies. The new barons do not profit from land—at least not in the old ways—nor from coal nor railways nor even steel mills, over which their predecessors had once held monopolies, but rather from new kinds of wealth, often new kinds of monopolies or results of rent-seeking. These include inheriting copyrights or shares in drug patents or pharmaceutical firms. 108
But there are other ways of protecting privileges and assets, as Jairo Lugo-Ocando has demonstrated. “Many keep their fortunes by simply avoiding paying taxes, using loopholes created by legislators who are re-elected with that same money they help to evade. In reality, most wealth in the world is the product of inequality and it stays in the same hands thanks to the systems that reinforce that inequality.” 109 Lugo-Ocando’s larger point is that much of the wealth of the super-rich in the UK belongs to families whose original treasure can be traced back to slavery or violence, while more recent arrivals come from countries where much of the wealth was illicit at best, based on violence, insider access, or theft. 110
It may be true that the target of taxation has moved away from inheritance, away from “taxing the dead.” 111 Inheritance tax is relatively easy to avoid because the rich can transfer a large amount of their wealth while they are still alive, especially if they are able to transfer it more than seven years in advance of their death. But then there is the danger that nobody knows when he will die. Alternatively, there is always the option of concealing wealth abroad.
In the early 1990s there was a possibility that Inheritance Taxes (IHT) in the UK would be entirely abolished. In October of 1991, the Prime Minister, John Major , even proposed the abolition of IHT at a Conservative Party Conference, though he did not then take action. In July 1995, however, at Prime Minister’s Questions, Major was challenged by Tony Blair on this question. Major reaffirmed that he wished to abolish IHT and capital gains taxes, but only when it was “appropriate.” Apparently the appropriate moment had not yet arrived, though the Tories did manage to raise the threshold, the point at which the estate tax would begin. 112
IHT … taxes all wealth, even if it represents income or gains that have already been taxed. And a great deal of wealth will have been taxed already, at the time when it was generated by previous owners or by the present owner. The fact that IHT taxes all wealth means that it is a significant brake on the accumulation of private wealth. 113
This was slightly disingenuous, IHT does not tax all wealth, so it could hardly be a double tax. Moreover, wealth can be put into trust in the UK, which means that it ceases to belong to the grantor and belongs to the trustee. The tax break is explicit, the valuation of the trust is established at the death of the grantor, not the date the trust is created. That means the beneficiary of the trust will not be liable to pay taxes on the cost basis—the original purchase price—of the assets inherited, only on the value of the assets at the point of inheritance or the time of death of the grantor. The prior appreciation of the assets is not taxed. But the Directors’ report also ignores the other dodges: namely, the offshoring of assets, which can escape taxation entirely, and the 50–100% exemption on inherited business property—depending on the kind of business asset(s) inherited.
Chancellor Osborne was especially sympathetic to the problems of the rich, and so he worked on future tax planning for them by lowering inheritance taxes. Currently the threshold is £325,000 for an individual and twice that for a couple, before inheritance tax liability begins. But in 2020 the threshold will move up, an estate valued up to £500,000 for an individual and £1 million for a couple will incur no inheritance or estate tax. Beyond these thresholds, IHT stands at 40%, not counting the exemptions mentioned above.
In the tax year 2013–2014 the inheritance tax raised £3.4 billion, and was forecast to raise £4.2 billion in 2015–2016. It was estimated also that tax was paid on 28,000 estates in 2013–2014, representing 4.9% of all deaths. Taxes raised in 2013–2014 were a significant amount of money, but consider what the impact of the new threshold—£1 million—will be when it begins in 2020. The Conservative Opposition had proposed the £1 million inheritance tax threshold back in 2008–2009, which, at the time was estimated to cost Treasury £3.1 billion. When you add up all the dodges, you begin to get the thinking of the Tories . Many continue to believe that IHT should be abolished altogether. 114 For British Conservatives and the 1%, taxes are regarded more than ever as a voluntary sort of thing, wasteful at best, while relief for the growing legions of the near poor is being slashed as the Coalition government preaches from above about the indolence of the undeserving.
