As more and more people understand how great wealth is garnered and protected, they will understandably seek ways of ensuring that all pay their fair share. Multi-million dollar bonuses and salaries that escape real and significant taxation place undue burdens on the rest of us. The OECD estimates that between $1.7 trillion and $11.5 trillion is now held in tax havens. That the estimate has such a wide range reflects how little we understand of just how much wealth is there: There is no transparency.
It is interesting to note that the rise of tax havens corresponds with falling taxation rates on the very wealthy. In fact, as the following graph and discussion will demonstrate, the number of tax havens significantly increased after tax rates had fallen. While I do not wish to draw a causal relationship, I do wish to point out that the last three decades have been in control of those with the greatest wealth. Until we start to address the issues surrounding great wealth, we will never create a more equitable society or civilization.
A top marginal rate of 90% is not out of line. Consider the following historical graph of top marginal rates.
During the Great Depression top marginal rates climbed dramatically, rightfully reaching their zenith during WWII. In response to 9/11, we of course cut rates precisely at the moment we were fighting wars on two fronts. Bush Junior told us that going to the mall was the best way to confront Bin Laden. Easy credit and consumer spending was our shared responsibility, I guess. Business thrived; the wealthy got wealthier and Saddam Hussein was punished for not having weapons of mass destruction: All was right with the world.
Now consider the period from 1950 to 1980. During the Civil Rights Movement, top marginal rates remained high (over 70%): It was a period of rising expectations and prosperity. The slight blip upward was our response to the Vietnam War.
Between 1980 and 1990, top marginal rates fell dramatically. Trickle down had taken hold. Here things become interesting. During the 1980’s, tax havens proliferated. In 1984, the International Business Companies Act became a statute of the British Virgin Islands, a response to the U.S. repeal of double taxation with microstates, specifically tiny island nations. This act was replicated elsewhere. To understand its popularity, consider its popularity in the British Virgin Islands. [Source: British Virgin Islands via Wikipedia.]
Tax havens proliferated beyond the Virgin Islands. While the IBC was eliminated in 2006, subsequent laws have not curbed tax havens. As the OECD states, the amount of money now held in tax havens is considerable and unknown. Suppose it is $115.5 trillion?
Nonetheless, we can draw some conclusions. High top tax rates did not create tax havens.
Many will argue that tax havens arose as a response to high taxes. Tax havens came into play after top rates had fallen significantly. To argue that 50% tax rates or higher–say 70% or even 90%–forced the wealthy to go elsewhere is not exactly persuasive.
Others will argue that lower tax rates were a response to the growth of tax havens. That argument has slightly more merit, although I find it still weak.
Tax havens, however, grew fastest when taxes were lowest. I would argue that for the very rich, enough has never been enough.
Money has gone elsewhere despite lowering tax rates. Slick money handlers, slimy tax havens, and piggy politicians that cannot keep their snouts out of the lobby gravy train have seen to that.
We talk endlessly about the impoverished poor, about the promise of globalization. Here in the U.S., we talk endlessly about what do about those losing their jobs and those with no health insurance. We worry about the enormous debt we are creating, while we do everything we can to insure that those who have made that debt inevitable keep their cash, their plush hide-a-ways.
We worry and fret about how we should approach those with obscene amounts of money. Do we dare raise their taxes? Will we offend them? Will we be accused of trampling on the divine entrepreneurial spirit? Does not every individual have the right to amass billions? Hell, no. Every billionaire has countless little people to thank. He sits upon a mountain of struggling poor–top dog, indefinably noble, a testament to the principle we seem to hold dear: Greed.
Here is the taxation principle I would propose: No one should walk away with more than one million dollars a year after taxation. I think one million is more than generous. Money garnered from these silk purses would go a long way towards creating a more equitable world. Ask the world’s poor who now rummage through the world’s garbage heaps for a bit to eat or something to wear.
Oh, I am so un-American! Frankly, my dear, I don’t give a damn.
We have serious problems ahead–and the monstrous inequities in wealth that now cancer the planet will explode as we face global warming, resource depletion, rising seas, and ever-growing pollution. Rest assure, those with great wealth will build their mountain retreats while the rest of us scramble. We are facing a threat greater than any world war. If we do not confront it directly, then the show is over. We do have resources. Unfortunately, we are sadly lacking in will and moral stature.