Globalization and Tax Justice

Transcription

1 Globalization and Tax Justice Gabriel Zucman (UC Berkeley) October 2017

2 How can we make globalization and tax justice compatible? One of the most pressing policy questions of our time Clear by now that globalization is making redistribution harder Policy response so far: protectionism and/or let s all become tax havens (Brexit, Trump, race to bottom) Another route is possible, but it requires: (i) a good understanding of the issues, (ii) creative policies

3 Why globalization and tax justice are conflicting Tax havens severely a ect national tax policies: Multinationals artificial profit-shifting Rising personal tax avoidance and evasion Internalizing this, gov t cut capital taxes & top rates Cuts need to be o set by " taxes elsewhere / less spending! Does globalization have a future if it means ever lower taxes for the rich, and higher for the rest of us?

4 Multinationals Profit-Shifting to Tax Havens

5 Agrowingfractionofglobalprofitsare made abroad 35% The share of profits made abroad in U.S. corporate profits 3 % of U.S. corporate profits 25% 2 15% 1 5% Notes: The figure reports decennial averages (e.g., is the average of 1970, 1971,..., 1979). Foreign profits include dividends on foreign portfolio equities and income on direct investment abroad (distributed and retained). Profits are net of interest payments, gross of but net of foreign corporate income taxes. Source: author's computations using NIPA data, see Online Appendix.

6 63% of the foreign profits of multinationals are now made in havens The share of tax havens in U.S. corporate profits made abroad 6 Singapore % of U.S. corporate profits made abroad Bermuda (and Caribbean) Luxembourg 2010 Notes: This figure charts the share of income on U.S. direct investment abroad made in the main tax havens. In 2016, total income on U.S. DI abroad was about $450bn. 16% came from the, 8% from Luxembourg, etc. Source: author's computations using balance of payments data, see Online Appendix

7 The e ective rate paid by corporations has been reduced by 1/3 since late 1990s % of corporate profits 55% 5 45% 4 35% 3 25% 2 15% 1 5% Nominal and effective corporate tax rates on corporate profits Nominal U.S. federal rate Effective rate paid to government Effective rate paid to and foreign gov Notes: The figure reports decennial averages (e.g., is the average of 1970, 1971,..., 1979). In , over $100 of corporate profits earned by residents, on average $16 is paid in corporate taxes to the U.S. government (federal and States) and $4 to foreign governments. Source: author's computations using NIPA data, see Online Appendix.

8 Globally, 4 of multinationals profits are artificially shifted to tax havens Bn. Global amount of profits artificially shifted to tax havens Rest of OECD Developing countries EU Profits shifted to tax havens Non-EU tax havens EU tax havens Note: This figure illustrates the amount of tax base wrongfully allocated to tax havens in 2015, as well as the regions from which it originates. The total profits shifted to tax havens is estimated at 627 billion Euros. The size of mis-allocated tax base is equal to the estimated "Excess Profits" of the havens. The profts are allocated to the countries of origin, proportionally to the sum of high-risk service imports and FDI interest payments by partner countries. Foreign income is defined as income made by non-tax havens on investments abroad. The foreign income in 2015 was 1.4 trillion Euros.

9 The EU loses 2 of its corporate tax revenue due to tax havens 35% 3 25% 2 15% 1 5% Lost corporate tax revenue as a share of current corporate tax revenue Shifted to non-eu tax havens Shifted to high risk EU countries Corporate tax rate (avg ) Hungary EU22 United Kingdom Austria Estonia Poland Latvia Croatia Greece Slovenia Lithuania Czech Republic Romania Note: This figure illustrates the amount of tax revenue lost per country as share of current total corporate tax revenue in The bars are split into the share lost to EU-havens and non-eu havens. The green line shows the top statutory tax rates of the countries. The tax losses are allocated using the share of high risk imports and interest paid to tax havens (Our benchmark scenario). Slovakia Bulgaria

10 The winners: tax havens 6% 5% Corporate Income Tax Revenue (% Gross National Income) 4% 3% U.S. 2% 1% E.U Note: EU is the average of,, U.K., and.

