Tax Avoidance Disappearance

Are the important stories of the world being reported on? According to the Pew Research Center’s recent report on The State of the News Media 2013, the number of newsroom staff in the United States is at its lowest number since 1978. What’s more, the coverage that viewers and readers find is less likely to be investigative reporting. For local news, think weather, traffic and sports. For cable news, think of lots of commentary and debates on the same hot-button issues. Think of all of the foreign and domestic issues that need to be covered by good journalists, and how little of this we are actually seeing. No, many of the important stories are not being told.

I can think of no better critique of mainstream news and journalism than Nick Davies’ Flat Earth News, originally published in the United Kingdom in 2008. Davies is perhaps best known as the journalist who broke the phone-hacking scandal that rocked the United Kingdom in the summer of 2011. In addition to highlighting newsroom cuts and stories that were severely distorted or mishandled by the media, like the run-up to the invasion of Iraq, Davies writes about major global events that are simply not covered by the media. Non-stories. One of these non-stories is the massive problem of tax evasion and the use of offshore accounts. He writes:

[In 2003], bankers estimated that a third of the gross domestic product of the entire planet was being channelled through offshore accounts, and the Organisation for Economic Cooperation and Development (OECD) estimated that 60% of world trade consisted of transfers made within multinationals, passing their profits to anonymous subsidiaries in tax-free jurisdictions, while some three million corporations were avoiding tax simply because they had no identifiable owner. (emphasis mine).

Since the book was published in 2008, however, a dramatic change has taken place in the coverage of tax avoidance. This week may have been particularly important and dramatic in marking these ongoing changes. The International Consortium of Investigative Journalists (ICIJ) have announced what is “the largest cross border journalism collaboration in history.”

The initial results of this investigation of 200gb of files have been stunning. Part of the process will be naming and shaming people who take advantage of tax havens. The Guardian, in cooperation with the ICIJ, identifies several:

In France, Jean-Jacques Augier, President François Hollande’s campaign co-treasurer and close friend, has been forced to publicly identify his Chinese business partner. It emerges as Hollande is mired in financial scandal because his former budget minister concealed a Swiss bank account for 20 years and repeatedly lied about it.

In Mongolia, the country’s former finance minister and deputy speaker of its parliament says he may have to resign from politics as a result of this investigation.

Five or six years ago, we weren’t talking about tax evasion so much. Now, we’re talking about it daily and in the context of a broader discussion about tax policy as well as social and economic injustice, and it is worth pointing out what has happened and why.

In 2008, the IRS dealt a major blow to U.S. tax evaders due to its revamped whistle-blower program, having received a UBS client list of Americans who parked their money in Switzerland and illegally avoided taxes. The worldwide financial crisis that followed made a fact plainly visible to everyone: the rich and the powerful play by a different set of rules. Many countries were forced to implement heavy cuts to basic services, safety nets and public sector employment. This seemed kind of incredible, as the economics problems were caused by large-scale political and financial malfeasance, while everyone else paid the price. Why should that be? A timid thought began to creep up. Shouldn’t the rich pay more?

And it is impossible to talk about tax policy and getting the rich to pay more without also having a serious look at tax avoidance. Interest in tax avoidance initially centered around Greece, where the problem was widespread. We looked to Greece and saw a completely dysfunctional system where no one paid what they owed, and no one had faith that their neighbor would pay. And somehow, they were about to take down the entire Eurozone.

But the conversation didn’t end there. For instance, in Britain, Gordon Brown’s government instituted a 50 percent top tax rate. This seemed reasonable to do. What was the reaction? Countless stories of high profile (but anonymous, of course) British citizens threatening to go elsewhere to avoid paying higher taxes. This was a legal and low-tech threat of tax avoidance, but it highlighted a deep schism in society that had arisen out of three decades of rising inequality in virtually every developed country. The subjects of these articles just couldn’t understand. Of course, these turned out to be empty threats. The same thing has happened in France (only one confirmed departure, by the way).

From an American perspective, there is one and only one person who was able to elevate tax havens and offshore accounts to a topic of national discourse. Mitt Romney. Despite massive budget deficits, high unemployment and slow growth, large corporations and rich individuals were doing fine and paying very little in taxes. It was in this context that the 2012 Presidential Campaign took place.

Enter Mitt Romney, who supposedly had a net worth in the hundreds of millions of dollars. And then came his (lack of) tax returns, releasing only his 2010 returns, which turned out to be incomplete. Even in its incomplete form, the hundreds of pages show Swiss bank accounts, partnerships in the Cayman Islands, and blind trusts. The blind trusts turned out to be elaborate (but legal) schemes at tax avoidance, as reported by Bloomberg. And remember the IRS whistle-blower case that involved Americans with Swiss bank accounts? The IRS instituted an amnesty program soon after, where people with accounts in UBS could come forward, pay a fine, and retain anonymity. There’s speculation about whether Romney was one of these individuals. Throughout the presidential campaign, Romney’s taxes and tax fairness remained an issue, and probably played some role in his losing the election.

Romney is no longer in the picture, but this issue is not going anywhere. Just this past month, Cyprus’s role as an offshore tax haven to Russian oligarchs played prominently into bailout talks. With talks of huge losses being imposed on foreign depositors, this entire offshore banking system that makes up much of the economy in Cyprus is likely gone for good.

It is good to see multiple newspapers and the ICIJ devote considerable efforts in the fight against tax avoidance, tax havens and secrecy that allow the rich and the powerful to unfairly maintain their status at the expensive of everyone else.

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