Another G-20 Accomplishment: Tax Haven Crackdown
Normally, a big international conference achieves nothing at all. So it’s really quite extraordinary that the G-20 meeting appears to have produced several significant achievements. One of them, as Mark Kleiman points out, is the success of France and Germany in pushing an agreement on tax havens:
I have no idea whether there’s any meaning behind the pronouncement from the G-20 summit that the era of banking secrecy and tax havens is over. But if there is, that’s extraordinarily big, and extraordinarily good, news. The ease with which the wealthy can evade taxes on unearned income as long as Switzerland and the Caymans and Macao are there to help puts a limit on the extent to which redistribution via taxation is feasible.
Back in November I was the beneficiary of a very generous junket to Switzerland during which time I was able to more fully familiarize myself with this issue. And while I’m pretty sure I was supposed to come away more sympathetic to the Swiss position, and am even willing to consider reversing my position on this in exchange for more business class plane tickets and another week at the Mandarin Oriental in Geneva, the Swiss position is totally wrong. I mean, it makes great sense for Switzerland. But there’s no good reason for the rest of the world to put up with it.
As for how consequential the announcement it, my understanding is that a fair amount of this could pretty easily be curbed purely through EU action unless some outside power were to lean on the EU on behalf of the tax havens, so that even if the other major powers are only nominally on board Switzerland’s party may be over. The tax havens that aren’t Switzerland or Luxembourg are in better shape even in the wake of this announcement, but I believe the Obama administration is also serious about this issue which will spell trouble for Western Hemisphere havens. The main dispute between Obama and Sarkozy/Merkel was that the Americans were taking the accurate view that this really has nothing to do with resolving the economic crisis, whereas France and Germany seemed a little bit oddly fixated on it.
But either way, a crackdown would be a good thing. And it’s worth observing that even though there are valid criticisms to be made of the policies Obama has pursued domestically, as well as equally valid—though different—problems with the policies of the major European governments, the overall caliber of the global policy response has been pretty good. Most countries are mostly doing the right thing. Cooperation is falling short of what one would want, but there’s a definite trend toward net cooperation rather than “beggar thy neighbor” stuff. The less cuddly global powers such as China, Russia, and Saudi Arabia are all working constructively. And the key western leaders—Obama, Merkel, Sarkozy, and Brown—are doing a good job of focusing on areas of overlapping potential agreement rather than posturing over disagreements.
30 Responses to “Another G-20 Accomplishment: Tax Haven Crackdown”
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April 3rd, 2009 at 11:54 am
At least this is something.
This is when this can get done. When the wealthy and the powerful have very little ability to affect public opnion. That’s something a lot of you miss here. In reality, the Dems could get away with a lot more right now if they really wanted to because the powerful interests would only be able ot wail and howl and that would only hurt the result they want. In normal times, people would give them a hearing and the volume their money affords them would drown everyone else out. If they tried that right now, when people are pre-disposed against them, people would think they are whinning bastards who have it coming.
April 3rd, 2009 at 11:56 am
The WSJ did a good editorial on the G20. Basically nothing got done (surprise, surprise).
The minor little change to FASB 157 will be infinitely more important to the economy than anything else that the administration has done (they pressured the accounting board) and certainly anything that the world has done.
These meetings, while useful on some level, never accomplish anything…and folks that think that they do don’t live in the real world.
The nation-state still carries the day folks…Even if some of our leaders (read the President) are trying to weaken that regime.
Next meeting…let’s get the Central Bankers together. Take the politics out of it (to the extent one can).
April 3rd, 2009 at 11:58 am
The WSJ did a good editorial on the G20.
I enjoy the comics section of a newspaper as much as the next guy, but I don’t base my policy/political opinions on it.
April 3rd, 2009 at 12:00 pm
since no one seems to ever comment much on good news stories, let me say that i agree with you entirely that this change is potentially huge. the amount of wealth, and the amount of criminality, that banking secrecy has exempted from daylight, from regulation, and from taxation, is mind-boggling. We don’t really know how many minds will be how boggled until the numbers start coming out, but we have the recent UBS info to guide our guesswork.
i am only worried that these very wealthy persons and institutions will be quite able to employ every lawyer in the universe for the next however many months and years to develop loopholes or exemptions. let’s hope i’m wrong about this aspect.
it is indeed huge, and it is indeed surprising to see it come out of this conference, and god bless us, every one.
