The Panama Papers are Live, Tax Havens Should Be Dead

The Panama Papers are Live, Tax Havens Should Be Dead

Alexis ChapmanWednesday,11 May 2016

The Panama Papers went live on Monday May 9. So if you’re looking for something fun to do you can now search through the massive data leak and find out specifically who has been avoiding paying their fair share of taxes. There have been some surprises in the data (Jackie Chan?) and some non-surprises (Vladimir Putin, of course). But honestly, the fact that a bunch of very rich people, some of whom are politicians and other public figures, were legally and/or illegally keeping money in Panama and other tax havens is not even a little shocking. What would be shocking is if we could do something to change that in the near future. A bunch of economists seem to think that we can and should change this system, and also think that the Anti-corruption Summit starting in London on Thursday is the time to get the process started.

The summit will be attended by leaders from 40 countries and representatives from the International Monetary Fund (IMF) and the World Bank. On Monday, 300 economists from around the world issued an open letter to world leaders asking them to use the summit “to make significant moves towards ending the era of tax havens.” The list of signatories is an impressive mix of some of the world’s top economists and they make some excellent points, for instance, “The existence of tax havens does not add to overall global wealth or well-being; they serve no useful economic purpose. Whilst these jurisdictions undoubtedly benefit some rich individuals and multinational corporations, this benefit is at the expense of others, and they therefore serve to increase inequality.” Income inequality is also the primary reason for releasing the papers, according to a May 6 statement by “John Doe”, the original source of the Panama Papers. In the statement John Doe calls on EU and U.S. lawmakers to fix the system by making a number of changes like ending financial secrecy, and for the U.S. to fix the campaign finance system. In their open letter the economists make similar suggestions such as public reporting and to “make publicly available information about the real ‘beneficial’ owners of company and trusts.” They also point out that the cost of not changing the system is about $170 billion, which is how much tax revenue is lost annually as a result of tax havens. But unfortunately knowing the scope of the problem and even knowing how to fix it may not be enough to actually get things to change.

It’s no mistake that the letter was specifically aimed at the Anti-Corruption Summit in the UK; many of the countries considered tax havens are British overseas territories or part of the Commonwealth. In addition to which, British Prime Minister David Cameron was one of the names that came up in the leaked data. The idea that someone whose salary is paid by taxes is illegally hiding money to avoid paying taxes is infuriating, and there are undoubtedly some politicians who are doing just. But, not all tax havens are illegal, and for some people who have a lot of different kinds of financial assets in different places it’s possible to technically have money in a tax haven without knowing about it, which seems like it might have been the case for Prime Minister Cameron. This is, again, not the case for all politicians. For example, Iceland’s Prime Minister Sigurdur Ingi Johannsson chose to resign after the Panama Papers revealed that he and his wife had set up a company in the British Virgin Islands, a popular tax haven. And that will likely be the biggest obstacle to getting rid of tax havens; the leaders that need to take action to end this problem are many of the same people who have been benefiting from it.

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Image Credit: Rita Willaert on Flickr

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