The campaign for abolition of estate or inheritance taxes may have slowed in Britain, but it has accelerated in the USA. Republicans, energized by the quixotic Donald Trump , have tried to tell the American public that enriching the rich further by abolishing taxes on their estates, will be a good thing for everybody. Especially for the super-rich, of course, who would not have to conceal so much wealth or hire so many attorneys to create tax-avoiding trusts.
In the USA, inheritance taxes or death duties were levied in the nineteenth century to help pay for wars and to add needed government revenues. An estate tax levied in 1916 was mostly about raising revenues, not redistribution. It did not intend to redress the concentration of wealth that had already been notable prior to World War I. The idea of redistribution fell to Franklin Delano Roosevelt , who addressed death duties head on: “The transmission from generation to generation of vast fortunes by will, inheritance or gift is not consistent with the ideals and sentiments of the American people.” This was an understatement at best. Whatever Roosevelt’s intention to make Americans more equal, and to raise inheritance taxes, the wealthiest 1%, and especially the wealthiest 0.1%, managed to minimize their inheritance tax liabilities. So much so, that generations later Gary Cohn , Donald Trump ’s chief economic advisor, uttered words quite different than Roosevelt’s advisements, pointing out that “only morons pay the estate tax.” 115 Since we assume that there were and are few rich morons, we can conclude that the super-rich have rarely if ever paid estate taxes.
But in that case why try to abolish them? Seems like an honest question, doesn’t it? Well, Paul Ryan has argued, abolishing death duties would create jobs. And Trump has trumpeted that abolishing the estate tax would save millions of small companies and hard-working farmers from utter ruin. Somehow, he managed to add, making the rich even richer would also make the USA much more competitive. And Representative Kevin Brady has echoed Trump by claiming that estate tax relief would help untold numbers of family businesses, including those run by minorities and women. 116
From these nuggets we might conclude that tax relief for the ultra rich is for the benefit of all those shirkers beneath the 1%. But not according to the Center for Budget and Policy Priorities, which argues that the super-rich have already received relief. A lot of relief. In fact, by 2017 the inheritance tax had already been substantially whittled down from previous levels of taxation. In 2001, with George W. Bush in the White House, estate taxes applied to inheritances above $650,000. But following changes in 2001, the exemption rose to $5.49 million for an individual and that figure doubled for a couple to $10.98 million. 117
But even that is not enough relief for the super-rich, they want to keep every penny in the family in perpetuity. They argue for abolition of all estate duties, as do Ryan and Trump, because the inheritance tax is a “double tax.” And unfair too, it penalizes a bloke for dying.
In fact, more than half of the biggest estates consist mostly of capital gains on stocks that have never been taxed because they have never been sold, it takes a sale to trigger the tax. Moreover, the current estate tax exempts the first $10.98 million from taxation, so the actual tax rate averages out to 17%, considerably below the top statutory rate of 40%. 118
Does the estate tax cause great suffering for small businesses, minorities, and women? Only two out of every thousand American who die owe any estate taxes. Only the wealthiest 0.2 Americans pay any estate taxes. This translates as only eighty small businesses and farms that will pay any estate taxes in 2017. That means that small businesses, including those run by minorities and women are virtually unaffected by inheritance taxes. Estates that do owe taxes pay on average only a sixth of their value, and much of that is on capital gains that were never taxed, as we know. But even this overstates the case. There remain loopholes that the super-rich are good at squeezing through, such as (perpetual) trusts that savvy lawyers use to help them avoid taxes should they find themselves above the exemption.
Finally, what about jobs? It is very likely that abolishing the estate tax won’t empty the food stamp rolls. That is because there is no guarantee there will be more saving, or that less money will be spent on imports. What is certain, according to the Joint Committee on Taxation, is that the government would be deprived of some $269 billion over a decade if the estate tax is abolished. 119
But all this has become quite beside the point. The Tax Cuts and Jobs Act doubles the exemption on estate taxes. And in 2024, the new law establishes that estate taxes, or “Death Duties,” will end altogether, expending inequality to new and unprecedented heights.
