Wealth doesn't trickle down – it just floods offshore, new research reveals

[breadandbutterfly]

www.guardian.co.uk/business/2012/jul/21/offshore-wealth-global-economy-tax-havens

""These estimates reveal a staggering failure," says John Christensen of the Tax Justice Network. "Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people.

"This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich."

...In fact, some experts believe the amount of assets being held offshore is so large that accounting for it fully would radically alter the balance of financial power between countries. The French economist Thomas Piketty, an expert on inequality who helps compile the World Top Incomes Database, says research by his colleagues has shown that "the wealth held in tax havens is probably sufficiently substantial to turn Europe into a very large net creditor with respect to the rest of the world."

In other words, even a solution to the eurozone's seemingly endless sovereign debt crisis might be within reach ? if only Europe's governments could get a grip on the wallets of their own wealthiest citizens. "

More in tax than you cost??? You may not be paying more in tax because you are not paid enough for what you do, but that is not the same as not contributing. Poor people are poor becuase their jobs are not valued equally and they are not paid enough (the vast majority of us actually) in contrast to rich people who gain lots of money for things like owning property. So it's not just about being wealthy, it's about controlling that wealth. Poor people do not control wealth and have very little opportunity to alter that no matter how hard they work or how essential their role in society is. Rich people do control the wealth and for that reason need to be the people who are contributing more to the well-being of others. To look at the payments of those in control under the same criteria as those who are not in control is ridiculous.

You may call it vile socialism, I prefer to call it fairness.

Agree with hamster.

The problem in the UK at least is that the government have spent far more money than we can reasonably afford. If we had a really low tax regime then you could argue that we should raise taxes.

But our tax burden is around 34% of GDP whereas the average G8 rate is only 29%. Even China, the authoritarian communist country collects only 24%, the same as the US. So compared to our major competitors we're already highly taxed. To raise taxes even higher seems to be unrealistic.

If we had a small structural deficit then again, you could argue raising taxes on the rich is the price worth paying. Except the size of the structural deficit is so large that even if you doubled income tax on the rich and assumed none of them flee, you still couldn't close the gap. And that would be a 80/90% rate!

Finally "Sharing out the wealth" to a socialist could be argued as legalised theft by the person who earned the money and has already paid the taxes due who is then threatened with a further tax just because they have money.

Niceguy, maybe it would be a bit simplistic to say that just by raising taxes (which is a perfectly legal thing to do, btw, not theft at all) we would solve all the financial problems in this country. But I still think it has to be a big part of the plan - along with the govt actually going after all the taxes it is owed by the avoiders. Cutting tax, even Corporation tax would be ridiculous, imo.

What are the other things we could do? Well I have never understood how the people who are largely responsible for the mess we are in - you know who you are - have not been prosecuted, because they are just continuing to milk the system. So we have to stop the money draining out of our pockets and into theirs as we speak.

But what else? Well of course there are long term social measures that can prevent people from needing benefits and make them economically active - like good affordable housing, a free NHS, free education, job creation - but the govt has clearly decided not to invest in these and all of them are threatened. Why has the govt decided this? Maybe because they are worried that the tax payers don't want to fund them.

So - any other ideas? Bearing in mind that doing nothing is not an option.

Hi Solo. Raising taxes is of course perfectly legal. What i've been saying is that you can't tax the money from rich people if they've already paid tax on it.

Raising taxes is of course going to have to be part of the solution.....as is cutting public services. We have seen tax rises, VAT has gone up. Income tax went up to 50% then down to 45% (let's not argue over the politics of the 5%, it's still a net increase). Stamp duty for large homes went up. Tax avoidance is being clamped down on much harder than any time in the past which I can remember.

As for why we haven't prosecuted those who are responsible. Well I guess that depends on whom you class as 'responsible'? Many would say it's all the bankers fault. I disagree. Of course they've had input into the crisis but if we hadn't run a budget deficit for 26 years out of 30, signed up for all sorts of PFI contracts and took on massive pension liabilities, I'm sure UK PLC would be in much better shape. Those decisions are not on bankers. Not unless you count actually lending money to the state.

