{"id":121088,"date":"2018-10-29T12:01:16","date_gmt":"2018-10-29T12:01:16","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=121088"},"modified":"2018-10-28T11:38:06","modified_gmt":"2018-10-28T11:38:06","slug":"tax-havens-and-other-dirty-tricks-let-u-s-corporations-steal-180-billion-from-the-rest-of-the-world-every-year","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2018\/10\/tax-havens-and-other-dirty-tricks-let-u-s-corporations-steal-180-billion-from-the-rest-of-the-world-every-year\/","title":{"rendered":"Tax Havens and Other Dirty Tricks Let U.S. Corporations Steal $180 Billion from the Rest of the World Every Year"},"content":{"rendered":"<div id=\"attachment_121089\" style=\"width: 710px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/city-lights-geneva-genebra.jpg\" ><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-121089\" class=\"wp-image-121089\" src=\"https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/city-lights-geneva-genebra-1024x512.jpg\" alt=\"\" width=\"700\" height=\"350\" srcset=\"https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/city-lights-geneva-genebra-1024x512.jpg 1024w, https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/city-lights-geneva-genebra-300x150.jpg 300w, https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/city-lights-geneva-genebra-768x384.jpg 768w, https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/city-lights-geneva-genebra.jpg 1440w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><p id=\"caption-attachment-121089\" class=\"wp-caption-text\">An evening view of the city of Geneva, Switzerland, on Aug. 11, 2018. Switzerland is one of the world\u2019s best-known tax havens. Photo: Fabrice Coffrini\/AFP\/Getty Images<\/p><\/div>\n<p><em>26 Oct 2018 &#8211; <\/em>Are tax havens an enraging but tangential subject? Or do they have a powerful effect on how the U.S. economy functions and should therefore be a part of every political debate?<\/p>\n<p>The startling findings of a new <a target=\"_blank\" href=\"http:\/\/gabriel-zucman.eu\/files\/WrightZucman2018.pdf\" >academic study<\/a>\u00a0indicate that it\u2019s the latter. Titled \u201cThe Exorbitant Tax Privilege,\u201d the paper is co-written by Thomas Wright and University of California, Berkeley economist Gabriel Zucman, one of the world\u2019s top authorities on tax havens and author of the best layperson\u2019s introduction to the subject, \u201c<a target=\"_blank\" href=\"https:\/\/theintercept.com\/2016\/04\/05\/heres-the-price-countries-pay-for-tax-evasion-exposed-in-panama-papers\/\" >The Hidden Wealth of Nations<\/a>.\u201d<\/p>\n<p>Tax havens \u2014 the most significant include Ireland, Singapore, Switzerland, the Netherlands, Luxembourg, Hong Kong, and Bermuda \u2014 serve two purposes.<\/p>\n<p>The first is tax <em>evasion\u00a0<\/em>by individuals, which is illegal. Think of Russian or Nigerian plutocrats transferring their assets to small Caribbean nations with strict banking secrecy laws, freeing them from the dreary necessity of paying taxes in their home countries.<\/p>\n<p>The second is tax <em>avoidance\u00a0<\/em>by huge multinational corporations, which \u2014 as long as the lawyers are doing their jobs \u2014 is perfectly legal. Here imagine Apple using various forms of accounting chicanery to claim that tens of billions of its profits generated in countries with normal corporate tax rates were actually <a target=\"_blank\" href=\"https:\/\/www.nytimes.com\/2013\/05\/21\/business\/apple-avoided-billions-in-taxes-congressional-panel-says.html?module=inline\" >all made in Ireland<\/a>, where Apple had negotiated a special 2 percent tax rate for itself. (Apple has on occasion gone even further, asserting that some of its profits were made, for the purposes of taxation, in no country at all.)<\/p>\n<p>Zucman conservatively estimated <a target=\"_blank\" href=\"https:\/\/theintercept.com\/2016\/04\/05\/heres-the-price-countries-pay-for-tax-evasion-exposed-in-panama-papers\/\" >in his book<\/a>\u00a0that tax avoidance and evasion translate into hundreds of billions of dollars in unpaid taxes every year \u2014 money that, for the most part, ends up in the pockets of the world\u2019s wealthiest people.<\/p>\n<p>The Zucman and Wright paper addresses the multinational corporation part of the equation. Among their conclusions:<\/p>\n<ul>\n<li>As of 1970, American multinationals claimed that under 10 percent of their profits were generated in tax havens; that number is now, preposterously enough, almost 50 percent. In other words, U.S. companies want us to believe that nearly half their economic activity is occurring in places like the Cayman Islands. Goldman Sachs, for instance, has 511 subsidiaries there, yet zero offices.