Conclusion
Taxes are not the entire explanation for the maldistribution of wealth in the UK and the USA. But the coincidence between shifting tax burdens south and the low growth of GDP is neither accidental nor negligible. And this should not be a surprise. Vast inequality means the concentration of wealth in the hands of a diminishing group of the privileged, which has spent considerable effort evading taxes on that wealth. For everybody else this has meant less revenue for everything from education to infrastructure, from job creation to investment in renewable energy. Tax inequity is not just unfair, it destroys economic growth, robbing many people of their futures. Moreover, it rewards the super-rich, who need tax breaks least. And it vastly shifts income toward those who need it least.
Tax inequity also means that those reaping the benefits from tax shedding will be disposed to use part of their gains to lobby for even more tax breaks. Or more tax avoidance. They will be able to use political muscle to prevent reform. They will be able to preserve tax havens . They will resist levying taxes on corporate profits where they are earned. They will avoid the banning of tax inversions. They will stymie efforts to levy wealth taxes, even though this is one of the best ways to combat inequality, and to restore social equality, social peace, and ultimately democratic institutions. If social equity is to be restored, the long-standing shift of the tax burden away from the super-rich and toward everybody else will have to be reversed. No income should be privileged as capital gains taxes, inheritance taxes should be substantially raised, wealth taxes should be imposed, there should be no tax holidays, and corporate taxes should not be deferred until they can be diminished or abolished.
In a press release filed back in 2014, Oxfam GB noted that Britain in the twenty-first century was a deeply divided nation because the people at the very top had never had it better, while millions of families were struggling just to survive. As growing numbers of Britons were showing up at food banks run by charities, “the highest earners in the UK have had the biggest tax cuts of any country in the world.” 120 To be sure, as Oxfam was quick to note, some of the inequality gap was because low paid workers had seen their wages stagnate for decades, while the pay and bonuses of the super-rich had ballooned. 121 But, as Oxfam added, tax inequities ranked high as one of the reasons for growing inequality. By Oxfam estimates, tax evasion, by companies and individuals, was costing the UK economy about £35 billion every year. Of that amount, according to Oxfam, at least £5.2 billion a year was being evaded by elite rich individuals hiding wealth in tax havens . 122
The implication is clear: inadequate or low taxation, and successful tax evasion, have contributed significantly to increased and dangerous levels of social inequality, and this is true for both the USA and the UK. In the USA, using data for 2010, Edward Nathan Wolff found that the bottom 40% of households were unable to get out of debt, with debts averaging $14,000 non-home wealth per household. By comparison the middle 20% had wealth averaging only $12,200 per household—a full quarter less than in 1983. The next 20% had $100,700 per household; and the top 20% $1.7 million each on average, almost double what this group had in 1983 in real terms. No matter the measurement used, the bottom half of Americans were essentially drowning in debt, with negligible or negative wealth. 123
Britain has been much the same, no matter the metric. In 2012 the top tenth wealthiest people in the UK were almost 500 times richer than the bottom tenth. But in the top tenth the richest 1% had an increasing share: the very richest were moving away from the merely wealthy. 124 Oxfam’s “A Tale of Two Britains,” provided the illustration. It found that the richest five households in Britain had more money than the bottom 12.6 million people—almost the same as the number of people living below the poverty line in the UK. Oxfam’s advice to the Coalition government run by Cameron was to start raising revenues from those who could afford it, “by clamping down on companies and individuals who avoid paying their fair share of tax” instead of cutting the benefits of those at the margins or in the depths of poverty. 125
Notes
- 1.
Fran Abrams and Anthony Bevins, “Murdoch’s Courtship of Blair Finally Pays Off,” Independent, February 11, 1998.