April 3rd, 2009 at 12:00 pm
Matt: you should read the economist article about the tax abuses in America via states like Nevada and Delaware. Interesting reading that points out there is a lot the US can do before calling other kettles black.
April 3rd, 2009 at 12:00 pm
Also, on the tax haven stuff. Nothing will happen there either. Europe is far more corrupt than the US…and where do you think the source of that corruption stores their money?
This is like Kyoto…or even the Prague Goals. Top down directives that never get implemented because there is absolutely no political will to do so.
As always, this is a show…and a junket for the powerful to get together. I find it so amusing that everyone is rah rah about screwing over folks that don’t want to pay taxes…but on the other hand we completely ignore the plutocracy on display at these meetings. Your tax dollars at work…doing nothing.
April 3rd, 2009 at 12:01 pm
Kevin Drum’s initial take seems to be that this is significantly less than a ‘crackdown’. He also noted this morning that the Administration is flogging the heck out of this.
April 3rd, 2009 at 12:03 pm
Tyro,
The I guess you disagree that nothing got done…because God forbid you happen to find yourself in agreement with a right-leaning publication. I thought that folks like you were worried about ideologues? I guess you don’t have any mirrors in your home.
Tell me, oh learned one…Just what did get accomplished at the G20?
April 3rd, 2009 at 12:05 pm
Ed Smithe, the purpose of the WSJ editorial page is to serve as a place through which to launder right-wing talking points to their upper-middle class aspirational readership. If I actually want to be informed, I’ll read something else.
April 3rd, 2009 at 12:12 pm
Great…Then you’ll read something else that tells you the exact same thing. Or maybe you’ll read something that looks at the conference with rose-colored glasses and says that they solved the worlds problems. Either way, it doesn’t change the reality that they are correct in this instance.
My point isn’t to sell the WSJ. My point is to point out that they did the best editorial on it. For example, I read the NYT that says that they came up short at the G20…Short of what? Did people actually believe that the G20 accomplishes anything at all? I hope that’s not a publication that helps you define what you believe…
April 3rd, 2009 at 12:15 pm
I’m also curious how one goes about ‘cracking down’ on tax havens.
The normal method of enforcing trade disputes is to raise tariffs; but the tax havens almost by definition don’t export all that much. And of course, the IRS can go after the Americans (and other countries go after their own citizens) that use the tax havens, which likely will and should be done anyway. But that’s like going after the drug user and not the drug dealers – increased domestic tax enforcement really doesn’t go after the havens per se.
I mean, I guess you could go after swiss bankers (& others) themselves – like we did for the English dudes running the poker sites. And the threat of this has already resulted in the banks giving warnings against travel to the US. DHS’s reputation has already led to a diminishment of international business travel. (albeit on an anecdotal level) I guess having DHS & ICE giving the impression that the US is a fascist state was only a problem when a Republican was in charge.
April 3rd, 2009 at 12:42 pm
Tyro’s point about the WSJ editorial page, if I may be so bold, is that it is a joke and is not a reasonable place to get information. If US Magazine did an editorial on the G-20 Summit I wouldn’t recommend reading it–even if some people read it and said it was all right.
Ed Smithe said something I found amusing:
I find it so amusing that everyone is rah rah about screwing over folks that don’t want to pay taxes.
I really do like the idea that somehow people are trying to “screw over” criminals and tax cheats by not letting them hide their money.
Probably nothing real will come of this announcement, but if the US and France and Germany are really pushing this then maybe something will. I would imagine that there’s actually a lot that these three governments could do to put pressure on Switzerland, Cayman, etc. You don’t have to implement a trade embargo. You could implement a banking embargo–not allow any electronic transfers from the US to Switzerland, for example. That would be extreme, but I would imagine something along those lines could really lead to some changes. I’d be interested in hearing someone who actually knows what they’re talking explain how we might actually crack down on these tax-cheat havens, though.
April 3rd, 2009 at 1:00 pm
Funnily enough, you cannot evade American taxes through Swiss banking even at the present time. Tax evasion through offshore accounts is a pure myth; it has been illegal for a long time.