11 O shore Wealth

12 Ahighandgrowingamountofpersonal wealth is held in tax havens 14% 12% Global offshore wealth (BCG) 1 % of world GDP 8% 6% 4% 2% Global offshore wealth (Our estimate) Offshore wealth in (Swiss National Bank)

13 From some countries, o shore wealth is as high as 5 of GDP 7 Offshore wealth / GDP (All countries with GDP > $200 billion in 2007) World average: 9.8% Korea Poland China India Indonesia Iran Brazil Mexico A Austria Thailand Colombia South Africa Russia Belgium Turkey Taiwan Greece Argentina Russia (NEO) Saudi Arabia Venezuela UAE

14 Hidden wealth is extremely concentrated 6 Distribution of wealth: recorded vs. hidden % of total recorded or hidden wealth All recorded wealth Hidden wealth disclosed in amnesty Hidden wealth held at HSBC P0-50 P50-P90 P90-P99 P99-P99.9 P P P100 Position in the wealth distribution

15 Combining o shore tax evasion with other forms of tax evasion 3 Taxes evaded, % of taxes owed % of taxes owed that are not paid 25% 2 15% 1 5% Tax evasion other than offshore (random audits) Offshore evasion (leaks) P0-10 P10-20 P20-30 P30-40 P40-50 P50-60 P60-70 P70-80 P80-90 P90-95 P95-99 Position in the wealth distribution P P P99.9-P99.95 P99.95-P99.99 P99.99-P100

16 Tax evasion is widespread among the very wealthy 3 Taxes evaded, % of taxes owed (stratified random audits + leaks) % of taxes owed 2 1 Average: 2.8% P0-10 P10-20 P20-30 P30-40 P40-50 P50-60 P60-70 P70-80 P80-90 P90-95 P95-99 Position in the wealth distribution P P P99.9-P99.95 P99.95-P99.99 P99.99-P100

17 Tax evasion makes the tax system regressive at the top 5 Taxes paid vs. taxes owed 45% Taxes owed % of taxable income 4 35% 3 Taxes paid 25% P0-10 P10-20 P20-30 P30-40 P40-50 P50-60 P60-70 P70-80 P80-90 P90-95 P95-99 Position in the wealth distribution P P P99.9-P99.95 P99.95-P99.99 P99.99-P100

18 Because of o shore wealth, we significantly under-estimate inequality 12% % of total household wealth 1 8% 6% 4% Offshore wealth All wealth excluding offshore 2% Scandinavia A Russia

19 The Solutions

20 Despite recent policy initiatives, much remains to be done to fight tax evasion Automatic exchange of bank info is becoming global standard: big progress. Three obstacles: Incentives of o shore bankers Financial opacity Incentives of tax havens + What is missing: well defined sanctions and a world financial registry

21 We need a world financial register to fight financial opacity The case for a world financial register The companies Clearstream, Euroclear, etc. feed the world financial register. Tax authorities can verify that tax-payers indeed declare all the financial securities included in the register Despository Trust Corporation (A) U.S. tax authority Clearstream (Luxembourg) Euroclear () World financial register U.K. tax authority French tax authority Other central securities depositories & other sources Other tax administrations

22 Reforming the corporate tax Formula apportionment Works reasonably well for States Based on final sales to remove incentives to move real activity It s the best way to levy taxes e ciently and fairly Can be done unilaterally But best done multilaterally as part of free trade agreements

23 Supplementary Slides

24 The proba to have an unreported HSBC account rises sharply within the top 1% 1. Probability to own an unreported HSBC account, by wealth group (HSBC leak) 0.8% 0.6% 0.4% 0.2% 0. P90-P95 [ ] P95-P99 [ ] P99-P99.5 [ ] P99.5-P99.9 [ ] P99.9-P99.95 P99.95-P99.99 [ ] [ ] Top 0.01% [> 44.5] Net wealth group [millions of $]

25 HSBC evaders hide close to half of their wealth at HSBC Average wealth hidden at HSBC, by wealth group (% of total wealth (including held at HSBC)) P90-P95 [ ] P95-P99 [ ] P99-P99.5 [ ] P99.5-P99.9 [ ] Net wealth group [millions of $] P99.9-P99.95 P99.95-P99.99 [ ] [ ] Top 0.01% [> 44.5]

