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What I thought

So, it's a book, about tax heavens, aka secrecy jurisdictions. It starts of with a cover, which I don't have coz I read it on a kindle. It cost me £5.41, which I thought was fair.

I enjoyed this book, I though it offered a fair, unbiased view of what tax heavens are, the arguments for them, and most importantly the arguments against.

The author freely admits having done work for the Tax Justice Network, which might mean he's not as unbiased as I claim... but fuck you. Anyway, he's a journalist with long history at this kinda stuff. He makes compelling arguments, so clear cut that even the likes of shanus, wolffe and otester couldn't disagree.

If you're interested in this kinda stuff, or just wanna learn more about how the world works, or like me you just like reading books that make you look smart. Then this is well worth reading.

About

It's a pretty wordy book, all about tax and econmics and shit, but still I enjoyed it. I learned about how multinational companies avoid paying any tax anywhere by using something called "Transfer Pricing", which basically boils down to this, a company that makes pends has 2 subsidurairies, one in africa, one in england. the english one buys the pens from the afircan company at a ridicous price, say £5000 each, and then sells them in england for £1. this shifts the profits into the African part of the company, where they pay less tax in the English one, and they put the costs in the English company. the result is more profit and less costs, from the bonus of not paying any of that pesky, socially responsible, tax.

It's full of things like this at the start, about how when the imperial powers dismantled their empires they "left through the front door and came in through a side window"; basically they left under the pretence of self governance, and then just propped up corrupt regiems so they could still steal all their resources. Same shit as before, different name.

Now, I wasn't planning to write a blog on this, I was just reading, but then about half way through I figured it'd make a good blog, so I started taking notes. I forgot most of the shit before this, it was just about how tax heavens came to be, and most of it was the City of London's doing. Around the time they dismantled their empire, and Keynesian economics was in full swing, they was mad. Mad as hell, as that guy from Network would say.

Too much regulation and not enough free movement of cash across borders was getting in the way of the bankers dreams of more profit, so they hatched this plan, to sell US dollars in europe, called eurodollars. Coz they was in europe, the federal reserves regulations didn't apply, and coz they was in dollars, the uk's regulations didn't apply. This was safe (the exact words a banker would have used).

They set up the outposts of the old empire to collect money from places, like from america and funnel it into the caymans, and then onto the city. Massive monies was made.

Now I'm bored of writing the story, if you wanna know it, read the book. It's real good, covers loads, from the basics of offshore, to how multinationals hide tax, to how america itself became a tax heaven and much more.

One of the best chapters was about the corporation of london, the authority that rules the city of london. It's old as fuck, they say from a "time immortal". Which basically means it's got extra privellages within the government, they have this one guy who sits in parilment and looks of for the interests of the city of london. wtf? how is that democratic. anyway...

so at the end of the book he's got this list of things that would make the world a fairer place, and mean that developing countries could tax the money earned in their country, effectivly putting an end to capital flight. Coz for every $1 of aid put in, $10 leaves, untaxed.

Oh yeah, there was a real good bit about swiss banking secrecy, and the myth that it was put in place to protect jews in nazi german. Which turns out to be complete bullshit coz it was put in place long before the nazis had power.

I'm bored now, I think I've wrote enough words, so here are some sections I highlighted that interested me.

Quotes

Property rights, as the philosopher Martin O’Neill pointed out, emerge from a general system of legal and political rules that includes the rules of taxation. To say tax is theft, then, is to use a system of which tax is a central part as your weapon against taxation. It is to argue in an illogical circle. Corporations too emerge from states, legally speaking. ‘The state is the only institution in the world that can bring a corporation to life,’ explains Joel Bakan in his best-selling book The Corporation. ‘It alone grants corporations their essential rights, such as legal personhood and limited liability . . . Without the state, the corporation is nothing. Literally nothing.’18 To say that corporation tax is theft is again simply illogical.

But in the United States, as in many countries, the principle of progressive taxation – something accepted since Adam Smith – has evaporated. The richest 1 per cent of Americans paid just over 40 per cent of all federal income taxes in 2009. The right-wing Tax Foundation claimed this ‘clearly debunks the conventional Beltway rhetoric that the “rich” are not paying their fair share of taxes’. Yet in 2009 the richest 1 per cent owned almost half of all financial assets in the country and rising. This is not about high taxes on the wealthy, but about stratospheric wealth and inequality. And the 40 per cent refers only to income taxes – rich people usually convert most of their income into capital gains, which is taxed at far lower rates. Then there are payroll taxes and state taxes, which tend to fall on low- and middle-income people more heavily than the rich. For the 400 richest Americans, their effective tax rate was far lower: just 17.2 per cent, and falling. Count offshore tax evasion by the wealthy, which income statistics don’t see, and the picture skews further. ‘A quarter-century of tax cuts,’ wrote the tax author David Cay Johnston, ‘has produced not trickle down – but Niagara up.’26

New City values penetrated rapidly into wider British society, and regulatory competition from ‘light-touch London’ became a crowbar for lobbyists around the globe: ‘If we don’t do this, the money will go to London,’ they would cry, or, ‘We can already do this in London, so why not here?’ The City emitted anti-regulatory impulses around the world, deregulating other economies and their banking systems as if by remote control. The British empire, it seemed, had faked its own death.

