Tuesday, April 5, 2016

Jon Schwarz — Here’s the Price Countries Pay for Tax Evasion Exposed in Panama Papers

How much tax revenue do the world’s governments lose thanks to this kind of financial engineering?
According to The Hidden Wealth of Nations, a recent book by University of California, Berkeley economist Gabriel Zucman, the answer is that tax evasion costs governments approximately $200 billion per year.
Zucman also estimates that tax avoidance by U.S. corporations — which, unlike tax evasion, is generally carried out in the open and is technically legal — costs governments an additional $130 billion per year. (European and Asian corporations have the same incentives to avoid taxes, but there is not enough data to estimate its scale.)...
The Intercept
Here’s the Price Countries Pay for Tax Evasion Exposed in Panama Papers
Jon Schwarz

9 comments:

Matt Franko said...

Right because as everybody knows govts get their money from the taxes otherwise they would be broke...

Tom Hickey said...

The problem is that 1) government and the people at large believe this and it is not going to change in the foreseeable future, and 2) even in paradigm, government expenditure is funded by taxes or deficits and deficits increase government liabilities. Increasing government liabilities is a good thing from the perspective of increasing $NFA (non-government financial wealth) but it also potentially results in inflation at full employment. So funning a full employment budget and also funding socially desirable goals is still going to require draw down of previously created $NFA.

Allowing the wealthy to hoard is at least potentially a problem financially and economically and vast inequality in the distribution of real wealth means allocating real resources very disproportionately, which eventually as social and political consequences, and the Trump and Sanders candidacies are showing.

There's also a perception problem. Havens are designed to keep the public from knowing the extent of inequality and the actual distribution of financial wealth. The same is true of real wealth although it is harder to cover up now with Google Earth. Even so, few people know the extent of the real holdings of the superrich. BTW, the superrich began acquiring the choicest property on the planet back in the 19th century. This has been going on for awhile.

But still one cannot get in and look at the premises. I recall what a todo there was over the discovery of Imelda Marcos's collection of designer shoes. This is the insinuation of the wealth of Putin and XI's family and friends, even though not in their names.

lastgreek said...

Basically, Tom, tax evasion has the same effects on the economy as counterfeit currency. Wonder if they carry the same penalty ;)

MRW said...

Matt,

Right because as everybody knows govts get their money from the taxes otherwise they would be broke...

Exactly

So funning [funding?] a full employment budget and also funding socially desirable goals is still going to require draw down of previously created $NFA.

How so? Didn’t happen in WWII or 1945-1965. Where does this this idea come from, and I’m asking this question sincerely. It doesn’t make any sense to me; I need to be enlightened. How do Net financial Assets pay for a full employment budget and socially desirable programs, if that’s what you’re saying? Or, are you talking about treasury securities sopping up more money swilling in society to stem the immediate use of those dollars in the real economy?

The perception problem is real and largely, perception porn. Even at 1,000 pairs of shoes and considering the cost of designer shoes today--male and female--at the high end of $2,000/pair, big whoop. But I suppose it matters to the little guy. Still, making a mountain out of this molehill does no one any good.

MRW said...

lastgeek,

Basically, Tom, tax evasion has the same effects on the economy as counterfeit currency.

????

Tom Hickey said...

MRW, it's the accounting. Revenue and borrowing are sources of funds for both the issuer and users.

The difference is that government as issuer funds itself whereas users don't. Users have to get funds from those with the power to generate them, either from government or from banks as government agents in money creation. Only the issuer can increase and decrease $NFA (spending and taxation).

Even though the issuer creates its own funding by crediting accounts and issuing securities, it still "gets funds" as far as the accounting goes. The issuer gets funds it has already supplied and has an unlimited supply of. However, to maintain price stability the user cannot create unlimited funding for itself. At some point, creating new funds for moving resources to public use will be inflationary if funds that have been created are not withdrawn (taxed).

Taxes also drive state money. Therefore the state has to maintain control over money creation and withdrawal to maintain its monopoly. A government that can't control counterfeiting or collect taxes loses its sovereignty over the currency.

Tom Hickey said...



Yes and no. Counterfeiting and tax evasion both contribute to undermining currency sovereignty. But counterfeiting also undermines the government's currency monopoly directly.

Furthermore, tax evasion often amounts to sterilization of the amount of taxes evaded since it is not used for consumption. However, it may be used for purchasing real assets, especially RE, so it does have an effect on asset appreciation.

But counterfeit money is usually spent immediately and that is potentially inflationary at full employment. Of course, if the government's fiscal stance is too tight for economic conditions, the spending increase could also be a blessing in disguise.

MRW said...

Thanks, Tom. That was clear and it was my understanding, so sorry for the confusion.

In the interim, I read Romanchuk’s “What is Monetary Policy?” and Lonergan’s "The distinction between monetary and fiscal policy,” which contained this footnote:

[2]Scott Fullwiler provides a clear distinction between fiscal and monetary policy, in this excellent article. But as is often the case with MMT, the definition is idiosyncratic: “fiscal policy is about managing the net financial assets of the non-government sector relative to the state of the economy, and monetary policy is about managing interest rates (and through it, to the best of its abilities, bank lending and deposit creation) relative to the state of the economy.”

So I was off to read Scott article. something I remember glancing at last June before leaving for a trip, not something I really sat down and read. I find Fullwiler clear-headed about subjects as complex as Fed operations--he goes out of his way to talk English--but I have to concentrate and follow his roadmap into the material. Then I’m fine stumbling in the dark because I make my way out of it.

Tom Hickey said...

Right. The MMT position that fiscal is about operations that change the amount of $NFA and monetary is about operations that only affect the composition and not the amount.

The great thing about MMT is that the definitions are operational rather than merely stipulated. Stipulated definitions in models usually carry some ideological bias.