26 The Panama Papers confirm the sharp gradient in use of tax havens by wealth 1.2% Probability to appear in the "Panama Papers", by wealth group (Shareholders of shell companies created by Mossack Fonseca) % 0.6% 0.4% 0.2% 0. P90-P95 [ ] P95-P99 [ ] P99-P99.5 [ ] P99.5-P99.9 [ ] P99.9-P99.95 P99.95-P99.99 [ ] [ ] Top 0.01% [> 41.4] Net wealth group [millions of $]

27 Amnesty data show widespread evasion at the top 14% Probability to voluntarily disclose hidden wealth, by wealth group (Swedish and Norwegian tax amnesties) 12% 1 8% 6% 4% 2% P90-P95 [ ] P95-P99 [ ] P99-P99.5 [ ] P99.5-P99.9 [ ] P99.9-P99.95 [ ] P99.95-P99.99 [ ] Top 0.01% [> 41.4] Net wealth group [millions of $]

28 Even in countries with low total evasion, including hidden wealth " inequality a lot Top 0.01% wealth share in 5% Including hidden wealth 4% 3% 2% Excluding hidden wealth 1%

29 Tax evasion on hidden wealth 5 Offshore tax evasion, by wealth group % of total taxes owed that are not paid High scenario Lower-bound scenario P90-95 P95-99 P P Position in the wealth distribution P99.9-P99.95 P99.95-P99.99 P99.99-P100

30 Tax evasion detected in random audits 6. % of taxes owed that are not paid Macro average: 2.3% 0. P0-10 P10-20 P20-30 P30-40 P40-50 P50-60 P60-70 P70-80 P80-90 Position in the wealth distribution P90-95 P95-99 P P

31 Random audits detect a lot of errors on tax returns 4 Fraction of households evading taxes, by wealth group (stratified random audits) P0-10 P10-20 P20-30 P30-40 P40-50 P50-60 P60-70 P70-80 P80-90 Position in the wealth distribution P90-95 P95-99 P P

32 But random audits fail to capture sophisticated evasion at the top 3 Fraction of income undeclared, conditional on evading (stratified random audits) % of total income (reported + evaded) 25% 2 15% 1 5% P0-10 P10-20 P20-30 P30-40 P40-50 P50-60 P60-70 P70-80 P80-90 Position in the wealth distribution P90-95 P95-99 P P

33 Tax evasion in random audits:. vs % 3. Figure S.23: Fraction of income undeclared (stratified random audits) (right) average: 11% 2 15% 2.5% % % (left) average: 1.8% 5% 0. P0-10 P10-20 P20-30 P30-40 P40-50 P50-60 P60-70 P70-80 P80-90 P90-95 P95-99 P Position in the income () or wealth () distribution P

34 Why is detected evasion higher in? DCE multiplier + self-employment 3 The share of self-employment income in GDP in OECD countries (Gross mixed income as a % of factor-cost GDP) 25% 2 15% 1 5% Iceland Luxembourg Lithuania Belgium Estonia United Kingdom Austria Hungary United States Slovenia Czech Republic Latvia Slovak Republic Turkey Poland Greece

35 Stronger enforcement! fewer, wealthier clients 7.0 Number of clients and average account value at HSBC Private Bank 35,000 Average account value (million $) Average account value (left scale) Number of clients (right scale) 30,000 25,000 20,000 15,000 10,000 Number of clients 1.0 5,

36 Income inequality in the United States 22% Pre-tax national income share: top 1% vs. bottom 5 % of national income 2 18% 16% 14% 12% Top 1% Bottom 5 Source: Appendix Table II-B1

37 Changes in Tax Progressivity 10 Top income tax rates in rich countries, Top marginal tax rate applying to highest iincomes U.S. U.K

38 Tax progressivity in the United States 45% 4 Average tax rates by pre-tax income group % of pre-tax income 35% 3 25% 2 15% Top 1% All 1 5% Bottom 5 Source: Appendix Table II-G1.

39 Inequality rose more where top marginal tax rates were cut more Change in Top 1% Income Share (points) Change in Top Marginal Tax Rate (points) Changes Top 1% Share and Top Marginal Tax Rate since the 1970s in Rich countries

40 No growth for the U.S. bottom 5 since 1980 Real average annual growth, Average annual growth by percentile, % Top 0.001% 5% P % P99.9 3% P99 2% Average adult 1% Post-tax Pre-tax -1% Income percentile