- 2.
Economist, “Rupert Laid Bare,” March 18, 1999, www.economist.com/node/319862.
- 3.
Warren Buffett, “Stop Coddling the Super-Rich,” New York Times, August 14, 2011.
- 4.
David Cay Johnston, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich and Cheat Everybody Else (New York: Penguin, 2003), 12.
- 5.
Danny Dorling , Inequality and the 1 Percent (London: Verso, 2014), 20.
- 6.
Tax Policy Center, “Briefing Book” (Washington, DC: Urban Institute and Brookings Institution, 2016), online at http://www.taxpolicycenter.org/briefing-book/what-are-sources-revenue-federal-government-0.
- 7.
Nancy Fraser, Fortunes of Feminism: From State-Managed Capitalism to Neoliberal Crisis (London: Verso, 2013), 218.
- 8.
Johnston, Perfectly Legal, 13.
- 9.
Ibid., 14.
- 10.
Ibid.
- 11.
Citizens for Tax Justice, News Release, “New Report Finds 315 Fortune 500 Companies Used ‘Stock Option Loophole’ to Collectively Avoid $64.5 Billion in State and Federal Taxes,” June 9, 2016; for the full report, see online at http://ctj.org/ctjreports/2016/06/fortune_500_corporations_used_stock_option_loophole_to_avoid_646_billion_over_the_past_five_years.php.
- 12.
Ibid.
- 13.
Ibid.
- 14.
Kimberly A. Clausing, “The Effect of Profit Shifting on the Corporate Tax Base in the United States and Beyond,” National Tax Journal 69, no. 4 (December 2016): 905, https://doi.org/10.17310/ntj.2016.4.09. Gabriel Zucman concludes that corporate tax evasion actually is closer to $140 billion annually in the USA.
- 15.
Oxfam America, Broken at the Top: How America’s Dysfunctional Tax System Costs Billions in Corporate Tax Dodging (Boston, MA: Oxfam America, April 14, 2016), 3–4, online at https://www.oxfamamerica.org/static/media/files/Broken_at_the_Top_FINAL_EMBARGOED_4.12.2016.pdf.
- 16.
Robert McIntyre, Offshore Shell Games, 2015: The Use of Offshore Tax Havens by Fortune 500 Companies (Washington, DC: Citizens For Tax Justice, October 2015), 5, online at http://ctj.org/ctjreports/2015/10/offshore_shell_games_2015.php#.VuMbX-ZXo8I.
- 17.
Francis Weyzig, Still Broken: Governments Must Do More to Fix the International Corporate Tax System (Boston, MA: Oxfam America, November 2015), http://www.oxfamamerica.org/static/media/files/still-broken-corporate-tax-101115-embargo-en.pdf.
- 18.
Ibid.
- 19.
Gabriel Zucman, “Taxing Across Borders: Tracking Personal Wealth and Corporate Profits,” Journal of Economic Perspectives 28, no. 4 (Fall 2014): 121–48, online at gabriel-zucman.eu/files/Zucman2014JEP.pdf.
- 20.
Broken at the Top, 1.
- 21.
Ibid., 2.
- 22.
Ibid.
- 23.
Ibid., 7.
- 24.
Robert S. McIntyre, Matthew Gardner, and Richard Phillips, The Sorry State of Corporate Taxes (Washington, DC: Citizens for Tax Justice, Institute on Taxation and Economic Policy, February 2014), http://www.ctj.org/corporatetaxdodgers/sorrystateofcorptaxes.pdf.
- 25.
Broken at the Top, 6–7.
- 26.
Clausing, “The Effect of Profit Shifting,” 905.
- 27.
Broken at the Top, 3.
- 28.
Ibid., 7.
- 29.
Robert McIntyre, Richard Phillips, and Phineas Baxandall, Offshore Shell Games 2015: The Use of Offshore Tax Havens by Fortune 500 Companies (Washington, DC: Citizens for Tax Justice, October 2015), 1–3, 7–10, online at http://ctj.org/pdf/offshoreshell2015.pdf; and Broken at the Top, 8.