<\/li>\n<\/ul>\n<p>By contrast, European multinationals generally say under 20 percent of their profits were made in tax havens. U.S. multinationals engage in this white shoe, three-card monte for obvious reasons: They pay effective tax rates of 27 percent on profits generated in non-tax havens, the paper finds, and 7 percent in tax havens.<\/p>\n<ul>\n<li>The sheer fraudulence of tax havens has reached breathtaking levels. One clear measure of whether a multinational corporation is engaging in genuine economic activity in a country is the ratio of its reported profits to wages paid: The higher the ratio, the clearer it is that profits are being illegitimately claimed in that country because of its low tax rate. In non-tax haven countries, the average ratio is 36 percent \u2014 that is, corporations report 36 cents in pre-tax profits for every $1 they paid in wages. By contrast, the ratio has been as high as 800 percent for foreign multinationals in Ireland and an eye-popping 1,625 percent in Puerto Rico.<\/li>\n<li>For decades, thanks in part to tax havens, both the statutory and effective tax rates for multinationals have been steadily ratcheted down around the world. Since the early 1990s, the rate paid by U.S. non-oil multinationals on foreign profits has fallen from 35 percent to 20 percent.<\/li>\n<li>Similarly, the tax rate paid by U.S. oil companies to foreign governments plummeted from an average of 70 percent before the 1991 Gulf War to 45 percent since \u2014 a peculiar phenomenon which, Zucman and Wright say, may reflect \u201ca return on military protection granted by the United States to oil-producing States.\u201d (Tax rates for oil multinationals are higher than for other corporations because hydrocarbon states have greater leverage \u2014 for example, Ivanka Trump can transfer the production of her shoe line from Bangladesh to Ethiopia, but Exxon can\u2019t threaten to move an oil extraction project from the United Arab Emirates to Belgium.) U.S. oil multinationals are also astonishingly profitable: From 1966 to 2010, their pre-tax foreign profits accounted for over a third of all the foreign profits of U.S.-based multinationals.<\/li>\n<\/ul>\n<p><strong>U.S. Global Power<\/strong><\/p>\n<p>Taken together, this all suggests that tax havens play a measurable role in bolstering U.S. global power. The U.S. has for decades bought much more from other countries than\u00a0it has sold them, and\u00a0its accumulated foreign debt is now far larger than that of any other country \u2014 about $8 trillion, or more than 40 percent of the U.S. gross domestic product. This $8 trillion is the difference between $35 trillion in foreign investments in U.S. assets and $27 trillion in U.S. investments in foreign assets.<\/p>\n<p>Under normal economic logic, this should mean huge amounts of money would drain out of the U.S. economy each year, as foreigners collect returns on their American assets. Yet somehow America\u2019s returns on our foreign assets are so much higher than foreign returns on their U.S. assets that the opposite happens \u2014 money keeps flowing <em>into\u00a0<\/em>the U.S.<\/p>\n<p>Zucman and Wright estimate that almost half of the difference between U.S. returns and foreign returns can be attributed to abnormally low tax rates for U.S. multinationals, which in turn are thanks to U.S. power and tax havens. If their conclusions are correct, this exorbitant tax privilege translates into about $180 billion per year, or almost 1 percent of U.S. GDP. (If 1 percent doesn\u2019t sound like a lot to you, remember that for the past decade the U.S. economy has usually grown between just 1.5 percent and 2.5 percent per year.) In a fairer world economy, this money would largely be collected by non-tax haven foreign governments in taxes. Instead, it flows to U.S. multinationals and their shareholders.<\/p>\n<p>This is a blizzard of statistics, of course. But they have many intriguing implications \u2014 ones that go beyond what Zucman and Wright\u2019s\u00a0report\u00a0says \u2014 which suggest that the effects of tax havens will show up in numerous political issues to which they seem unconnected.