One problem with all this is that you wonder just how bad the 'problem' is. The govt can find money for the Olympics and to invest in high speed rail, so maybe it's just a matter of priorities.

I tuned into all this after it had happened, and don't know much about the causes of the 'financial crisis'. However, I do understand what the bankers did and that they must bear some of the responsibility. I agree with you about PFI (from my extremely limited knowledge).

Whatever the case, I think it's dreadfully counter-productive to cut public services. The amounts raised by this short-sighted, short-term measure are relatively small, and the long-term problems caused could be enormous.

Capitalism doesn't work unless enough people have enough money to buy things.

rosabud

More in tax than you cost??? You may not be paying more in tax because you are not paid enough for what you do, but that is not the same as not contributing.

What do you mean, 'not paid enough'? Perhaps your job isn't valued because lots of people want to do it or because it isn't skilled. Just because you're on a low salary, doesn't entitle you to a higher salary. How would it be 'fair' to someone with a PhD earning £50k a year if a cleaner got the same salary for mopping out the bogs? Where's the 'fair'?

And that still doesn't get away from the fact that you have to be earning about £30,000 a year to be (on average) a net contributor to the economy. You can call it 'unfair' but it's nothing to do with fair or unfair, it's to do with simple numbers.

Poor people are poor becuase their jobs are not valued equally and they are not paid enough (the vast majority of us actually) in contrast to rich people who gain lots of money for things like owning property.

What an insult to the extraordinary variety of lives and lifestyles out there.

So it's not just about being wealthy, it's about controlling that wealth. Poor people do not control wealth and have very little opportunity to alter that no matter how hard they work or how essential their role in society is.

They can get new skills. Tech colleges, apprenticeships, schooling, universities. It isn't a caste system, they're not refused access to high-paying jobs because they're poor. Businesses are smarter than socialists and can spot talent and treat it with the value it deserves.

Rich people do control the wealth and for that reason need to be the people who are contributing more to the well-being of others. To look at the payments of those in control under the same criteria as those who are not in control is ridiculous.

I thought that treating everyone the same way would be 'fair'. Apparently we have to treat people differently because they're rich. Which is, apparently, 'fair'.

You may call it vile socialism, I prefer to call it fairness.

Since when was it 'fair' to take loads of money off people, and then call them evil? What's evil is the view that poor people deserve high wages because they're poor, which isn't treating poor people as functioning humans who are responsible for their own lives but treating them as unthinking beasts whose lot can only be improved by the intervention of benevolent upper-middle-class Guardian readers.

High speed rail as discussed on other threads is seen as an investment because it creates jobs and even after it's long finished, the new railway is seen to bring soft benefits to the economy (ie. shorter journey times promote trade).

The Olympics, the 'theory' is that whilst it costs a lot of money, it also brings in a lot of trade and investment. Personally speaking I'm dubious because it costs so much flipping money i am sceptical we actually come out of it in the black. I know there's a lot of debate over other countries who have found in the long run they lose money. But hey ho, that's the theory and we signed up to the Olympics back in better days.

I do agree bankers do bear some of the blame but my main point is that successive politicians share more of the blame. By continually running deficits which haven't been offset by tax revenues or economic growth. Banker bashing is a very convenient way to deflect the blame.

We can blame politicians till the cows come home, but a) we voted them in and b) they were all in it together, imo. I would say it's the system we have, in which big business and the banks have so much influence over governments that is mostly to blame.

All I hope is that people learn from what they did and never let it happen again.

And I hope that everyone, whether responsible or not, pitches in now to try to repair the damage that has been done. Even if. like most of us, you have worked hard, paid your dues and have never had a loan in your life, you can't just sit back now and wait for someone else to sort it out. If you don't have money, you can't pay. But if you do (ie if you have benefited from the housing bubble, the favourable business atmosphere, whatever) now is the time to help out.

Are you saying Solo that 'we're all in it together?'

Solopower "if you have benefited from the housing bubble, the favourable business atmosphere, whatever[,] now is the time to help out."