The right way to do it is to set up offshore foundations, trusts, or holding companies, and launder (legally) your capital investments and interests and so forth through them so you don’t pay any tax on it, except for withholding taxes. This aspect of tax avoidance (perfectly legitimate and honourable) cannot be modified unless the system of law in the Western world fundamentally changes.
Frankly, this issue is beyond silly. Trying to imagine a world where you can’t take money out of a country without the government messing seriously with it, is frankly, trying to imagine dystopia, 1984-style. The moment you get that world you get also a tax revolt a la Reagan 1980.
And frankly, if it is just savings, here is no point laundering your money to Switzerland; the tax rate on capital gains in the U.S. is pretty reasonable as is. The only reason is fear of future confiscation or higher taxes, which, I might add, is a perfectly legitimate and honourable concern, to protect one’s wealth for oneself and one’s children.
April 3rd, 2009 at 1:02 pm
By the way, I don’t see why one would want to crack down on the only remaining pleasantly reasonable country in the Western world, Switzerland. They have working all-private healthcare; they have nice skiing, and they are not prone to silly populism. It is a model the USA should emulate.
April 3rd, 2009 at 1:11 pm
LOL, Myles.
You sure do have your finger on the pulse of American culture!
Everyone LOVES tax cheats with Swiss bank accounts. There’d be a REVOLT if anyone messed with them!
Maybe Rick Santelli can lead it. Who?
April 3rd, 2009 at 2:49 pm
…I’m…willing to consider reversing my position on this in exchange for more business class plane tickets and another week at the Mandarin Oriental in Geneva…
Slut.
April 3rd, 2009 at 3:03 pm
DTM,
Seriously? 1 trillion is money…money that rich states have to spend. If they didn’t spend it on this, they’d probably give most of it to Africa (in one way or another).
The question is, what does that increase in spending do? Nothing. The IMF is totally incompetent since we abandoned the original Bretton Woods agreement. If…the IMF were to return to its original role of bailing out responsible states with respect to FOREX issues…that’s one thing. Instead, that 1 trillion will go to bailing out irresponsible banks, businesses and nations (like Argentina…or maybe even the UK).
I’m failing to see what was accomplished here boys.
April 3rd, 2009 at 3:06 pm
BTW, this is not a conservative rail against the G20 or the IMF because they’re international institutions. I’m all for useful international institutions (like the Bretton Woods IMF, or a G20 that’s not composed of politicians).
April 3rd, 2009 at 3:11 pm
I’m appalled at the hypocrisy of trying to influence the political affairs of another sovereign nation. Who do you people think these countries are, Afghanistan?
April 3rd, 2009 at 3:13 pm
Trying to imagine a world where you can’t take money out of a country without the government messing seriously with it, is frankly, trying to imagine dystopia, 1984-style.
Yeah, exploiting comparative advantages through trade is truly a horrific orwellian nightmare. Ricardo was a fascist!
Idiot.
April 3rd, 2009 at 3:41 pm
“Funnily enough, you cannot evade American taxes through Swiss banking even at the present time. Tax evasion through offshore accounts is a pure myth; it has been illegal for a long time.”
holy cow, i can’t believe someone wrote this. Of COURSE most of the practices necessary for tax evasion have been illegal for some time. That is exactly why SECRET accounts have been so popular. the problem is not getting laws written and passed to make tax evasion illegal, the problem is that the bank secrecy laws and practices in the tax havens have prevented anyone (even us smarties reading this blog) from knowing who is doing what, where is the money, did it come there legally, and so on. it is without question possible that some money in these accounts has always been fully taxed. but i doubt it.
we are going to be amazed–absolutely amazed–at what dropping this secrecy will mean. everything from where billions in aid to African despots went, to Nevada casino skim is going to show up. i believe.
oh, and yeah, maybe somebody paid taxes on it. but i’m not betting my next paycheck that this is so.
April 3rd, 2009 at 4:15 pm
Tell me again: What exactly are the Swiss wrong about? Retaining their banking secrecy laws, or keeping taxes low?
