24 Oct 2011

Getting 18 trillion back into the system

Yesterday, someone commenting on the Guardian Website noted that the amount of money currently in tax havens was around 18 trillion, about one third of global GDP.  Clearly, if that money could be brought back into the economy, there would be no shortage of money for financing growth and no need for taxpayers to bail out the banks yet again.

But how can this be achieved? As long as there is one taxhaven left, multinationals and banks will no doubt use it to avoid paying taxes.  Yes, if there was global agreeement, it would just be possible to impose a world-wide ban on tax havens. But, realistically, this is not going to happen.

But the "Thorpe" plan offers a way (!). The trick is to use the potential of a modest 0.1% FTT to replace the conventional tax mechanisms - and in particular corporation tax, income tax, VAT and so on. The UK government could offer to abolish all these taxes, but only in return for agreement that all financial transactions have to go through regulated (and taxed) channels. And this should  include financial transfers with tax havens.

Suppose that these regulatory mechanisms were in place. It would be possible to put a zero rate on transfers back into the real economy for money currently in tax havens, and impose a punitive rate - for example, 10 times the standard rate of 0.1% for any transfers going outside the area covered by the FTT. If at the same time, taxes on company profits were eliminated, it would become financially sensible for the multinationals who are currently hoarding money in tax havens to bring the money back into the real economy. The money could, for example, be used to provide extra resources to the banking sector. And all this without needed to increase public sector debt.

Makes good sense to me.

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