- 30.
US Government Accountability Office, Cayman Islands : Business and Tax Advantages Attract U.S. Persons and Enforcement Challenges Exist, GAO-08-778 (Washington, DC: GAO, July 24, 2008), 2–3, online at http://www.gao.gov/products/GAO-08-778.
- 31.
Richard Murphy, “The Tax Gap Is 119.4 Billion and Rising,” Tax Research Blog, September 22, 2014, online at http://www.taxresearch.org.uk/Blog/2014/09/22/new-report-the-tax-gap-is-119-4-billion-and-rising/.
- 32.
Stewart Lansley, Rich Britain: The Rise and Rise of the New Super-Wealthy (London: Politico, 2006), 187.
- 33.
Jack Lawrence Luzkow, The Great Forgetting: The Past, Present and Future of Social Democracy and the Welfare State (Manchester: Manchester University Press, 2015), 132.
- 34.
Eric Shaw, Losing Labour’s Soul: New Labour and the Blair Government (London: Routledge, 2007), 56.
- 35.
Luzkow, Great Forgetting, 124; for background see Shaw, Losing Labour’s Soul, 56–57.
- 36.
General Accountability Office, Cayman Islands : Business and Tax Advantages, 2–6.
- 37.
Broken at the Top, 8.
- 38.
Stephanie Fontana, “A Hidden Network of Hidden Wealth,” Oxfam America Blog, January 11, 2016, online at http://politicsofpoverty.oxfamamerica.org/2016/01/a-hidden-network-of-hidden-wealth/.
- 39.
Centre for Responsive Politics, “Lobbying Spending Database,” https://www.opensecrets.org/lobby/.
- 40.
Broken at the Top, 8.
- 41.
Ibid., 18–19.
- 42.
Drew DeSilver, “High-Income Americans Pay Most Income Taxes, But Enough to Be ‘Fair’?” Pew Research Center, March 24, 2015, online at http://www.pewresearch.org/fact-tank/2015/03/24/high-income-americans-pay-most-income-taxes-but-enough-to-be-fair/; see also Leonard E. Burman, “Taxes and Inequality,” Tax Policy Center, March 20, 2014, online at http://www.taxpolicycenter.org/publications/taxes-and-inequality/full.
- 43.
Broken at the Top, 10.
- 44.
Ibid.; See also Children’s Defense Fund, “Ending Child Poverty Now,” online at http://www.childrensdefense.org/library/PovertyReport/EndingChildPovertyNow.html; and Lukas Brun, Infrastructure Investment Creates American Jobs (Durham, NC: Duke University, Center on Globalization, Governance, and Competitiveness, October 2014), https://s.bsd.net/aamweb/main/page/file/9d937012edb12326c4_7vm62z7l5.pdf.
- 45.
Nicholas Shaxson, Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens (New York: Palgrave Macmillan, 2011), 221–22.
- 46.
Ibid., 11.
- 47.
Senator Carl Levin , News Release, “Dorgan and Levin Release Study Showing Majority of Corporations Pay No Federal Income Tax ,” August 12, 2008, see summary of this at Andrew Ross Sorkin, “Most US Corporations Pay No Income Tax ,” New York Times, August 13, 2008. See Martin A. Sullivan, “Testimony Before Congress, the Committee on Ways and Means in the House of Representatives,” Tax Analysts, July 22, 2010, online at http://s3.amazonaws.com/zanran_storage/house.gov/ContentPages/114151771.pdf.
- 48.
Shaxson, Treasure Islands, 15–16.
- 49.
Ibid., 16.
- 50.
Ibid.
- 51.
Ibid., 17–18.
- 52.
US Government Accountability Office, Large U.S. Corporations and Federal Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or Financial Privacy Jurisdictions, GAO-09-157 (Washington, DC: GAO, December 18, 2008), see highlights online at http://www.gao.gov/products/GAO-09-157.
