Economic Recovery Stagnating by Generational Issue: Tax Avoidance
Tax avoidance is a huge economic issue. Although it’s heavily frowned upon by governments, it’s technically a legal practice, as long as you know how to play the tax game right. The Coalition promised to crack down on tax avoidance, but it seems to have decided to focus on the poor and vulnerable members of society, to squeeze them for whatever they can, as tax avoidance has increased to £35 billion in the UK, since the Coalition party got into power.
Across the pond, America’s most powerful company, General Electric, paid no tax on $14.2 billion in profits, meanwhile receiving $3.2 billion in tax credits. To avoid tax laws, companies and rich individuals can employ accountants to shift around their money and deposit it into off-shore and on-shore tax havens across the world.
This impacts countries detrimentally, by inflating taxes for everyone else. They are not paying into the system they benefit from. It reduces considerably the income the government receives, which means less affluent groups pick up the buck.
The richest 400 Americans recorded 26% of their income as wages in 1992 and 36% as capital gains. Bad enough? Well, in 2007, the same 400 Americans recorded only 6% of their income as wages, and 66% as capital gains. Meanwhile, corporations are lobbying for lower taxes.
Corruption and Poverty Caused By Tax Avoidance
The sad fact of the matter is that tax havens lead to corruption and poverty. The big corporations fatten up and rely on the poor masses to bolster their affluence. The rich get richer and the poor get poorer. $854 billion has leaked out of Africa over 40 years (the figure could actually be as high as $1.8 trillion). Africa’s state system sees nothing of this cash, which impoverishes the continent further. The money has escaped through tax havens.
Tax avoidance is bad for economies – companies can shift around cash and hide their losses. Start-up businesses can’t afford to hire powerful accountants, who can instruct them about evading taxes. The big corporations stifle small companies, as a result, and price them out of the competition.
Lax Tax Laws
Many American companies come over to the UK, as the tax laws are a lot more lax. Investigations from HM Revenue into tax fraud barely scratch the surface – in fact, London is technically classed as a tax haven. In 2005, The Tax Justice Network estimated that $11 trillion was locked up in havens across the world. To put that into perspective, that’s more money than the US economy.
So why isn’t our government doing more to lock down tax avoidance? Because heavy tax laws often chase businesses out of the country, and the government doesn’t want to risk losing their economic input. They are more interested in attracting more business and appearing corporation-friendly. Companies will uproot and move, if tax laws come down too hard on their heads, while everyone else suffers. In any case, don’t expect any meaningful state intervention.
Credit: Economic Voice