The Citizens Handbook
We need a global army of tax collectors

Doug Saunders
Globe and Mail Oct 15, 2011; Updated May 8, 2018

How do you scrape together an extra trillion? That, in the end, is what the world needs to know. And the answer is right in front of us.

It's the question being posed, sotto voce, by the finance ministers and central bankers gathered in Paris this weekend in a bid to stop the European crisis from spiralling out of control.

A trillion euros, more or less, is what needs to be put up by the continent's governments, and soon, to stabilize the economies and get banks lending and companies hiring again. And, across the Atlantic, a trillion dollars is what many observers feel ought to be put into the U.S. economy, quick, to get growth and employment back on track. (Instead, hampered by Congress, Barack Obama's jobs bill offers a pale fraction of that.) Without spending a trillion, both these huge economies could lose a lot more, fast.

But a thousand billion in anyone's currency is not to be found by looking under sofa cushions. Nobody has it lying around; quite the contrary, everyone holds a lot of debt, and the sums needed to kick the world's economies into gear could raise that debt to crisis levels. But, as it happens, there's a trillion to be found. It could easily be obtained without raising taxes: We just need to start applying our current taxes to all the money people actually earn. In fact, the debt crisis would end overnight if we did that in a concerted way.

The monitoring group Global Financial Integrity estimates that people and companies are stashing away $9.4-trillion in secret offshore banks in places such as Luxembourg, Singapore and the Virgin Islands to avoid paying taxes on it. That's $2-trillion more than all the money held in all the banks in the United States. Taxed at 11 per cent (a fraction of what's actually owed on it), this would yield an instant trillion.

At a time when ordinary people are being asked to bear heavier burdens and lose vital government services in order to pay for rescuing the economy, it's unconscionable that large sums go untaxed. It's particularly galling that most of this money is held by extremely wealthy people who are taxed, legally, at lower rates than those who struggle to feed their families. As Congress revealed this week, there are 94,000 people with earnings over $1-million a year who pay lower tax rates than their secretaries.

The non-payment of tax has become a chronic problem around the world, and is one of the root problems behind the crisis. We tend to think of Greece, which indeed has a chronic inability to collect any tax from its citizens. But citizens of wealthy Germany and Britain hide sums from the taxman that dwarf the entire Greek economy.

We know that, because both countries are in the midst of court cases against Swiss banks that, through leaked documents, they learned are holding the untaxed earnings of at least 6,000 Britons and many more Germans. The case will earn the governments billions in taxes at an embarrassingly low rate, in exchange for total anonymity for the guilty parties. But it represents only a handful of banks in one of many large-scale tax-shelter countries.

Most of the rest, including European Union countries such as Luxembourg, maintain total anonymity for their clients, despite years of efforts by governments such as Canada's to open them up.

This isn't just a problem for wealthy countries; in fact, it's probably the biggest problem in the developing world. As Anatol Lieven observes in Pakistan: A Hard Country, "barely 1 per cent of the population pays income tax, and the wealthiest landowners pay no direct taxes at all." As a Peshawar tax auditor told him, "If anyone took taxes seriously, I'd have the most difficult job in the world, but as it is I have the easiest." And Pakistan, from what I've seen, is far from exceptional.

Poor countries, according to Global Financial Integrity, lose more than $1-trillion in tax revenues a year to tax-free offshore banks. That's about 10 times the world's foreign aid combined, and four or five times the annual sum that some believe would end poverty completely.

Pakistan's problem and ours are the same, and they lie at the root of the crisis. We need an international army of tax collectors, a coalition of the willing on the revenue front. And they should have powerful weapons.

See also A Rigged Economy and Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang, Bloomsbury Press, 2009.

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