The problem is that the net contributing taxpayers have already been bled dry over the years paying for everything, whilst the non-contributing amongst us have been the beneficiary. Your suggestion hits the contributors for another round of pain whilst leaving the non-contributors unaffected again.

There are some enormous and untested assumptions built into that report. And factual inaccuracies.

What are they, CinnabarRed?

Yes, I am, Niceguy!

MrJP, if you have been bled dry then you can't pay anything more. What sort of pain would you like me to inflict on the non-contributors?

"What sort of pain would you like me to inflict on the non-contributors?"

Tell them that we're all in this together.

Well, there's the explicit assumption that money is salted away into tax havens to avoid tax - but when you test is that doesn't make sense at all.

Remember, banks make profits by investing money placed on deposit with them. They pass most of the investment return back to the deposit holder, and keep a margin for themselves.

So banks have to have something to invest in, in order for them to make money, and to be able to pay interest to the deposit holders.

Deposits of the size that the report is talking about would get 'stuck' in tax havens, and not earn a return for anyone at all. There's simply not enough infrastructure within tax havens for the banks to invest in, in order to generate a return for deposit holders and a profit for the bank. Deposits of that size would have to come back onshore to make profits for the banks, and then they become traceable (and hence taxable) again.

The mega-wealthy aren't stupid. They would rather earn interest on their deposits and then lose some of the interest in tax, than earn no interest at all.

(In practice, the mega-wealthy can avoid paying tax in a far more straightforward manner - they simply avoid staying in any one place for long enough to become tax resident there. Years ago Madonna successfully sued her tax adviser for not noticing that she's spent too much time in California and had become tax resident there, meaning she became liable for California state taxes. If she's spent one more night in Arizona she'd have been fine.)

I also have my doubts about the quantum of lost wealth that the authors claim is in tax havens. I just don't believe that a sum equivalent to the entire annual output of the US and Japan can possibly sit there, doing nothing. The GDP for the entire world was only $65 trillion - is it really credible that an amount equivalent to a third of the globe's wealth has been stolen and hidden? Really?

I suspect that the people who really do use tax havens - or secrecy jurisdictions, to use a more accurate name - are nasty third world dictators who need a fund readily available for when the shit hits the fan and they need to do a runner. They don't care if they're not earning any interest, they just need to know the money's there when they need it.

(Switzerland, as an aside, earned international praise during the Arab Spring because its banks were so quick to shut down bank accounts held by Mubarak and family.)

Very interesting, CinnabarRed, thanks.

I would just like to point out that I did not call rich people evil! Also to answer my point that those not in control of the wealth have little opportunity to alter this situation with "they could go to tech college" is a little naive. Getting a job which allows you to earn £40,000 more than you did before does not suddenly put you in control of wealth. When I say the majority of us are undervalued and underpaid, I am not just talking about lavatory cleaners but the vast majority of us who do not control prices/ wages by running a major corporation (eg the supermarkets who dictate how farming works in this country/ banks who contol borrowing and lending etc etc), who do not contriol property prices/ availability by investing in property in various ways and so on. The corporations and individuals who do have this kind of control should not be allowed to move the profits away so that they are protected from tax.

And they're not permitted to move their profits offshore. There are slews of legislation, including criminal sanctions against tax evasion and money laundering, to stop them.

Of course people are refused access to higher paid jobs because they are poor. Redundancy requiring retraining? Where does the money come from to PAY for that retraining?

Also, why SHOULDN'T a care worker, who looks after the most vulnerable people in Society, be worth being paid £30,000? Or the person who collects your bin bags? Or the person who cooks your good for you in hospital? Or the person who pushes your trolley to theatre. Or the ambulance driver? Or the TA who helps those DC's with LD's. Or even that wonderful NQT who taught your DC's any more. Or the nurse who looks after you after your operation when you are in the ward?

Why are none of these jobs VALUED? They would be missed if they were not being done...

Why on earth SHOULDN'T people doing these jobs be paid £30k? Why should someone who sits on their arse EXPLOITING these people get paid 5x, 10x or even more than that for doing so, I just don't understand this mentality.