<\/p>\n<p>First, if U.S. elites were intelligent enough to understand the implications of\u00a0tax havens \u2014 by no means a foregone conclusion \u2014 they would likely squelch any serious effort to eliminate them. This is not just because the wealthy disproportionately own U.S. stock and directly benefit from tax avoidance by U.S. multinationals. It\u2019s also because shutting down tax havens could lower the returns on our foreign assets. This in turn would force the U.S. to submit to the normal laws of economic gravity and cause the dollar to weaken. This would be good for many normal Americans because it would boost U.S. manufacturing. But this would be quite unpalatable to U.S. elites because a weaker dollar makes the U.S. relatively poorer compared to the rest of the world and thus, reduces our might on the global stage.\u00a0(Closing tax havens should also reduce inequality in the U.S. by reducing corporate profits.)<\/p>\n<p>Then there\u2019s the fact that the fall in corporate tax rates over the past decades isn\u2019t over. Prior to the passage of the GOP tax bill last year, corporations theoretically were required to pay U.S. tax rates on profits booked in foreign countries when they repatriated the profits back to the U.S. (In practice, they just never brought the money home.) But the 2017 bill changed the rules. Now any money that corporations claim they made in a foreign country will only be liable for that country\u2019s taxes. Thus, companies will have even more incentive to bogusly shift profits to tax havens.<\/p>\n<div id=\"attachment_121090\" style=\"width: 510px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/paul-ryan-republican-usa.jpg\" ><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-121090\" class=\"wp-image-121090\" src=\"https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/paul-ryan-republican-usa-1024x746.jpg\" alt=\"\" width=\"500\" height=\"364\" srcset=\"https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/paul-ryan-republican-usa-1024x746.jpg 1024w, https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/paul-ryan-republican-usa-300x219.jpg 300w, https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/10\/paul-ryan-republican-usa-768x560.jpg 768w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/a><p id=\"caption-attachment-121090\" class=\"wp-caption-text\">Speaker of the House Paul Ryan, R-Wis., seated at center with Senate Finance Committee Chair Orrin Hatch, R-Utah, right, presents a pen to House Ways and Means Committee Chair Kevin Brady, R-Texas, left, after signing the final version of the GOP tax bill during an enrollment ceremony at the Capitol in Washington, D.C. on Dec. 21, 2017. Photo: Andrew Harnik\/AP<\/p><\/div>\n<p>The bill also slashed the U.S. statutory corporate tax rate from 35 percent to 21 percent, purportedly because America had to be \u201ccompetitive\u201d with other countries with lower rates. This will now put pressure on those countries to further lower their corporate tax rates to compete with us. Once they do, multinationals will use that to demand lower corporate tax rates in the U.S. And so on.<\/p>\n<p>There\u2019s also the issue of who has what power in the U.S.-Saudi relationship in the wake of the murder of Jamal Khashoggi. Pundits have confidently proclaimed that because the Saudis now produce a smaller proportion of world oil than in the past, we now need them less. But U.S. elites don\u2019t just care about Saudi influence on the price of oil, they care about U.S. involvement in the extraction and refining of all the Persian Gulf\u2019s hydrocarbons. If the U.S. truly broke with the Riyadh, the Saudis and their similarly oil-rich Gulf allies might attempt to punish U.S. oil multinationals by turning to the oil multinationals of Russia or China.<\/p>\n<p>And take the issue of statehood for Puerto Rico, something which would likely increase the power of the Democratic Party in Congress. Puerto Rico has been a tax haven for the pharmaceutical industry for decades and more recently, has been trying to market itself as a tax haven for superwealthy individuals. If Puerto Rico became a state, both corporations and a lot of hedge fund expatriates would find themselves paying U.S. tax rates, and hence, they both can be counted on to lobby extremely hard against it ever happening.<\/p>\n<p><strong>Taxes Versus Smallpox and Golf<\/strong><\/p>\n<p>All in all, the continuing metastasizing of tax havens around the world should be a central preoccupation of economists beyond outliers like Zucman \u2014 as well as front-page news and fascinating to everyone. Yet it\u2019s not. Why?<\/p>\n<p>Almost 100 years ago, the acerbic misanthrope H.L. Mencken wrote <a target=\"_blank\" href=\"http:\/\/www.tinyrevolution.com\/mt\/archives\/002672.html\" >an essay<\/a> about academic economists. The subject of taxation, Mencken said, \u201cis eternally lively; it concerns nine-tenths of us more directly than either smallpox or golf, and has just as much drama in it.