Avoidance and Evasion

Nobody likes taxes.  It’s a pain.  When I realize how much I’ve paid in taxes over the course of my life, be it in income or sales taxes, it adds up, and it does so quickly.  But, as Oliver Wendell Holmes, Jr. stated of taxes, they’re ‘the price we pay for a civilized society.’  And, as galling as it is to see the government take our money, that doesn’t happen to everyone.

A new report released this week by James Henry of the Tax Justice Network, a former chief economist at McKinsey & Co. (hardly a pinko outfit), titled ‘The Price of Offshore Revisited’ posits that between $21 and $32 trillion dollars have made their way from across the globe into offshore tax havens.  So, it seems that while some of us are paying our fair share (more than it, actually) there’s an entire class of people in the world who pay little to no taxes.

They do so because they’re able to, and they’re able to because they hire legions of lawyers and accountants to get around existing tax regulations.  It’s not just in the US that this is happening, it’s all over the world.  The $21-$32 trillion figure is about the combined size of the total output of the US and Japanese economies for an entire year.  And when you have cash flowing from the countries in which it was earned into offshore accounts, there’s no way that it’s simply going to be reinvested into the local economy, spurring consumption and jobs.  Put simply, that money doesn’t grow into anything bigger.  It’s just recycled into the global financial system, and does little to make the lives of ordinary people any better.

But that’s usually not what we’re told.  The chorus from the rich, and not just in the US, is that we shouldn’t make tax laws too hard on the rich, as they’re the ‘job creators.’  From what this report can tell, the only jobs that are being created are those of tax lawyers, accountants and offshore bankers.  It’s not like any of us are gleaning any benefit from these tax dodges other than the economic elite who so skillfully navigate them.

And, here’s the kicker: it’s largely legal.  It’s rational to minimize your tax bill.  It’s called tax avoidance.  And sometimes tax avoidance can look suspiciously like tax evasion.  To be sure, there’s a fine line between the two.  But the fact of the matter is that we have, both in the US, and globally, a tax system that’s broken and that benefits those who need that benefit least of all, the ultra-rich.  Now, when you’re reading this, and you’re worrying about a half million in your 401(k), let’s be clear, I’m not talking about you.  I’m talking about the likes of Mitt Romney, who, with his financial expertise, likely paid no taxes at all in 2009, despite having earned tens of millions of dollars.  In a day and age when governments across the world are bleeding nothing but red ink, that extra $21-$32 trillion would come in pretty handy when it comes to plugging budget deficits.

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