- 53.
Shaxson, Islands, 20.
- 54.
Harriet Taylor, “How Apple Managed to Pay a 0.005 Tax Rate in 2014,” CNBC, August 30, 2016, online at http://www.cnbc.com/2016/08/30/how-apples-irish-subsidiaries-paid-a-0005-percent-tax-rate-in-2014.html.
- 55.
Ibid.; and Kate Benner, “Fact-Checking Apple’s Claims on EU Tax Ruling,” New York Times, August 30, 2016.
- 56.
European Commission Letter to Apple, Alleged Aid to Apple (Brussels: European Commission , June 11, 2014), 3, online at http://ec.europa.eu/competition/state_aid/cases/253200/253200_1582634_87_2.pdf.
- 57.
Ibid.; see also Taylor, “How Apple Managed to Pay a 0.005 Tax Rate in 2014.”
- 58.
Ibid.
- 59.
Ibid.; Senators Carl Levin and John McCain , The Permanent Subcommittee on Investigations of the US Senate, “Memorandum: Offshore Profit Shifting and the U.S. Tax Code-Part II (Apple Inc.), Exhibit 1A,” May 21, 2013, 3–5, online at https://www.hsgac.senate.gov/download/?id=cde3652b-da4e-4ee1-b841-aead48177dc4.
- 60.
Ibid., 17.
- 61.
Ibid.
- 62.
Ibid., 21.
- 63.
Ibid., 21–23.
- 64.
Editorial Board, “Apple, Congress and the Missing Taxes,” New York Times, August 30, 2016.
- 65.
Ibid.; “US Companies Holding $2.1 Trillion Offshore Profits,” CNBC, October 6, 2015, online at http://www.cnbc.com/2015/10/06/us-companies-holding-21-trillion-offshore-profits.html; and also Citizens for Tax Justice, “$2.1 Trillion Profits Held Offshore: A Comparison of International Tax Proposals,” July 14, 2015, online at http://ctj.org/ctjreports/2015/07/21_trillion_in_corporate_profits_held_offshore_a_comparison_of_international_tax_proposals.php#.V967umX0iFI.
- 66.
Johnston, Perfectly Legal, 17–18.
- 67.
Ibid., 18.
- 68.
Tax Foundation, “Federal Capital Gains Taxes,” online at https://files.taxfoundation.org/legacy/docs/cap_gains_1988-2013.pdf.
- 69.
Cited in Johnston, Perfectly Legal, 19.
- 70.
Ibid.
- 71.
Danny Dorling , Inequality and the 1 Percent (London: Verso, 2014), 151.
- 72.
Douglas Carswell, Interviewed by Owen Jones, “Owen Jones Meets Douglas Carswell,” youtube.com, July 22, 2015, online at youtube.com.
- 73.
Cited by Owen Jones, Chavs: The Demonization of the Working Class (London: Verso, 2011), 62.
- 74.
Patrick Wintour, “George Osborne Poised to Slash Top Tax Rate from 50p to 40p,” Guardian, March 15, 2012. This was a reversion to the 40% rate adopted by Lawson in 1988.
- 75.
Jones, Chavs, 62–63. Indeed they were, but not for the working classes.
- 76.
Ibid., 63.
- 77.
Mary Shaw, Daniel Dorling, David Gordon, and George Davey Smith, The Widening Gap: Health Inequalities and Policy in Britain (Bristol: Policy Press, 1999), 147.
- 78.
Earl A. Reitan, The Thatcher Revolution: Margaret Thatcher , John Major , Tony Blair and the Transformation of Modern Britain, 1979–2001 (Lanham, MD: Rowman and Littlefield, 2003), 77.
- 79.
Eric J. Evans, Thatcher and Thatcherism, 2nd edition (London: Routledge, 2004), 138–39. The bottom tenth saw their wealth nearly halved. Also, Stewart Lansley, Life in the Middle: The Untold Story of Britain’s Average Earners, Touchstone Pamphle No. 6 (London: TUC, 2009), 14–15, https://www.tuc.org.uk/sites/default/files/documents/lifeinthemiddle.pdf.
