Globalization, Inequality, and Tax Justice

Transcription

1 Globalization, Inequality, and Tax Justice Gabriel Zucman (UC Berkeley) November 2017

2 How can we make globalization and tax justice compatible? One of the most pressing policy questions of our time: Globalization undermines redistribution This fosters pre- and post-tax inequality Policy response so far: let s all become tax havens Does globalization have a future if it means ever lower taxes for the rich, and higher taxes for the rest of us?

3 63% of the foreign profits of US 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 Switzerland Bermuda (and Caribbean) Netherlands Luxembourg 2010 Ireland 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 Netherlands, 8% from Luxembourg, etc. Source: author's computations using balance of payments data, see Online Appendix

4 The race to the bottom Corp. tax rate 5 4 Globalization and tax competition World average corporate tax rate MNE profits 2 15% Multinational profits (% of global corporate profits) 5% Notes: This figure charts the unweighted world average corporate tax rate and the share of global corporate profits made by multinational corporations. Multinational profits were around 1.4 trillion in 2015, while global corporate profits were around 7.9 trillion.

5 Back to pre-new Deal tax rates at the top 5 Average tax rate on the top 0.1% income earners (All taxes at all levels of government, % pre-tax income)

6 More taxes at the bottom 3 Taxes paid by the bottom 5 % of bottom 5 pre-tax income 25% 2 15% 1 5% Capital taxes Payroll taxes Individual income taxes Sales taxes Source: Appendix Table II-G2

7 The bottom 5 has been shut off from growth, the top is growing like China 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

8 The top 1% and bottom 5 have switched their income shares 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

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

10 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 (USA) U.S. tax authority Clearstream (Luxembourg) Euroclear France (France) World financial register U.K. tax authority French tax authority Other central securities depositories & other sources Other tax administrations

11 Supplementary Slides

12 The effective rate paid by US corporations has been reduced by 1/3 since late 1990s % of US corporate profits 55% 5 45% 4 35% 3 25% 2 15% 1 5% Nominal and effective corporate tax rates on US corporate profits Nominal U.S. federal rate Effective rate paid to US government Effective rate paid to US 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 US 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.

13 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 US 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.

14 The EU loses 2 of its corporate tax revenue due to tax havens 35% 3 25% 2 15% 1 5% Germany France 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 Italy EU22 United Kingdom Spain Sweden Austria Finland Estonia Denmark Portugal 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

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

16 A high and growing amount of personal wealth is held in tax havens The global amount of household wealth in tax havens 14% 12% Global offshore wealth (BCG) 1 8% 6% 4% 2% % of world GDP Global offshore wealth (Our estimate) Offshore wealth in Switzerland (Swiss National Bank)

17 From some countries, offshore 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 Denmark Finland Japan India Norway Indonesia Canada Iran Sweden Netherlands Brazil Australia Mexico USA Austria Thailand Colombia Ireland Spain South Africa Italy Russia France Germany UK Belgium Turkey Portugal Taiwan Greece Argentina Russia (NEO) Saudi Arabia Venezuela UAE

18 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

19 Combining offshore 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

20 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

21 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

22 Because of offshore wealth, we significantly under-estimate inequality 12% The top 0.01% wealth share and its composition % of total household wealth 1 8% 6% 4% Offshore wealth All wealth excluding offshore 2% Spain UK Scandinavia France USA Russia

23 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 offshore bankers Financial opacity Incentives of tax havens What is missing: well defined sanctions and a world financial registry

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 US$]

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 US$] 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 US$]

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 US$]

28 Even in countries with low total evasion, including hidden wealth inequality a lot Top 0.01% wealth share in Norway 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. Taxes evaded, % of taxes owed (stratified random audits) % 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: US. vs. Denmark % 3. Figure S.23: Fraction of income undeclared (stratified random audits) US (right) average: 11% 2 15% 2.5% % % Denmark (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 (US) or wealth (Denmark) distribution P

34 Why is detected evasion higher in US? 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% Norway Iceland Sweden Japan Luxembourg Denmark Finland France Ireland Lithuania Belgium Estonia United Kingdom Austria Netherlands Germany Spain Hungary United States Slovenia Czech Republic Switzerland Latvia Portugal Italy Slovak Republic Turkey Poland Greece

35 Stronger enforcement fewer, wealthier clients 7.0 Number of clients and average account value at HSBC Private Bank Switzerland 35,000 Average account value (million US$) 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 Changes in Tax Progressivity Figure Top income tax rates in rich countries, Top marginal tax rate applying to highest iincomes U.S. U.K. Germany France Japan Note: The top marginal tax rate of the income tax (applying to the highest incomes) in the U.S. dropped from 91% in 1963 to 4 in Sources: piketty.pse.ens.fr/capital21c and WID.world updates.