Political Challenges and Technical Solutions for Taxing Wealth Everywhere

Alex Cobham, CEO of the Tax Justice Network, sets out some of the technical and political issues surrounding wealth taxation at the annual meetings of the World Bank Group.

Transcript

1. Alex Cobham @alexcobham Tax Justice Network Washington DC, Joint IMF- WBG Side Event at the 2017 Annual Meetings 15 October 2017 Political Challenges and Technical Solutions for Taxing Wealth Everywhere
2. Did you tax wealth? 3 Do you want to tax wealth? You didn’t tax wealth. Do you know who owns it? NO NO YES
3. Overview §The global rise of tax justice §Why should we (try to) tax wealth? §Why don’t we (try to) tax wealth? §Technical obstacles - and solutions 4
4. 1. The global rise of tax justice Setting a global agenda The price of offshore Capital in the 21st century Small and big numbers
5. Setting a global agenda §Late 1990s/early 2000s: Roots of change §2003-05: Tax Justice Network and ABC of tax transparency §Automatic exchange of tax information §Beneficial ownership (public registers for companies, trusts etc) §Country-by-country reporting by multinationals (public) 6
6. The price of offshore §Oxfam (2000) § $6-$7 trillion §TJN (2005): The Price of Offshore § $11.5 trillion §Henry (Oxfam, 2009) § Developing countries only: $6.2 trillion §Henry (TJN, 2012): The Price of Offshore, Revisited § 139 ‘source’ countries: $21-$32 trillion §Zucman (2015): The Hidden Wealth of Nations (only certain $ assets) § $7.6 trillion held in ‘tax havens’, 8% of household wealth 7
7. $21,000,000,000,000 Henry, 2012: Lower estimate of offshore assets $32,000,000,000,000 Henry, 2012: Upper estimate of offshore assets $156,000,000,000,000 BCG, 2015: Global private wealth
8. Capital in the Twenty-First Century §Thomas Piketty’s (2014) work reconstructed century-long inequality series for a number of economies §Key proposal: a global wealth tax, even levied at 0.01%, would deliver a global financial registry with multiple benefits: § Information for policymakers § Information for public debate § Information for policymaking § Information for crime prevention § … 9
9. “” “TJN has done more than any other organisation to put fiscal justice at the center of the policy agenda. Tax issues should not be left to those who want to escape taxes! Changes will come when more and more citizens of the world take ownership of these matters. TJN is a powerful force acting in this direction.” Thomas Piketty 10
10. Small, big numbers §Oxfam: X people own the same share of the world’s wealth as the bottom half of the distribution §Alstadsæter, Johannesen & Zucman (2017b): § c.10% of world GDP is held in ‘tax havens’ globally, ranging from a few percent of GDP in Scandinavia, to about 15% in Continental Europe, and 60% in Gulf countries and some Latin American economies. § Top 0.01% wealth shares include high and variable offshore component 11
11. Top 0.01% wealth, with offshore 12
12. 2. Why should we (try to) tax wealth? The four Rs of tax The cost of inequality Political demand
13. The four Rs of tax §Revenue §Redistribution §Re-pricing §Representation §The state is not exogenous! 14
14. The cost of inequality §Direct and indirect development damage caused by inequalities §The end of the growth get-out (Ostry, Berg & Tsangarides, 2014): [L]ower net inequality is robustly correlated with faster and more durable growth, for a given level of redistribution. [Re]distribution appears generally benign in terms of its impact on growth; only in extreme cases is there some evidence that it may have direct negative effects on growth. Thus the combined direct and indirect effects of redistribution— including the growth effects of the resulting lower inequality—are on average pro-growth.” 15
15. Political demand §2003-08: Growing media and public awareness and engagement §2008-/ Global financial crisis, and OECD country policy responses §Leaks and reactions §2013-2015: Sustainable Development Goals set (cf MDGs) § Inequalities (SDG 10 and throughout) § Tax as primary means of implementation (17.1) § Tax evasion and avoidance targeted (16.4) Confirmation of a global political moment 16
16. 3. Why don’t we (try to) tax wealth? Elite politics Comforting myths of lobbyists Role of the IMF and World Bank
17. Elite politics §The golden rule: Them who has the gold, makes the rules 18
18. Comforting myths of lobbyists §Don’t scare the horses § Assets and the wealthy are highly mobile, and tax is key to their location §Blessed are the job-creators § Wealth taxes undermine incentives for innovation, investment, expansion… and ultimately employment 19