\u201d Yet somehow, Mencken wrote, economists have made taxes and economics in general seem mind-crushingly boring.<\/p>\n<p>This happens, Mencken explained, because there are many academic subjects \u2014 math, archeology, Latin grammar \u2014 about which the superrich don\u2019t care. But economics \u201chits the employers of the professors where they live. \u2026 It is, in brief, the science of the ways and means whereby they have come to such estate, and maintain themselves in such estate, that they are able to hire and boss professors. \u2026 over practically every [economist] there stands a board of trustees with its legs in the stock-market and its eyes on the established order, and that board is ever alert for heresy in the science of its being.\u201d Economists therefore have every incentive to be extremely orthodox, extremely dull, and never communicate \u201cthe violet of human interest\u201d to the rest of the world.<\/p>\n<p>We\u2019re lucky that Zucman &amp; Co. have ignored these incentives. \u201cSome people in economics feel,\u201d Zucman<a target=\"_blank\" href=\"https:\/\/www.icrict.com\/icrict-in-thenews\/2018\/6\/4\/some-people-in-economics-feel-that-talking-about-inequality-is-not-what-economists-should-be-doing\" >\u00a0said<\/a>, \u201cthat economics should be only about efficiency, and that talking about distributional issues and inequality is not what economists should be doing.\u201d He\u2019s even been accused of engaging in \u201cFrench economics,\u201d whatever that means. Fortunately, he and his colleagues continue to focus on what truly matters and have the talent to inform the rest of us.<\/p>\n<p>_________________________________________________<\/p>\n<p><em>Related:<\/em><\/p>\n<ul>\n<li><a target=\"_blank\" href=\"https:\/\/theintercept.com\/2016\/04\/05\/heres-the-price-countries-pay-for-tax-evasion-exposed-in-panama-papers\/\" ><strong><em>Here\u2019s the Price Countries Pay for Tax Evasion Exposed in Panama Paper<\/em><\/strong><\/a><\/li>\n<li><a target=\"_blank\" href=\"https:\/\/theintercept.com\/2016\/04\/17\/heres-a-way-to-shut-down-panama-papers-style-tax-havens-if-we-wanted-to\/\" ><strong><em>Here\u2019s a Way to Shut Down Panama Papers-Style Tax Havens \u2014 If We Wanted To<\/em><\/strong><\/a><\/li>\n<li><strong><em><a target=\"_blank\" href=\"https:\/\/theintercept.com\/2016\/04\/27\/luxembourg-puts-journalist-and-whistleblowers-on-trial-for-ruining-its-magical-fairyland-of-tax-avoidance\/\" > Luxembourg Puts Journalist and Whistleblowers On Trial for Ruining Its \u201cMagical Fairyland\u201d of Tax Avoidance<\/a><\/em><\/strong><\/li>\n<\/ul>\n<p><em><a href=\"https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/06\/Jon-Schwarz-e1528107264503.jpg\" ><img loading=\"lazy\" decoding=\"async\" class=\"alignleft size-full wp-image-112495\" src=\"https:\/\/www.transcend.org\/tms\/wp-content\/uploads\/2018\/06\/Jon-Schwarz-e1528107264503.jpg\" alt=\"\" width=\"100\" height=\"100\" \/><\/a><\/em><\/p>\n<p>&nbsp;<\/p>\n<p><em><a target=\"_blank\" href=\"https:\/\/theintercept.com\/staff\/jonschwarz\/\" >Jon Schwarz<\/a> &#8211; <a href=\"mailto:jon.schwarz@theintercept.com\">jon.schwarz@\u200btheintercept.com<\/a> <\/em><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p><a target=\"_blank\" href=\"https:\/\/theintercept.com\/2018\/10\/26\/tax-havens-and-other-dirty-tricks-let-u-s-corporations-steal-180-billion-from-the-rest-of-the-world-every-year\/\" >Go to Original \u2013 theintercept.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>26 Oct 2018 &#8211; A new study shows that the corporate use of tax havens is central to how the U.S. functions and wields its power around the world.<\/p>\n","protected":false},"author":4,"featured_media":121089,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[55],"tags":[],"class_list":["post-121088","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-capitalism"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/121088","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=121088"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/121088\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media\/121089"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=121088"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=121088"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=121088"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}