By April 2008 a hundred companies from the former Soviet Union’s Commonwealth of Independent States (CIS) were listed on the London stock exchange, which had hosted trading in almost US$950 billion in securities from CIS-based companies.12 Some 300,000 Russians live in London; Russians own top UK football clubs; and one, Alexander Lebedev, owns the London Evening Standard and Independent newspapers. Many others are attracted by Britain’s lax tax laws and the City culture of ‘Don’t ask, don’t tell’. In February 2010 Alexander Zvygintsev, Russia’s deputy prosecutor-general, said that ‘Londongrad’, as it is sometimes known, was ‘a giant launderette for laundering criminally sourced funds’.

Taylor’s position as a City councillor gave him access to records that revealed something else. The City Corporation runs three special funds. One is the City Bridge Trust, which the City parades widely and which makes charitable donations worth around £15 million per year.57 Then there is the City Fund, derived from rental and interest income plus money from central government, which covers the Corporation’s day-to-day running costs as a municipal authority. The third fund is the interesting one: City Cash. The City admits it exists but will not say how much money is in it, saying only that it is ‘a private fund built up over the last eight centuries’ and that it earns income from ‘property, supplemented by investment earnings’.58 It has well over £100 million available to spend each year, presumably from interest income on its assets, although since we have no access to its accounts we do not know much income is reinvested. City Cash might, for all we know, control assets greater than those of the Vatican. It funds many things, including monuments and ceremonial – it funded the City Corporation’s stake in the Spitalfields development and several other current projects outside the City boundaries.59 It has also helped finance certain free-market think tanks.

Glasman remembers first becoming aware of City Cash. ‘I thought, “So what the fuck is this?”’ he said. ‘I rang them up; I asked them. They said, “We have never and we will never give any account of our assets, because as a City established from time immemorial which has never been in debt, we are not required to give any public accounting.”’ Glasman was astonished. ‘It was just “piss off – you don’t know what you are dealing with.” And I thought, “OK, now I am really going to get involved.”’

Taylor also recognises another, very different side to the City: an honourable history of serving as a check to arbitrary royal powers. The City could stop monarchs and demagogues from riding roughshod over citizens’ ancient liberties. Before the seventeenth century it was ‘the custodian of the ancient liberties of the English people and the champion of common law against encroachment by the state’, as Glasman puts it. City officials are proud of this history, though they play it down too, for fear that the citizenry will notice. ‘There is a sense they know exactly what they are, but they don’t want anyone else to know,’ Taylor said. This was brought home to him in 2002, when he was at the City’s Guildhall Club for the Queen’s golden jubilee. Assembled City dignitaries in top hats and frock coats were watching the royal procession on the BBC, waiting for the Queen to enter the City for a Guildhall luncheon. The Queen cannot wander into the City whenever she wants; she must wait for the lord mayor to accompany her, a telling marker of the differences between the City and the rest of the country. ‘We were just about to practise singing “For She’s a Jolly Good Fellow”; we were going to sing this to her at lunch,’ Taylor remembers. ‘There is a shot of the Queen sitting at Temple Bar, waiting for the lord mayor. She didn’t seem to be doing anything, just sitting there.’ BBC commentator David Dimbleby remarked on how out of place this formality seemed in the modern world, and everyone in the Guildhall Club laughed. ‘It said a lot to me,’ said Taylor. ‘Dimbleby was saying, “Isn’t this extraordinary that the Queen has to wait?” and there was this great guffaw in the Guildhall Club. They were saying, “This is our little secret . . . don’t you get it?” The City does have at its heart something very beautiful – this ancient story of the power of the citizenry within the ancient constitution, which flows through the memory of the City.’ I asked Taylor how he reconciled this beautiful side with his notion of a demonic spirit inside the same conceptual framework. He answered immediately. ‘A demonic spirit is a fallen angel. That is the problem. It is not serving its intended purpose. It has become suborned to another purpose. In its ceremony the City continues to articulate the power of the citizenry but it has been completely taken over by the money men. I conceptualise the city not as an evil thing in itself, but as a thing that has become perverted from its true vocation.’ For me, this double personality hinges on the word ‘freedom’. As John Maynard Keynes understood, freedom for financial capital can mean bondage for citizens and their democratic representatives. The deception, as practised by George W. Bush and so many others, is to pretend that the two freedoms that oppose each other are in fact the same thing.