- 80.
Dorling, Inequality and the 1 Percent, 76–77.
- 81.
Kim Willsher, “Will France’s Supertax Spark ‘Patriotism’ or a ‘Brain Drain’?” Guardian, September 14, 2012.
- 82.
Dorling, Inequality and the 1 Percent, 78–79.
- 83.
Ibid., 76.
- 84.
Emmanuel Saez and Thomas Piketty , “Why the 1 Percent Should Pay Tax at 80 Percent,” Guardian, October 24, 2013; Emmanuel Saez and Thomas Piketty , “Income Inequality in the United States, 1913–1998,” Quarterly Journal of Economics 118 (February 2003): 1–39.
- 85.
Matthew Sinclair, “Why No Conservative Should Support a Mansion Tax,” Spectator, February 18, 2013, online at http://blogs.spectator.co.uk/2013/02/why-no-conservative-should-support-a-mansion-tax/.
- 86.
Roman Krznaric, Empathy: A Handbook for Revolution (London: Rider Books, 2014).
- 87.
Dorling, Inequality and the 1 Percent, 89.
- 88.
Paul Krugman, “The Long-Run History of Taxes on the Rich,” New York Times, July 12, 2012.
- 89.
Ibid.
- 90.
Johnston, Perfectly Legal, 19.
- 91.
Ibid., 19–20.
- 92.
Ibid., 20–21.
- 93.
Zachary Goldfarb, “The Legacy of the Bush Tax Cuts in Four Charts,” Washington Post, January 2, 2013; see also Thomas L. Hungerford, “US Library of Congress, Congressional Research Service,” Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945 (Washington, DC: Congressional Research Service, September 14, 2012), online at https://www.dpcc.senate.gov/files/documents/CRSTaxesandtheEconomy%20Top%20Rates.pdf; and Kathy Ruffing and Joel Friedman, Economic Downturn and Legacy of Bush Policies Continue to Drive Large Deficits: Economic Recovery Measures, Financial Rescues Have Only Temporary Impact (Washington, DC: Center on Budget and Policy Priorities, February 28, 2013), 1–2, online at http://www.cbpp.org/research/economic-downturn-and-legacy-of-bush-policies-continue-to-drive-large-deficits.
- 94.
Goldfarb, “The Legacy of the Bush Tax Cuts”; also Ruffing and Friedman, Economic Downturn and Legacy of Bush Policies; and Hungerford, Economic Analysis of the Top Tax Rates Since 1945.
- 95.
Dorling, Inequality and the 1 percent, 118.
- 96.
Sarah Butler, “Inheritance Tax : A Brief History of Death Duties,” Guardian, April 10, 2016.
- 97.
Rory O’Farrell, “Irish Inequality During the 20th Century,” Progressive Economy Blog, September 23, 2010, online at http://tasceconomists.blogspot.com/2010/09/irish-inequality-during-20th-century.html.
- 98.
“ITI—Tax Credits, Reliefs and Rates for the Tax Years 2013 and 2014,” “Domicile Levy,” and “Capital Gains Tax ,” online at revenue i.e., See http://www.revenue.ie/en/personal-tax-credits-reliefs-and-exemptions/index.aspx and http://www.revenue.ie/en/tax/cgt/leaflets/cgt2.html.
- 99.
Thomas McDonnell, Wealth Tax : Options for Its Implementation in the Republic of Ireland , National Economic Research Institute, Paper No. 6 (Dublin: NERI, September 2013), 13–26, online at http://www.tasc.ie/download/pdf/tasc_neri_wealth_tax_tom_mcdonnell.pdf.
- 100.
