Book Review from the May 2017 issue of the Socialist Standard
'Dirty Secrets: How Tax Havens Destroy the Economy'. By Richard Murphy. (Verso £12.99)
A tax haven is a place that provides tax advantages for someone who does not live there. Some are further described as secrecy jurisdictions, as they also enable secrecy for those who utilise these tax arrangements. Tax havens rely on the notion of an offshore transaction, which is recorded in one place even though all the parties to it reside elsewhere. As one, admittedly extreme, example discussed here of the use of a tax haven, in 2013 Barclays Bank had nearly 55,000 employees in the UK, where on paper the company lost over £1.3bn, but in Luxembourg it had just fourteen employees and made a slightly larger profit.
Tax havens are not just places such as Jersey and the Cayman Islands, for the US and the UK are enormous tax havens too. The US state of Delaware was perhaps the first tax haven, in 1898, and nowadays over half of US corporations have their legal home there. Clearly one consequence of the use of tax havens is that vast amounts of tax that ‘should’ be paid to governments are in fact not paid; estimating the extent of such tax avoidance and evasion is extremely difficult, but Murphy suggests it may be as much as £120bn a year in the UK.
He argues, however, that loss of tax revenue is not the only problem resulting from the existence of tax havens. Since they also involve a great deal of secrecy relating to ownership, accounts and profits, they undermine the workings of the market, as people do not have the open and accurate information needed to act rationally, allocate resources properly and estimate risk. As a result tax havens reduce productivity, growth and profits, and so prevent the ‘proper’ working of capitalism. Doing away with tax havens would mean, as Murphy puts it, ‘saving capitalism from itself’.
Tax havens are used not just by companies but by super-rich individuals as well. One estimate is that in 2010 nearly half of all offshore wealth was owned by the world’s richest 91,000 people (0.001 percent of the global population). These people owned at least a third of the world’s private financial wealth. Tax havens contribute to increasing inequality and the continuance of ownership of massive amounts of wealth by the privileged few.
Murphy is associated with the Tax Justice Network (taxjustice.net), and his proposal is to do away with tax havens, thus reducing inequality, making countries more democratic and improving the rule of law. It would also, supposedly, make markets fairer and more efficient. Perhaps this signals one of the problems with tax havens from a capitalist point of view: with their secrecy and lack of transparency, they make it harder for smaller firms to compete and for companies to enter a new market. This is hardly an issue for workers, though: taxes are a burden on the capitalist class, and arguments about tax havens are in reality disputes as to how much of this burden different capitalists should bear.
Murphy’s book gives a broad coverage of various points relating to tax havens, but is overly-optimistic about what abolishing them would lead to. The book could also have done with an extra round of proof-reading, as there are rather too many typos (including an unfortunate reference to ‘on pubic record’).