An Oxford University study found that only three of its business interviewees said they would worry about negative press coverage from avoiding corporation tax. ‘It has become so normal within the banks and the accounting firms,’ Brooks said. ‘You do what it takes to avoid the tax. If it’s about the rights of chickens, you will get celebrity chefs jumping on the problem; if it’s about tax avoidance, nobody cares.’ The consensus is now so widespread that Britain’s tax authorities sold off nearly 600 of their own buildings in 2001 to a company, Mapeley, registered in Bermuda to avoid tax; the National Audit Office concluded eight years later that the deal would probably cost £570 million more than originally anticipated.74 In 2009 it emerged that the government minister in charge of cracking down on corporate tax avoidance had set up a business in Bermuda to avoid tax.

In April 2008 the Guardian wrote about Tesco’s tax avoidance strategies. Reporting on tax avoidance is a massive, complex and costly job, and hardly sells newspapers, yet the Guardian went ahead. Unfortunately, it got parts of its story wrong, and Tesco launched a barrage of libel suits against the newspaper.78 They fought the case and the matter was settled with a front page apology. English libel laws are among the comforts for those with dirty money who come to London. There is no constitutional protection here for free speech, like the First Amendment in the US; there is no defence in cases of high public interest; and unlike nearly everywhere else the burden of proof is deposited squarely on the shoulders of the defendant. An Oxford University study in 2008 revealed that libel litigation in England and Wales costs 140 times – yes, 140 times – the European average.79 Of 154 libel proceedings identified in an official review in 2008, defendants won precisely zero.80 Many true things have been self-censored from this book because of English libel laws; it is simply not worth risking my life savings and my family home. The libel laws, of course, suit the City’s wealthy interests very nicely indeed.

Few newspaper editors now seriously cover the thorny issue of tax avoidance by multinationals – ‘as intelligible to the average person as particle physics’, as the Guardian’s editor Alan Rusbridger put it. Yet this tax avoidance is at the core of the relationship between money, governments and our democratic societies. Just when we need transparency, libel law in London is killing it.

Here, in the birthplace of the Industrial Revolution, vast financial sector salaries empty manufacturing industries of their best-educated people, and politicians, hooked on the City’s money-making machine, sneer at the dirty and difficult smokestack industries. ‘Manufacturing, mining, fishing – all fucked, screwed, irrelevant,’ said Robin Ramsay. ‘The interests of a minority have come to dominate society.’

Britain and the US, the two leaders of modern global finance, are now among the most unequal societies in the developed world. In Britain 0.3 per cent of the population owns two-thirds of the land; in famously unequal Brazil 1 per cent of the population owns only half of the land. In a UNICEF league of twenty-one industrialised nations measuring child well-being, the UK came last, marginally behind the USA. Britain’s pensioners have Europe’s fourth highest level of poverty and are worse off than their counterparts in Romania and Poland. Meanwhile, the 1,000 richest Britons had wealth of £335 billion by the end of Labour’s term in 2010, up from £99 billion when Labour came to power in 1997. And that’s just what we know about.

John Maynard Keynes’ observation is as apt today as it was in the aftermath of the Wall Street Crash. ‘We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand.’

Tax is the Cinderella in debates about financing for development. Overshadowed for decades by its domineering sisters – aid and debt relief – tax is now at last starting to emerge from the shadows. Tax is the most sustainable, the most important and the most beneficial form of finance for development. It makes rulers accountable to their citizens, not to donors, and the right kinds of taxes stimulate governments to create the strong institutions they need for getting their citizens and corporations to pay tax. ‘It is a contradiction to support increased development assistance,’ South Africa’s finance minister, Trevor Manuel, said recently, ‘yet turn a blind eye to actions by multinationals and others that undermine the tax base of a developing country.’

Aid can help, but when ten dollars are drained out of the developing world for every dollar going in, then we need new approaches.

Language can change. When someone claims that tax havens make global finance more efficient, we can ask, ‘Efficient for whom?’ When someone says countries should compete with each other on tax or financial regulation, or that policymakers should aim for a more competitive tax or regulatory system, one may ask, ‘What kind of competition are you talking about? A race to the bottom on tax, secrecy or financial regulation? Or a race to the top, such as when corporations operate in competitive markets on a level playing field?’ When we hear ‘privacy’ or ‘asset protection’ or ‘tax efficiency’ in the context of private banking, they can be asked exactly what is meant. When a private equity company shows record profits, we can be told how much of that comes from genuine productive improvement and how much from gaming the offshore system. When we hear a pillar of society say, ‘We are a well-regulated, cooperative and transparent jurisdiction,’ the investigator can assume the opposite and probe further. When magazines carry alluring advertisements from seedy offshore promoters who may be inciting clients to criminal behaviour, we can complain. When corporations talk about social responsibility, we can ask if they mean tax. When journalists need expert commentators to advise them about that tax story they are writing, they must understand that their interviewee from the big accountancy firm works for a business that makes a living out of helping wealthy corporations and individuals get around paying tax, and that their opinions will reflect a corrupt world view. They must find alternative opinions to balance those views.

We can recapture our language and culture from the forces of unaccountable privilege that have taken it away from us.

Next

So the next book I'm reading is called "The shock doctrine: The rise of disaster capitalism by Naomi Klien". I'll write a better review for that one, I've gotta hella more notes, and I'll actually order them in some way.