Scapegoating the tax havens

Thursday, 12 March 2009 05:57
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It seems as if the world's political leaders are determined to avoid examining the role of the land market in causing the boom/bust, which every day shows signs of being even worse than that of the early 1930s. The technique is to keep on finding excuses and scapegoats. The latest target is tax havens. Well known commentators such as Richard Murphy have been egging-on the attack.The Guardian has caught the mood nicely, both in its leading articles and pieces by its regular contributors such as Polly Toynbee, who took up the theme a few days ago in an article which forlornly tried to claim that Labour still has a chance to regain its popularity and win the next election On the subject of tax havens, her comment was...

"It now looks as if closing tax havens will be the G20's key success. Obama campaigned on the Stop Tax Havens Act now in Congress. Nicolas Sarkozy and Angela Merkel want Switzerland added to the blacklist, along with the 30 to 40 others. Brown has been latest on this issue, with an ignoble record of resisting EU attempts. Proposed sanctions are, says the Treasury, 'still in development'. (De Gaulle once surrounded Monaco with troops and cut off its water supply.) But now tough action looks set to happen: havens will have to reveal all dealings by individuals and companies to each nation's tax authorities, squeezing these hiding places for tax cheats, fraudsters, terrorists, bribe-takers and drug dealers.
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That was the fatal weakness in Toynbee's piece. Tax havens cannot be closed off. The way to deal with the problem is for countries to change their tax systems so that funds cannot be diverted in the first place. Three points need to be emphasised.
Tax havens exist by courtesy of the countries who are losing their tax revenue to them. So long as people and companies are regarded as the unit of taxation, the system will leak. To tax them is inviting trouble. The remedy for tax havens lies in the hands of the "victim" countries.

If taxation is tied to the holding of land titles, it cannot be avoided and compliance is readily enforced. If the tax payable is an ad valorem charge on the rental value of land, then not only will most of the revenues which end up in tax havens will be picked up at source - it will also be possible to substantially phase out most other taxes, retaining perhaps only the taxation of substances and activities which are considered socially undesirable.

Countries need to plug their own leaks. We repeat - it is easy enough - use a property tax based on land values, payable by the holders of land titles. The problem then goes away, since land cannot be hidden or shifted to a tax haven.

If one is serious about wanting to neutralise tax havens, then this is the policy to advocate. Anything else is shadow-boxing.
 

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