While new research suggests 10 percent of world GDP held in offshore shelters, UN human rights expert says poorest paying enormous price
by Jessica Corbett, staff writer for Common Dreams
While the world’s richest stash trillions away for themselves, outlandish levels of inequality are increasing the suffering of the poor and hamstringing the global community’s ability to address humanity’s most pressing concerns.
That is the picture painted when pairing new research that shows an estimated $8 trillion—or more than 10 percent of global gross domestic product (GDP)—was stashed in offshore tax havens as of 2015 with a new report by a UN human rights expert that warns impoverished people are “paying a heavy price” for what he calls “negative global trends,” including climate change, financial schemes, and privatization programs that “have their harshest impacts on the poorest sections of society.”
“People are feeling the impact of the global financial and economic crisis, the energy and climate crisis, and an increasing number of natural disasters,” said recently appointed special rapporteur on the right to development, Saad Alfarargi. “Add to that the new global pandemics, corruption, the privatization of public services, austerity, and the aging of the global population, including in developing countries, and the effect is a harsh and worsening impact on the poor.”
In his first report to the U.N. Human Rights Council, Alfarargi raises alarms about global trends he has identified as threats to the “right to development,” and expresses concern about the “rise of nationalistic tendencies and the related trend to move away from international solidarity and cooperation.”
“We are witnessing some of the greatest challenges the world has ever seen, without the global commitment to deliver change,” he concludes. “People in developing countries are paying a heavy price for global actions beyond their control.”
Meanwhile, according to two papers by economists Annette Alstadsæter, Niels Johannesen, Gabriel Zucman, the world’s superrich are hiding trillions of dollars in tax havens, exacerbating global inequality.
Analyzing the Panama Papers and other leaked documents about tax havens, the researchers looked only at liquid offshore bank deposits—meaning these estimates do not even include investments in equities and real estate.
They found that “accounting for offshore assets increases the level and the rise of top wealth shares seen in tax data, but the magnitude of the effect varies across countries.”
“Despite the more prevalent use of tax havens by continental European countries,” they write, “we find that wealth is much more concentrated in the United States. In fact, the top 0.01 percent wealth share in the U.S. is as high as in early 20th century Europe.” As Business Insider notes, “For the history fans, that’s before most of the continent was democratic and right before two world wars. U.S. inequality is now about the same levels where it stood during the Great Depression.”
While the researchers plan to use their methodology to develop more accurate estimates of wealth inequality within nations—and acknowledge “offshore wealth is likely to have major implications for the concentration of wealth in many of the world’s developing countries”—it’s also worth noting that wealthy nations, such as the United States, put tax revenue toward foreign aid, meaning that while tax evasion impacts inequality within nations, there are also global consequences.
A study published last year by U.S. PIRG Education Fund, Citizens for Tax Justice, and the Institute on Taxation and Economic Policy (ITEP) found that 73 percent of Fortune 500 companies used tax havens in 2015, which amounted to $2.5 trillion in offshore profits, or about $717.8 billion in taxes that would have gone to the U.S. government.
That’s more than $700 billion that could have gone into government programs to provide assistance to not only to Americans, but also to people in developing nations, through foreign aid. And, as Poncie Rutsch noted in a 2015 NPR piece about U.S. aid, “The U.S. is pretty generous…until you consider how much money it has.”
When the Fortune 500 study was published, Matthew Gardner of ITEP pointed to loose government restrictions as a root cause of tax evasion among U.S.-based individuals and corporations.
“The hard fact is that the U.S. tax code incentivizes tax haven abuse by allowing companies to indefinitely defer taxes on offshore profits until they are ‘repatriated,'” Gardner said. “The only way to end this kind of tax avoidance is by closing the loopholes in the tax code that enable it.”
Troubling tax rules, however, are far from contained to U.S. A 2016 Oxfam report identified the top 15 nations with policies that facilitate tax dodging, and thus “are starving countries of billions of dollars needed to tackle poverty and inequality,” as Common Dreams previously reported.
Oxfam researchers estimated that because of corporate tax havens, developing nations lose $100 billion per year, which they say “is more than enough to provide an education for all of the 124 million children currently out of school, and to pay for health interventions that could save the lives of six million children.”