Thomas Piketty , “Should We Make the Richest Pay to Meet Fiscal Adjustment Needs?” in S. Princen and G. Mouree eds., The Role of Tax Policy in Times of Fiscal Consolidation, Economic Papers 502 (Brussels: European Commission , August 2013), online at http://piketty.pse.ens.fr/files/PikettyEC2013.pdf.
- 101.
Jeevan Vasagar and Peter Spiegel, “Bundesbank Proposes Wealth Tax for EU States Facing Bankruptcy,” Financial Times, January 27, 2014.
- 102.
McDonnell, Wealth Tax , 20–23.
- 103.
Anthony B. Atkinson and Salvatore Morelli, Chartbook of Economic Inequality: 25 Countries 1911–2010, INET Research Note 15 (New York: Institute for New Economic Thinking, 2012), online at https://www.ineteconomics.org/uploads/papers/ChartbookofEconomicInequality.pdf.
- 104.
Ibid.
- 105.
Thomas Piketty and Emmanuel Saez , “A Theory of Optimal Inheritance Taxation,” Econometrica 81, no. 5 (September 2013): 1851–86. https://doi.org/10.3982/ecta10712.
- 106.
Dorling, Inequality and the 1 Percent, 122.
- 107.
Ibid.
- 108.
Dorling, Inequality and the 1 Percent, 125.
- 109.
Jairo Lugo-Ocando as cited by Danny Dorling , Inequality and the 1 Percent, 125; see Jairo Lugo-Ocando, Blaming the Victim: How Global Journalism Fails Those in Poverty (London: Pluto Press, 2014), describing how the rich create or preserve inequality by employing their wealth.
- 110.
Dorling, Inequality and the 1 Percent, 211, note 103.
- 111.
Ibid., 125.
- 112.
UK House of Commons, Briefing Paper, “Inheritance Tax ,” Number 00093, September 29, 2015, online at researchbriefings.files.parliament.uk/documents/SN00093/SN00093.pdf.
- 113.
Ibid., 8.
- 114.
Ibid., 3–4.
- 115.
Editorial Board, “Only Morons Pay the Estate Tax,” New York Times, November 17, 2017.
- 116.
Ibid.
- 117.
Chye-Ching Huang and Chloe Cho, Ten Facts You Should Know About the Federal Estate Tax (Washington, DC: Center on Budget and Policy Priorities, October 30, 2017), 1, online at https://www.cbpp.org/sites/default/files/atoms/files/1-8-15tax.pdf.
- 118.
Ibid. 2.
- 119.
Ibid., 2–7.
- 120.
Oxfam GB, “A Tale of Two Britains,” Oxfam Media Briefing (London: Oxfam, March 17, 2014), online at http://policy-practice.oxfam.org.uk/publications/a-tale-of-two-britains-inequality-in-the-uk-314152.
- 121.
Ibid.
- 122.
Ibid.
- 123.
Edward Nathan Wolff, The Asset Price Meltdown and the Wealth of the Middle Class, Occasional Paper (New York: Russell Sage Foundation and Brown University, 2013), 1–10, Figs. 3, 4, and Table 1, online at https://s4.ad.brown.edu/Projects/Diversity/Data/Report/report05012013.pdf.
- 124.
Heather Stewart, “Almost Half of Britain’s Private Wealth Owned by Top 10 Percent of Households,” Guardian, December 18, 2015; see also Stewart Lansley, Britain’s Livelihood Crisis, Touchstone Pamphlet No. 10 (London: Trades Union Congress, 2011, online at https://www.tuc.org.uk/sites/default/files/tuc-19639-f0.pdf; and Patrick Collinson, “Richest 10 Percent of UK Households Own 40 Percent of Wealth, ONS Says,” Guardian, December 3, 2012. The Guardian found that the top decile was 950 times wealthier than the bottom decile, basing its figures on the Office of National Statistics. The Institute for Fiscal Studies reported that in the year 2012 the top decile of households owned more than 50% of financial wealth in the UK, online at https://www.ifs.org.uk/publications/8239.
- 125.
Oxfam GB, “A Tale of Two Britains.”