19. Role of the World Bank §Independent review of WB 2005-2015 § Efficiency. Conspicuously missing from ICR reviews of World Bank DPOs that include tax policy and administration is any reference to actions to improve the efficiency of the tax system. § Equity. ICRRs of World Bank DPOs that include tax policy and administration do not refer to improving equity of the tax system. As for tax efficiency, very few operations had equity as an explicit or implicit tax objective. § Range of failures across the board: § to develop government ownership; § to pursue long-term engagement; § to consider tradeoffs between efficiency and equity; § absence of in-house capacity to conduct analytical and diagnostic work §Doing Business Indicators: capture or ideological zeal? 20
20. Role of the IMF §The tax consensus (Heady, 2004; Adam & Bevan, 2004; Cobham, 2007): § Little emphasis on ‘distortionary’ direct taxes § Replace trade taxes with consumption taxes § Assume redistribution, if any, happens on the expenditure side §Treating state as exogenous undermines representation § (And growth is dominant – only? – aim for policy) §Disconnect between FAD research outputs and country advice § Most egregiously: tariff cuts and VAT (Baunsgaard & Keen, 2005) 21
21. “” Progressive taxation and transfers are key components of efficient fiscal redistribution. At the top of the income distribution, marginal income tax rates that increase with income levels can achieve greater progressivity… Adequate taxation of capital income is needed to protect the overall progressivity of the income tax system… Taxes on real estate or land are both equitable and efficient and remain underused… IMF Fiscal Monitor, October 2017 22
22. 4. Technical obstacles – and solutions Information (origin) Information (exchange) Information (public)
23. “” We find that tax evasion rises sharply with wealth… On average about 3% of personal taxes are evaded in Scandinavia, but this figure rises to 25%–30% in the top 0.01% of the wealth distribution, a group that includes households with more than $45 million in net wealth. Alstadsæter, Johannesen & Zucman (2017a) 24
24. Information (origin) §If ownership of wealth is not known; and owners of wealth are not scrupulously honest; effective wealth tax is impossible. §Do we know – can we know – who owns wealth? §The ‘end’ of bank secrecy §Registers of beneficial ownership… §…Global financial registry 25
25. Information (exchange and use) §National measures (e.g. URA studies) emphasise the potential for: § Linking information held (TINs – and global?) § Expanding information exchange networks §Evidence from the US (IRS, various) suggests that taxpayer compliance rates increase 7- or 8-fold when information is automatically provided to authorities by a third party. §But which countries are included in information exchange? 26
26. OECD CRS exchange network §OECD CRS reflected full adoption of long-standing TJN position – fully multilateral, automatic exchange of financial information (AEoI) §So far however, it has failed to live up to that billing: § Not multilateral, but dating system of bilateral preferences; and § Rigid reciprocity requirements §Result: § Much less progress overall than expected, and § Systematic exclusion of lower-income countries which may suffer most 27
27. CRS relationships (Wouter Lips) 28
28. Information (public) Multiple benefits: §Inequality data informs public debate, social preferences §Ownership data strengthens both market and state functioning §Publication of aggregate undeclared wealth data ensures accountability for progress §To the extent that tax compliance depends on (perceptions of) redistribution and others’ compliance, public information on the gap between declared and undeclared wealth can support tax morale 29
29. Domestic opportunities §Progressive tax: varying according to social preferences, but with ‘best practice’ baseline – e.g. capital gains tax, SDG inequality targets §Information best practice: § use and integration of taxpayer information § communication with public § recognition of political horizon issues => accountability key § ABC of tax transparency §Wealth tax preparation § CRS-readiness, and openness of other participants? § Willingness to take counter-measures against opacity? 30
30. Global opportunities § Rescue OECD CRS – pressure from WB, IMF, UN and member states § Flexible reciprocity arrangements § Revert to intended multilateral approach § Develop SDG indicator/s (under 16.4): § Proportion of world (GDP, population) to which jurisdictions provide AEoI § Ratio of declared to (declared + undeclared) offshore wealth (where AEoI) § Ratio of registered legal entities for which public beneficial ownership info § International financial transparency convention (+counter- measures) § Explore potential for global financial registry 31
31. THANK YOU
32. Political Challenges and Technical Solutions for Taxing Wealth Everywhere Alex Cobham @alexcobham Tax Justice Network Washington DC, Joint IMF- WBG Side Event at the 2017 Annual Meetings 15 October 2017