Henri Pirenne tells us in his Economic and Social History of Medieval Europe (1936) that Medieval cities rose from the runaway serfs who could earn their freedom by staying in the cities for one year. G.G. Coulton in Medieval Village, Manor and Monastery 1925) describes the horrible life of slavery serfs suffered. And Pirenne tells of how free men in the cities would wear their tax receipts on their chests as proof they were free men. How far we have fallen in America when now we are ashamed to pay taxes and some are proud to shirk their duty and responsibilities as citizens not only to pay taxes but to vote and attend town meetings.
It is no surprise that people do not join unions to defend their rights as workers or to ensure they have safe and healthy workplaces. It is also no surprise to see Americans support measures that have for 30 years consistently shifted the tax burden from the rich to the working person. World wide the super rich hide their income from taxation and take every measure to avoid paying their share of even the tiny tax they are at present obligated to pay.
Mr. Richard Waters reports in Monday's Financial Times, "Tax drives US tech groups to tap debt." that tech companies like many US companies operating abroad are holding large sums off-shore to avoid paying taxes. This kind of tax avoidance is unfortunately considered by many to be legal but it is just an extension of the everyday variety of some citizens inside the USA who try and hide their income in various ways. In the last analysis, no matter what the excuse, tax avoidance by some raises the tax burden on all the responsible taxpayers. One only has to recall the arrogance of someone like Leona Helmsley who argued that, "Only the 'little people' pay taxes, to under some of the rationalizations behind these efforts.
As Waters notes, many companies are using their cash hoards tin stock by-backs, dividends or take-overs. While all these actions may be good for the stockholders they are no reason for shirking tax responsibilities.
Vannessa Houlder's article, "Trouble to avoid," Financial Times, 7 February, addresses companies' and private citizens' efforts to avoid taxes by registering in low tax nations or in cantons of Switzerland. It is clear that countries are in a futile pursuit of an ever sophisticated tax avoidance culture.
Tax avoidance is part of the economics of the past 20 years that has led to increasing wealth inequality. Questions of the cost of chasing tax money and of uncovering it are bound up in complex issues of national sovereignty. Efforts to replace lost business tax and income tax hidden abroad are not cost effective. But there is an answer. The Unitary Tax System.
Conflicts in discovering secret accounts between neighboring nations like Germany and Lichtenstein, the USA and tax havens like the Cayman Islands and Bermuda, Britain and France and the Netherlands and Ireland as well as internal segments like the cantons of Switzerland and some USA states, are in the news and seem to only produce more conflict. Low-tax countries not only reduce global tax revenues by acting as legal havens, but encourage continued downward pressure on tax revenues. A related problem is the poor access to income and expenses within global corporations. Transfer pricing within corporate units are notoriously unreliable as Mark Granovetter demonstrated from a number of studies in the 1970s and 1980s. This problem has escalated with globalization of commerce and finance as well as the crisis in audit standards as was at the core of the Enron and Worldcom frauds. Small companies cannot compete with large international corporations who can hide income and avoid taxes. There must be an equitable solution.
This problem was discussed two years ago by Raymond Baker (Financial Times 24 April 2009) regarding the levels of “black money” or illicit financial outflows estimated in India. Partly, as Mr. Baker argues, trade mispricing is also involved to avoid both tax and earnings to either shareholders or creditors. An answer to this both problems, the race to the bottom of low-tax countries and tax avoidance as well as the problem of transfer pricing and mispricing, could be an international Unitary Tax System. California had an effective system in place in the 1980s where corporate taxes were levied based on international sales. International cooperation in audits could hold down tax cheating and maximize tax collection producing a level playing field for all nations and all corporations big and small. The system could work like sales tax collection among different counties in California with redistribution back to states from an international body made up of representatives of the participating states. Sampling studies of bar codes and radio labels of various products could act as cost efficient controls on sales monitored by the individual states to check flows of sales.
Niccolo Caldararo, Ph.D.
Dept of Anthropology
San Francisco State University