Oh, I've paid my tax, so it doesn't matter if I am sitting here counting £5 million, that I earned by exploiting the people that actually STACKED the shelves of the supermarket chain I am the CEO of, by paying them so little that the State has to top up their wages with Tax Credits to a level that they can actually LIVE OFF. Because, you see, I don't actually PAY my employees enough to pay for a roof over their head, for heat and light AND let them be able to buy food in the supermarket chain that I am CEO of. And if I was taxed any more on my £5 million when I have already paid 45% tax on some of my earnings, 40% on some of it, and 20% on the rest, then woe is me sitting here with my £5 million and I'll just take my business to another country and ignore the fact that I have a massive captive audience of customers on this island and that it will cost me far more than that £5 million if I no longer trade in this country...

Yeah, RIGHT. They will cut off their nose to spite their face.

CM, I agree that the professions you've very eloquently written about are underpaid and underappreciated, woefully so. Nor that very senior management are overpaid relative to the average worker.

Where I disagree is that I simply don't believe that the fruits of bosses' overpayments end up in tax havens. The sums just don't add up. And because the sums stay onshore, they do contribute to the wider economy. They get spent on luxury goods, and private schooling, and racehorses, sure, but in so spending the rich are pushing some economic activity.

CouthyMow I don't follow your logic. "people are refused access to higher paid jobs because they are poor." Are you saying that the poor are barred from higher paying work because of the prejudices of the employer or a structural failure within society?

If you raise a TA's salary to £30k per year, the teachers, who will have spent four years at university and may have been teaching for ten years or so before collecting a £30k salary, will want a pay rise too. This is only going to lead to inflation as it did the last time this sort of thing was tried back in the 1970's.

You seem to suggest that entrepreneurs exploit the worker but without entrepreneurs you don't have workers.

As for workers getting paid poor wages and having to top them up with various tax credits, if the government wasn't taxing the workers so much in the first place, there would be no need for tax credits (aka rebates). As near as makes no difference, the delta between the Rowntree Foundations living wage and the take home pay of someone on minimum wage is the tax that the government levy on the poor.

Cinnabar - words actually fail me.

Let them eat cake, eh? Or have I misunderstood your last paragraph?

MrJP, CouthyMow's point was that we undervalue the most vital jobs in society and overpay lazy slobs who lie and steal and exploit everyone else.

Or maybe she didn't say that, but I am.

MrJudgyPants - Poor people are denied access to higher paid jobs because 1) They see the costs involved in higher education as a barrier. 2) Because there IS prejudice amongst employers - if someone turned up to an interview for a job paying a salary of £50k wearing tatty clothes with holes in that were obviously poor quality, are you honestly telling me that most interviewers would hire that person? 3) because if they have had to go straight from A-levels to work in order to continue to have a roof over their head, or to pay their way in a low-paid household where their parents can't afford to keep an adult financially, not because they don't WANT to, but because they CAN'T, they are locked out of higher paid jobs.

I can't believe that you can't see the myriad ways in which a poorer person will be locked out of higher paid work.

Yes, you've misunderstood. Undoubtedly my fault for explaining badly.

Definitely take steps to reduce the differential in pay between the average worker and the highest paid director in every company. I'll shout for that until I'm blue in the face. It's the only practical way to make our society more egalitarian, in my view.

All I'm saying is that the wealth that undoubtedly is accruing at alarming rates at the top of the pile isn't actually going offshore - which is what the report claims. (Or at least not in anything like the numbers reported, for the reasons I've explained above.) UK earned wealth is largely staying in the UK. Now, much as I'd prefer that it hadn't ended up so overwhelmingly in the hands of the very wealthy, we should at least acknowledge that when that cash gets spent in the UK it's (i) helping to stimulate the UK economy; and (ii) raising tax through VAT.

Actually, I suspect that the UK is a net 'importer' of some kinds of wealth due to the presence of people in the London like the Russian oil oligarchs. They undoubtedly don't bring their capital here (and, TBH, I would expect Russia to get first dibs on taxing their wealth in any case because it's where the wealth originated - seems only fair) but they do spend cash like it's going out of fashion.