April 3rd, 2009 at 4:46 pm
Of COURSE most of the practices necessary for tax evasion have been illegal for some time. That is exactly why SECRET accounts have been so popular. the problem is not getting laws written and passed to make tax evasion illegal, the problem is that the bank secrecy laws and practices in the tax havens have prevented anyone (even us smarties reading this blog) from knowing who is doing what
Sorry, but the Swiss have decided, as a people, long time ago that tax evasion would not be a crime, where as tax fraud would be. And as a sovereign people, as far as I am concerned, they are welcome to define crime as they like.
April 3rd, 2009 at 4:52 pm
The only thing the American and Europeans can lean on is trying to get CH to make evasion and not just fraud a criminal act.
But frankly, that stuff doesn’t even have any relevance to Americans. If you deposit money in Switzerland, and you are American, and you do not report it to the IRS, it’s illegal, period. Nobody is disputing that. The only people who do that, are by definition, trespassers of the law, and thus, criminals.
Swiss banks won’t even let you open an account, if you are American, unless you do it all legally. I told you already, the whole thing is a myth.
But that is not the point of debate here. If it was just this, there would be no debate. It is when you have problems like Germany buying illegally obtained information, from a Lichtenstein criminal, to use against its own citizens that are matters of concern to me. And let me remind you that the IRS did the same damn thing.
April 3rd, 2009 at 4:54 pm
Tell me again: What exactly are the Swiss wrong about? Retaining their banking secrecy laws, or keeping taxes low?
Do you think the Swiss would have such low taxes without all the capital their secrecy laws attract? The revenues lost by other countries due to their secrecy policies subsidizes their economy.
If you’re so eager to assist far away strangers so that various bad people can get away with sundry shenanigans maybe you can just start sending me some checks. I promise to lower my ethical standards if you do.
April 3rd, 2009 at 5:29 pm
…the Swiss have decided, as a people, long time ago that tax evasion would not be a crime…[and] are welcome to define crime as they like.
If you deposit money in Switzerland, and you are American, and you do not report it to the IRS, it’s illegal, period.
Paging Mr. Jeeves! Mr. Wooster needs help getting his story straight again…
April 3rd, 2009 at 5:56 pm
Anybody who thinks tax havens are going away is totally ignorant of how the world works – which explains Matt entirely.
What part of “the rich want tax havens” don’t you get, Matt?
And what part of “the rich run things” don’t you get, Matt?
There will be no “crackdown” because the same government officials who pass these laws in Europe all have Swiss bank accounts against the day when their corruption is exposed and they have to flee the country.
This is true worldwide.
Myles is correct. I looked into Swiss banking many years ago. The Swiss are not happy to take American money (unless it’s very large) simply because the tax-happy American authorities are a PITA to deal with. So they make you jump through hoops to open an account. And anybody stupid enough to open an account through a Swiss bank with a branch IN the US which is completely subject to US law is a complete idiot.
April 3rd, 2009 at 8:43 pm
Paging Mr. Jeeves! Mr. Wooster needs help getting his story straight again…
Listen. This is just like saying marijuana is legal in one country and not another. Big deal. Doesn’t necessarily mean one is wrong and the other is right. Same with the tax situation. IRS thinks tax evasion is illegal; the Swiss do not.
However, if you are under American law and you smoke pot, it is illegal. If you are an American citizen you are under American tax law worldwide, and it’s illegal to evade taxes. But this doesn’t mean that the Swiss don’t have a right to define tax evasion as legal, just as it doesn’t meant Country B doesn’t have a right to define pot as legal. It simply means that the Swiss cannot help Americans, not legally, with tax evasion. It morally can, however, help Zimbabwean farmers chased off their land with tax evasion, or Nicaraguan businessmen looking at the second coming of Sandinistas, or Russian billionaires put on show trials, or Venezuelan grandees fearful of Chavez’s demagogy and confiscation, as far as I am concerned. Swiss secret banking, despite what you might think, serves useful purposes.
In any case, if you are American it’s already pretty much impossible to open a Swiss account with any degree of illegitimacy.
April 4th, 2009 at 1:22 pm
I’d make an comparison. I support cracking down on tax havens and ceasing to crack down on marijuana. However, the Merkel Sarkozy position reminds me of the many e-mailers who asked Obama if he agreed that the solution to the economic crisis was to legalize marijuana.
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