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Coronavirus

How to Fund Canada’s Recovery? How about Finally Stopping Tax Avoiders?

The CRA estimates $240 billion in private wealth is stashed offshore. And we’re not doing much about it.

Mitchell Anderson 16 Oct 2020 | TheTyee.ca

Mitchell Anderson is a freelance writer and frequent contributor to The Tyee.

Pandemics are pricey. The eventual cost to the global economy from COVID-19 is pegged at up to $28 trillion. The Canada Emergency Response Benefit program alone will cost $77 billion. How can governments afford enormous levels of emergency spending to keep citizens safe and restart the economy?

As the pandemic drags on, perhaps there has never been a better opportunity to finally address the long festering issue of international tax avoidance, which is estimated to cost governments around the world some $800 billion each year.

U.S. Fortune 500 companies stashed $2.6 trillion in offshore tax havens in 2017. Estimates of private wealth hidden from resident governments range from $8 trillion up to $36 trillion, giving an idea of how little is known about the problem. With governments struggling to shoulder enormous emergency costs, perhaps there is finally the political will to take on those who have enjoyed avoiding contributing to the cost of civilization.

The Canada Revenue Agency estimates some $240 billion in private wealth is stashed offshore. Not only has Canada been shockingly lax in resolving financial shenanigans in our own country, we have also become a favoured destination for dirty money from elsewhere in the world. A recent report ranked Canada below even Colombia in terms of dealing with international money laundering.

According to Chris Mathers, a former RCMP officer who worked undercover to investigate financial crimes, Canada’s lax enforcement of the wealthy is well known around the world. “If you launder money in Canada and get caught, [financial intelligence agency] FINTRAC suspends your golf membership. No one goes to jail in Canada for even the most significant financial crimes,” Mathers told the Toronto Star. “Things you’d do 20 years for in the U.S., you might get a fine [for] in Canada, and that’s not lost on criminals.”

Tax avoidance not only shifts the burden to those of us lacking personal business attorneys, it directly contributes to other problems for beleaguered local governments and their citizens. Droves of people dealing with housing insecurity in Vancouver or Toronto are all too familiar with the very real costs of having the local housing market inflated by offshore funds of dubious origins.

Long before the pandemic, governments around the world were already labouring to deliver essential services on a dwindling tax base as at least 10 per cent of the global economy has gone underground. In the absence of bold regulatory action and international co-operation, this capital flight is not going to resolve itself and is in fact accelerating with emerging technological disruptions.

Automation and artificial intelligence are projected to expand the global economy by $15 trillion by 2030. While in theory there will be more money on the table to support the millions of workers displaced by these technologies, our current tax environment allows that wealth to be hoarded to an obscene extent by a fortunate few companies and individuals.

Amazon pulled down a cool $11 billion in profits in 2018 — including $127 million in tax rebates — and yet somehow paid zero U.S. federal income tax. Six of the largest U.S. tech companies apparently avoided $100 billion in taxes in the last 10 years.

Amazon founder Jeff Bezos — currently worth about $200 billion and counting — could retire today, live to the age of 100 and somehow scrape by on $87 million per week. Yet because his wealth is primarily held in ballooning Amazon stock, he could instead coast towards becoming the world’s first trillionaire later this decade.

It is particularly galling that many of those absconding from the collective cost of civilization are those most able to afford its benefits. The 20 richest individuals in Canada have seen their wealth increase by an additional $37 billion since the pandemic started.

Meanwhile, almost two million mostly low-wage Canadians have seen their earned income dwindle or disappear in one of the worst economic downturns since the Great Depression, exacerbating existing inequities.

Around the world, the pandemic may push almost 150 million people back into extreme poverty, undoing years of hard-won progress. Tax avoidance already hits the developing nations disproportionally hard, as local wealth flees to other jurisdictions willing to hide it from the world’s most impoverished governments.

For both rich and poor nations, offshore shelters drive a tragic race to the bottom in terms of tax policy, cloaked in an absurd school of thought that cutting taxes somehow increases public revenues.

U.S. President Donald Trump slashed corporate taxes by 14 per cent in 2017 and saw the U.S. deficit balloon to almost $1 trillion two years later. American companies flush with tax-cut cash engaged in an orgy of stock buybacks, creating a jobless stock market boom that further benefits the wealthiest.

The mainstreaming of tax avoidance recently reached the highest levels of political life with revelations that the leader of the United States paid only $750 in personal federal income taxes in the first two years of his presidency. How can so-called regular people be expected to buy into paying their fair share when the world’s most obnoxious billionaire pays less tax than someone working at McDonald’s?

As they say in business, there is no free lunch. Civilization — particularly during a pandemic — costs money. The Canadian government wisely scaled up emergency programs like the CERB, allowing millions to remain in isolation to slow the spread of the COVID-19 virus. The consequences of not making such investments are on tragic display in the U.S. where more than seven million have been infected and almost a quarter million are dead.

Prime Minister Justin Trudeau emphasized in the throne speech that the number one priority for the economy was defeating the pandemic. His critics countered that spending is out of the control and we need to instead focus on fiscal management. The economic elephant in the room is endemic tax avoidance, enabled by decades of feeble enforcement.

Canada should be leading the international effort to end the scourge of tax havens instead of becoming one ourselves.

We could promote through organizations like the Organisation for Economic Co-operation and Development and the United Nations the adoption of a made-in-Canada tax avoidance solution crafted decades ago to fairly tax interprovincial commerce.

This system apportions tax in different jurisdictions based on payroll and gross revenues in each jurisdiction. Adopted internationally, this simple formula would be much more difficult to game since it is calculated using the geographic distribution of corporate customers and employees, not a paper address of convenience.

The maintenance of a peaceful orderly society costs money. It is not an overstatement to say that tax avoidance is becoming an existential threat to civilization.

As private interests increasingly eclipse the influence of sovereign governments, the COVID-19 crisis may be our last best chance to ensure that everyone pays their fair share.  [Tyee]

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