After Apple CEO Tim Cook testified before the Senate about his company’s practice of using tax loopholes in Ireland to get away with paying only 2% on $74 billion in international profits, the media in the U.S. was humming with stories of corporate and individual tax evasion.
Lost in the shuffle though is the truth that we are seeing elites abandon their societal obligations. Though many cry out “personal responsibility” and “traditional values” to the public, they are secretly undercutting it behind closed doors. We need to eliminate tax shelters, crack down on banks abetting fraud, and cultivate a culture of social responsibility to combat this behavior.
Looking just at Great Britain brings up numerous examples of how widespread this threat is. Google and Amazon did billions in sales yet managed to get away with paying a tax of less than 1%. Starbucks claimed it made no profit on sales of $1.8 billion, freeing it from paying taxes, yet stated otherwise in calls to investors and stakeholders, saying that operations were making a 15% profit and that they were actually subsidizing expansion in other countries. After sizable public protests it finally agreed to pay $15 million in fines over the next two years.
Moreover, various sources such as the Tax Justice Network have found that tax evasion costs the U.S. between $10 to $60 billion a year and the EU $1.3 trillion, or more than it spends on its famous health care system. It is generally estimated that the top 100,000 people, by income, hold $9.8 trillion in tax shelters overseas, with total assets held in tax shelters totaling $21 to $32 trillion — larger than the U.S. and Japanese economies combined.
And if this unscrupulousness weren’t enough, the international banking industry makes money off the practice. Some of the biggest names in the country, banks like JPMorgan Chase, Morgan Stanley, Wells Fargo, Goldman Sachs — the same institutions that the American public bailed out during the 2008 financial crisis — actively encourage the rich to set up shell corporations and trusts overseas to defraud their home countries, earning a management fee in the process.
There is no confusing these financial services as anything other than tax evasion. In the Cook Islands there is an office in a tiny commercial building that somehow manages to house 3,000 corporate headquarters. Investigators have furthermore found a group of 28 elite “directors” who collectively lead nearly 22,000 companies, with one man on over 4,000 alone. I must say though, I’m glad I’m not him. Can you imagine how much trouble he has formatting his resume?
This is not productive economic activity, it’s a shell game, and fortunately the world is beginning to combat such abuse. Europe is currently working towards improving the exchange of people’s earnings information across states, undercutting tax havens like Austria and Luxembourg. Great Britain is negotiating with its fellow states in the British Commonwealth to get them to sign onto international taxation treaties. As conservative Prime Minister David Cameron said, “Lower taxes are only sustainable if what is owed is actually paid … There is no point in dealing with tax evasion in one country if the problem is simply displaced to another.”
Even that classic tax shelter, Switzerland, is under severe pressure. Just four years ago UBS, Switzerland’s largest bank, paid a $780 million fine to the U.S. for selling tax-evasion services to rich Americans, handing over nearly 4,500 names. The U.S. and EU have since asked for the rest. After fighting for years to equate Swiss banking with doctor-patient confidentiality — ignoring its sordid origins in the financial scandals of the 1930’s — Switzerland finally submitted to reality and vowed to release client information.
Tax havens are themselves increasingly wary of having an economy that is overly reliant on foreign deposits. Ireland and Iceland were nearly decimated back in 2008-2009 as their banking systems destabilized, and just this spring Cyprus skirted financial ruin when inspectors downgraded their national debt. The risk is simply getting too great.
But this is not nearly enough to fix the problem. The U.S. and other countries must crack down hard on bank abuses when they occur, as banks simply cannot stop themselves. One of the biggest players in tax sheltering, JPMorgan Chase, has a history of combating efforts to investigate its clients for financial fraud and money laundering. As recently as 2011 JPMorgan Chase got in trouble for circumventing U.S. embargoes on places like Cuba and Iran, paying a $90 million fine as a result. The U.S. has had embargoes on both countries going on for decades now, before many people reading this were even born, yet somehow JPMorgan Chase just forgot about it? But what else can we expect from a bank that just this year had its anti-money- laundering policies condemned by the Office of the Comptroller of Currency as being “critically deficient"?
It is high time that the government punish serial cheaters with more than a slap on the wrist. So why haven't they yet? One argument put forward by many libertarians and those on the right is that the real problem here isn’t tax evasion, but that business taxes are too complex and too high. The entrepreneur who works hard and succeeds deserves all the wealth they earn, and once they make that money they can do whatever they want with it. Others argue that these companies and individuals are following the law, using the tax loopholes created by Congress, and that consequently they’ve done nothing wrong. Still more say that their primary moral duty is to their shareholders and by evading taxes they are doing the right thing.
But reality makes a mockery of these arguments. If tax complexity were a problem, then why are all these people deliberately undertaking the most tortuous financial arrangements on the planet to save their money? You don’t fight complexity by hiding behind it. And how low can we reduce corporate tax rates before business elites are satisfied? The current rate in the U.S. is 35%, though almost no one pays that due to tax loopholes. Would 20% work? Fifteen? Ten? Given the number of countries out there with different tax schemes, there are surely many places corporations could pick for their headquarters to both avoid high taxes and still pay enough to argue that they are covering their fair share. However, when given the choice companies like Apple, Google, Amazon and Starbucks game the system to pay 2% in taxes on their profits, if not less. It is obvious then that the problem business leaders’ face isn’t that the tax rate is too high. It's that they don't want any taxes imposed whatsoever.
As for the notion that “following the law” is sufficient for doing the right, or that loyalty to shareholders is superior to that to country, what self-respecting conservative settles for such a selfish rationale? Implicit in two of their favorite phrases, “personal responsibility” and “traditional values,” is the notion that one ought to live a life of integrity, honesty, and hard work where you fulfill your obligations to your family and community. These are eternal values, and ones that are neither superseded by lust for money nor the law. Obeying the law is only the starting point of the path towards living the upright life, not the end point. Oftentimes the law is wrong, which is why people fight so hard to change it.
The simple truth is that morality and integrity does not take a holiday. Your country and community does not cease to exist when it proves inconvenient, only to magically reappear when you want it to. Conservatives ought to be the first to decry tax evasion as an illegal act that not only cheapens personal character, but also undermines the nature of citizenship itself in this republic. This lesson needs to be taught again and again, through education and professional organizations and law enforcement, until elites begin to understand what it actually means.
Elites used to understand this once. Over a century ago billionaire businessman Andrew Carnegie operated on the notion that the rich had an obligation to society and that they ought to donate all of their wealth to improving the condition of their fellow man. Being a competitive spirit, he even got into a contest with John D. Rockefeller of Standard Oil to see who could give away the most money. Henry Ford doubled the wage of his employees in an effort to both stop high turnover as well as to increase the market for his products. However, even though he had a mercenary motive and only sought to improve his profits, Ford still invested more in the American people than most tycoons are willing to do today. It’s a sign of how bad contemporary ethics are when even the robber-barons of yesteryear start looking like moral paragons compared to today’s leaders.
It is apparent that tax evasion is one of the biggest threats to the world today. It undermines good governance around the world with the destruction of the tax base that damages communities everywhere. It undermines law and order by encouraging organized crime and illegal activity by the banking industry. It undermines individual character and the fabric of society by promoting greed and selfishness. While progress is being made to stop tax evasion, many of the tools we have remain stored away. It is time to start using them.