8. Tax havens widen the gap between rich and poor people

For example

… the United States, where the rich-poor gap is greater than in almost every other developed nation.[1] As well as being the world’s largest economy, the U.S. accounts for slightly over 21 percent of the global market for offshore financial services, making it a huge player in the secrecy jurisdictions underworld.[2]

The dirty details

Every now and then, an event takes place that catches the public mind in ways not imagined possible. Every now and then, an event takes place that gathers instant momentum, spreading from city to city like wildfire. Every now and then, an event takes place and you know, almost right from the start, that you are watching history in the making. And so it was that on 17 September 2011, just such an event began… the Occupation of Wall Street.

Unified by their opposition to the growing gap between rich and poor, occupations from New York to Newcastle, Islamabad to Istanbul[3] sprang up, their message a simple one: “We are the 99 percent that will no longer tolerate the greed and corruption of the 1 percent”.[4]

It is not surprising that the financial district takeovers began in America, where the richest one percent controls 40 percent of US wealth.[5] It’s a shocking divide and one that’s been getting steadily worse over recent decades: between 1979 to 2007, income (after tax) grew by 275 percent for the top one percent of U.S. households compared with just 18 percent for the bottom 20 percent.[6] The reasons for America’s inequality levels are diverse but it’s undeniable that tax havens have a lot to answer for.

From the 1970s onwards, the US started to face growing deficits exacerbated by the Vietnam War; and what better way to deal with your debts than… seeking to attract as much foreign dirty money as possible. The U.S. put in place measures deliberately designed to enable non-residents to evade paying tax onshore, for example by not sharing tax information with other countries while charging zero percent on interest paid by banks to foreign individuals or corporations.[7] In turn, Washington found itself increasingly at the mercy of U.S. corporations, allowing them to keep their money offshore, where it would remain mostly untaxed until they repatriated it.[8]

By the end of 2009, U.S. companies had amassed at least US$ 1 trillion in foreign profits not taxed in the U.S, a figure that had increased 70 percent over three years.[9] And every few years the companies use their corporate muscle to push for a tax amnesty to bring the money back to the U.S.A. at a super-low tax rate. Whatever happened to the American Dream?

Prior to the George W. Bush era, it’s true that occasional efforts had been made to reduce the United States’ role as a tax haven – though these were usually defeated by Wall Street and other lobbyists. With the arrival of Bush, however, came an abrupt shift in attitude and even those weak regulations that had been put in place were withdrawn by the Treasury, another ‘success’ to add to the George Dubya record along with launching the invasions of Iraq and Afghanistan, and arguing that climate change is a myth.

Since taking office, President Obama has infuriated corporate America by announcing a package of measures intended to crack down on the world’s most secretive tax havens[10] and in part address America’s US$ 1.5 trillion deficit. However, as it stands, the plan to raise US$ 12 billion a year over the next decade is a drop in the ocean compared, for example, to the US$ 60 billion or so in annual U.S. tax revenue lost through companies shifting profits elsewhere.[11] In its current format, the proposed tax on financial institutions would take approximately seven years to generate US$ 60 billion.

Tackle tax havens, Obama, don’t tickle them!


It is time for the OECD’s useless system to be consigned to the scrap heap, and for automatic information exchange to be rolled out across the world. Tax havens must sign up, or be hit with defensive countermeasures. Developing countries – and rich ones – must get the information they need to tax their wealthiest citizens properly.

Measures need to be taken to remove the walls of secrecy that encourage and enable dictators and wealthy tax evaders from hiding their ill-gotten gains offshore. Offshore companies, offshore trusts and foundations, and similar legal entities, must be properly registered on public record, and must disclose the identities of every person who benefits from them.

Key statistic

Estimates suggest that the U.S. federal authorities lose approximately US$ 170 billion annually to corporate tax avoidance and a further US$ 85 billion is lost to the Treasury as a result of tax shelter abuse by wealthy individuals.[12]

The final word

From John Christensen, Tax Justice Network[13]:

Tax dodging corrupts the revenue systems of the modern state and undermines the ability of the state to provide the services required by its citizens. It therefore represents the highest form of corruption because it directly deprives society of legitimate public resources. Tax dodgers include institutions and individuals who enjoy privileged social positions but see themselves as an elite detached from normal society.


[1] [accessed 10/11/11].
[2] [accessed 10/11/11] p.1.
[3] [accessed 14/11/11].
[4] [accessed 10/11/11]
[5] [accessed 12/11/11]
[6] [accessed 14/11/11].
[7] [accessed 10/11/11] p.2.
[8] Nicholas Shaxson, Treasure Islands, p.128.
[9] [accessed 12/11/11].
[10] [accessed 12/11/11]
[11] [accessed 12/11/11].
[12] [accessed 14/11/11] p.38.
[13] [accessed 10/11/11].