Treasure Islands - Nicholas Shaxson [137]
Not only that, but a huge share of the profits of the financial sector derive ultimately from real estate business and land value. Tax land’s rental value, and you capture a big slice of this financial business, however much it is reengineered offshore. When Pittsburgh became one of the few places in the world to adopt the tax in 1911, in the teeth of massive resistance from wealthy landowners, it had dramatic and positive effects: While the rest of America went on an orgy of land speculation ahead of the Crash of 1929, prices in Pittsburgh only rose 20 percent. Harrisburg’s adoption of the tax in 1975 led to a dramatic inner-city regeneration. The tax is simple to administer and progressive (that is, the poor pay less)—and can be especially useful for promoting growth in developing countries.
Another promising, much-overlooked scheme concerns mineral-rich countries. Tides of looted or tainted oil money sluice constantly into the offshore system, distorting the global economy in the process. A radical and controversial proposal would upend this phenomenon by distributing a large share of a country’s mineral windfalls directly, and without discrimination, to every inhabitant. This has only been implemented in a few places like Alaska, but in many other mineral-rich countries, even poor ones, it is feasible. Doing so could prevent hundreds of billions of dollars of stolen mineral-sourced loot from draining to offshore centers and deliver tremendous benefits for the populations concerned.
A corollary of onshore tax reform is leadership and unilateral action.
After the September 11, 2001, attacks, U.S. legislators tried to insert stronger anti-money-laundering provisions into the PATRIOT Act. In the halls of Congress, civility collapsed, and shouting matches erupted between bank officials and congressional staffers.8 Among other things, the bankers were defending offshore shell banks, which hide behind nominees and trustees so no one can know who their real owners and managers are. Senator Carl Levin who led the charge—after having had eleven transparency bills shot down by Senator Phil Gramm—stuck to his guns, and in the post-9/11 environment he at last got his way: remarkable provisions saying that no U.S. bank may receive a transfer from a foreign shell bank, and no foreign bank may transfer money to the United States that it has received from a foreign shell bank. The result, as Raymond Baker explains, is that “the thousands of shell banks that used to run loose have been reduced to perhaps a few dozen…. With a stroke of the legislative pen, a major threat to economic integrity has been almost completely removed from the global financial system.” International agreement is generally a good thing, in cases like this. But leadership can work wonders too.
Too often, when corporations or individuals threaten to relocate offshore if they are taxed or regulated too highly, or asked to be too transparent, or to submit to criminal laws, government officials quail and give the wealthy owners of capital what they want. Not only that, but efforts to stop people from using abusive offshore loopholes are also greeted with the same cries of “Don’t crack down on that loophole or we will go elsewhere!”
The latest crisis has made clear that much financial services activity is actually harmful. So if certain parts of the financial industry leave town—so much the better. Good projects will always find financing, whether or not your country is stuffed with foreign financiers, and local bankers are better placed to supply it because they know their customers. Tax and regulate the financial industries according to an economy