By Peter Gillespie
Until recently, tax policy has been the exclusive domain of experts. This is changing, however, as citizen's groups around the world have begun to research and advocate on tax matters.
Citizen's groups are asking why governments are cutting corporate tax rates while slashing public spending. Questions are being raised about the trillions of dollars hidden away in offshore jurisdictions. Increasing inequality in virtually all Western countries has focused attention on the erosion of progressive tax policies. An activist citizen's movement is emerging and demanding transparency and accountability on taxation.
In her recent book Bill Gates, Pay Your Fair Share of Taxes...Like We Do, Quebec-based tax expert Brigitte Alepin notes that in today's globalized economy, rich individuals and multinational companies can "surf along the fault lines of our tax systems," at home and abroad, to find the system that suits them best.
As a consequence, the fiscal crisis plaguing much of the Western world is in part due to the inability of governments to raise enough tax revenues to pay for programs and services.
Tax revenues have been falling in many countries since the beginning of this century. Between 2000 and 2009, tax receipts in the United States fell from 29.5 per cent to 24 per cent of GDP. In Canada, tax receipts fell from 35.6 per cent of GDP to 32 per cent.
The top marginal tax rate of the super-rich in the US fell from 91 per cent in 1960 to 35 per cent in 2012. In Canada, effective tax rates for the wealthiest 0.01 per cent fell from 71 per cent in 1943 to 33 per cent in 2000—including both federal and provincial taxes, with provincial rates averaged.
In a July 2012 report, the Tax Justice Network calculated that the world's wealthiest individuals have at least $21 trillion USD lodged in offshore jurisdictions, resulting in global tax losses of $200 billion annually.
Corporate tax rates have also fallen by an average of 40 per cent in OECD countries. Between 2000 and 2011, Greece cut its rate from 40 per cent to 20 per cent, leading to a 40 per cent reduction in corporate tax revenues. In Canada, federal corporate rates have fallen nearly in half, from 29.1 per cent in 2000 to 15 per cent in 2012.
This year, Canada has the lowest combined corporate income tax rate of all G7 countries. Canada's parliamentary budget officer has reported that by 2013-14, these cuts will reduce federal tax revenues by $11.5 billion CAD.
Multinational corporations have also devised ways to avoid paying taxes entirely. By establishing shell companies in offshore jurisdictions, multinational companies routinely allocate costs to high-tax jurisdictions and profits to low-tax jurisdictions. The US-based Citizens for Tax Justice calculated that from 2008 to 2011, thirty of the most-profitable Fortune 500 companies had negative federal income tax rates despite reporting $205 billion in pre-tax profits, resulting in tax losses of $78 billion.
While no public data is available in Canada, the auditor general warned in 2002 that corporate "tax arrangements with foreign affiliates have eroded Canadian tax revenues of hundreds of millions of dollars over the past 10 years."
The Obama administration is aggressively pursuing tax cheats. In 2009, US prosecutors charged the Zurich-based UBS Bank with helping Americans hide assets from the Internal Revenue Service. The US investigation also revealed that the Canada desk of UBS Bank was managing some $5.6 billion on behalf of wealthy Canadians.
In 2010, a joint CBC News and Globe and Mail investigation uncovered more than 1,700 Canadian accounts at the Geneva-based HSBC Private Bank.
This year, the Wegelin Bank of Switzerland was sold after three of its bankers were charged in New York with conspiring to assist US clients conceal more than $1.2 billion from American tax authorities.
A US Senate investigation estimated that tax evasion costs the US $100 billion annually. British tax expert Richard Murphy estimates that the annual loss to the United Kingdom treasury is £70 billion. Canada's Revenue Agency does not disclose the "tax gap," the difference between what it expects and what is actually collected in tax revenues.
Unlike most advanced countries, Canada does not have an inheritance tax. Linda McQuaig and tax expert Neil Brooks noted in The Trouble with Billionaires that a graduated inheritance tax, starting with estates of more than $1.5 million CAD, would generate enough revenue to provide every Canadian teenager with an educational trust fund of $16,000.
The reduction in capital gains tax in 2000 means that Canada's wealthiest 1 per cent saved $7.93 billion in taxes between 2000 and 2010.
Citizen's groups around the world are demanding transparency and accountability on tax policy. Taxes are central to the democratic social contract, the way we have collectively organized to provide the infrastructure and services available to everyone.
When wealthy citizens and commercial actors opt out of taxation, the social contract is undermined and public cynicism prevails. In this context, a public discussion about a fair and progressive tax system is urgently required—a public discussion that leads to the end of tax evasion as a norm, and the reinstatement of progressive tax policies.
Peter Gillespie works with the Halifax Initiative, a coalition of Canadian organizations concerned about international social justice issues.
First published in Embassy Magazine, August 1, 2012