James Henry: It’s kind of like measuring the size of a black hole. We looked at unrecorded outflows from developing countries. We looked at data that the IMF and the Bank for International Settlements has on cross-border deposits. And we also looked at the assessments that the private banking industry does.
This business is dominated by about fifty global banks. Many of them got bailout money in the last five years but they collectively own just among those banks alone more than twelve trillion dollars of funny money that’s evading tax.
BBC Interviewer: Okay, as you say, evading tax. So this money could really turn things around, couldn’t it, for the global economy. Let’s just bring it back to Europe, if we may, and Britain in particular. How much is going offshore from Britain which legitimately could be used perhaps by the tax authorities?
James Henry: You know, oddly enough, it’s easier to tell you how much is going out of countries like Brazil or Mexico than it is Britain. The authorities that have access to the data don’t release it on that level. So I can get data from the IMF and the World Bank on developing countries on that but it’s very hard to tell how much is going out of Britain.
But we do know that collectively the total is at least twenty one trillion dollars which is about maybe thirteen to fourteen trillion pounds. It’s an enormous sum. It is sitting there. The good news is it’s there. Maybe we can figure out a way to tax it or bring it home.
BBC Interviewer: So let’s explore that. How do you do that? I mean is that a question of getting all the banks to agree to sign up to something to prevent this because, of course, it’s perfectly legal, isn’t it, a lot of it in terms of tax avoidance schemes and things.
James Henry: Well, you know, as Dennis Healy once said, the difference between tax avoidance and tax evasion is a prison wall. You know, the industry pays a lot of money to lobbyists to write tax codes so that you practically need a judge in the room to figure out whether you are obeying the law.
So I think it comes down to this. That ordinary people owe taxes. Small business, that can’t afford these schemes, this kind of chicanery, that don’t have the representation in the Halls of Parliament, are having a hard time paying the bills, and it’s costing the Treasury an enormous amount every year. I think the non-dom issue in London is well known as an example of that. It doesn’t seem to be make sense for a lot of the taxpayers.
But you end up having the tax base for essential services like schools and hospitals and police and fire, just have to be paid, and they end up being paid by people who are unable to avoid tax. They pay it through sales tax.
And we’ve seen that all over the world, this phenomenon of the richest people in the world being able to hide their money offshore and avoid income taxes while everybody else is having to pay the bills.
BBC Interviewer: Okay, so briefly what are you saying? The only recourse is to try and appeal to their better judgment, to appeal to their morality?
James Henry: No, it’s not a matter of morality. I mean, I think the time has passed for that. We need tougher laws that crackdown on what I call pirate banking. That’s the business these people have created of providing these services across all the havens in the world. It is not only banks but also lawyers and accountants who specialize in sheltering funny money.
Secondly we need to have things like automatic information exchange among tax authorities so that they can figure out who is evading.
And I think thirdly we could really think about seriously about getting developed countries together and agree on what we did with, you know, the airline ticket tax. Let’s just have a simple minimum tax on all the assets that are sitting there from all kinds of shady sources, sitting there in banks, maybe a point five percent tax would be enough to raise a hundred billion dollars a year.
And you know, it would require collective action but you know there’s no simple magical bullet that doesn’t require collective action. And right now we are in kind of a dueling situation where different countries are competing to cut taxes. It’s just not working.
Transcribed by The Barefoot Accountant
Accountants CPA Hartford, LLC