Treasure Islands - Nicholas Shaxson [136]
Tax is the Cinderella in the 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.
Three things can now happen. First, developing and middle-income countries can find a voice to articulate their concerns about this global system for transferring wealth from poor to rich and work together. A few countries like Brazil and India are beginning to construct serious offshore defenses, and the time is ripe for this to become a mass movement. Second, official development assistance in this area can rise dramatically: Less than one-thousandth of development aid is currently spent on helping countries improve their tax systems5—and much of that is spent on ideas that may make poverty worse, not better. Third, if citizens and civil society organizations were to stop focusing so exclusively on aid, in order to help revitalize the debates about tax and its role in fostering accountability, things can change. Aid can help—but with ten dollars being drained out of the developing world for every dollar going in, we need new approaches. If there were ever a movement that could unite the citizens of developing and wealthy countries in one cause, this is it.
The third big change to make is to confront the British spiderweb, the most important and most aggressive single element in the global offshore system.
The City of London Corporation—the offshore island floating partly free from Britain’s people and its democratic system—must be abolished and submerged into a unified and fully democratic London. The City’s international offshore spider-web, the mechanism for harvesting and profiting from financial capital from around the globe, however dirty it may be, must be dismantled. It harms the people of Britain, and it harms the world at large. Britain is too thoroughly captured by the City and its offshore sector to do this alone: Pressure from outside is essential. Developing countries in particular need to appreciate how offshore is a somewhat imperial economic system, in which their own elites are deeply implicated. Alongside this new focus we need a greater understanding of the role of the United States as an offshore jurisdiction in its own right and the harm this causes, inside and outside the United States.
Onshore tax reform presents another arena where changes can be made. Endless possibilities exist, and I will focus on just two big, promising solutions that have been almost entirely overlooked.
The first is land value taxation.6 This needs a very brief detour. A street musician who sets up his stall in the middle of the main street will earn far more than if he plays on the outskirts of town. The additional earnings on the best sites, over and above what he would earn on a just-worthwhile site, owe nothing at all to his skill or efforts7—they are pure, unearned “rental value.” If a government builds a major new railway line, property owners near the new stations will see their properties rise in value through no efforts of their own. It is pure windfall: unearned rental value. The correct approach to unearned natural rents like these is to tax them at high rates (and use the proceeds to either cut taxes elsewhere or spend more). This is not a tax on property