Focus: Subsidising the rich: how workers pay the price for corporate tax dodging

Abstract

For decades wages have stagnated, public services have been squeezed and inequality has risen as workers struggle to understand why the riches of globalisation seem to pass them by. Recent leaks and tax scandals make for great headlines and expose the missing piece of the globalisation riddle – where all the money has gone. But what is often overlooked is that workers are the biggest losers of tax dodging. Those who benefit put great effort into keeping information about tax avoidance and evasion away from the public. They also relentlessly promote the myth that we cannot afford quality public services. For decades, we’ve been told that there simply isn’t enough money available. We’ve seen privatisation, cuts to education, health and public housing, the introduction of user-pays and rising service charges. And we’ve seen wage freezes for essential frontline staff such as nurses. When globalisation brings phenomenal riches but workers are repeatedly told there is no money for wage rises or public services they look for answers. Migrants, refugees, unemployed and welfare recipients become easy targets. If we cannot provide bold alternatives to address inequality, ensure universal access to public services and require the wealthy to make a fair contribution, we risk ceding ground to the false promises and fear mongering of the far-right. Ending corporate tax dodging must be a central pillar to our alternative programme. How big is the problem? Estimates put the total value of assets held offshore, beyond the reach of effective taxation, at $32 trillion USD, equal to about a third of total global assets. Of this, it is estimated that about $11 trillion is from the world’s least developed economies. Jeffrey Sachs calculated the cost of ending global poverty would be a fraction of this amount: about $3.5 trillion. The biggest losses are due to corporate tax avoidance. The Tax Justice Network estimates that multinational corporate tax evasion in the USA costs $188 billion USD annually. For Pakistan it’s $10 billion or 30 percent of total tax revenue and Chad lose $1 billion a year, equivalent to 37 percent of total tax collection. These are only estimates – the real amount remains unknown because of the secrecy which shrouds the offshore system. The inability to get accurate information about the size, actors and exact methods of tax dodging is critical in undermining the fight against it. Tax dodging hurts workers Make no mistake, tax avoidance supresses wages. At the heart of these avoidance schemes is a simple concept. Companies shift their profits to low tax and high secrecy countries and away from the countries where the work is done or the sales are made. This is done to demonstrate to the tax office that there is no profit to be taxed. But it is also handy to show to workers and unions that there are no profits to pay wage rises - and is often used to justify job cuts. If the tax office can’t find the money what chance do workers have? Starving Services hurts workers The Paradise papers and other leaks make clear why our public services are underfunded: far from trickling down, we can see that wealth is flooding offshore. And workers pay the price. Perhaps the clearest example is healthcare. In many countries, the health budget is struggling to keep pace with an aging population and better, but more expensive, medical care. The gradual underfunding of health systems forces a simple but difficult choice. We either find funds for health care or we allow privatisation. The basic flaws of private provision are shockingly simple: user pays creates a barrier to poorer people getting the care they need. As the US experience shows, highly private health systems not only drive crippling inequality but are also highly inefficient. Research by the Institute of Medicine shows the US system wastes nearly one third of every medical dollar spent - almost $750 billion a year1. That is more than the Pentagon budget and more than enough to care for every American who lacks health insurance. Most of the waste comes from unnecessary services ($210 billion), excess administrative costs ($190 billion) and inefficient delivery of care ($130 billion). National comparisons...