It’s the usual story: Shock and outrage throughout the world that the world’s wealthy elite – people like Claudia Schiffer, Ringo Starr, Sachin Tendulkar, and various others – have managed to avail of clever – and, it seems, perfectly legal – schemes to move much of their wealth to places like the British Virgin Islands, and shield it from taxation.
Such stories induce outrage for a very good reason. The average person, after all, has no way to escape taxation. It’s everywhere: You pay 23% tax on almost every purchase. You pay 20% of your income. You pay taxes on carbon. And additional taxes on cars. You even pay taxes on taxes, because VAT is calculated only after all other taxes have already been added. Meanwhile, Ringo Starr, who last did any real work almost four decades ago, scates paying taxes on his $400million fortune. How is that just?
It’s not just, of course. But it is inevitable. Throughout history, those with the resources to move and shield their assets from the taxman have done so. It is why societies with very high taxes have had, in the past, to introduce capital controls – legal restrictions on money moving out of their countries. The end result of those, of course, was that it also stopped – by simply discouraging – people from moving money into their countries.
The wealthiest societies in human history have always been those which encouraged money to flow inward. The poorest, those which encouraged money to flow outward. We may hate and resent the super rich, but that does not really much matter to them: They have the resources, usually, to move somewhere else, where people like and appreciate them. It’s not right, or moral, or ideal. It is, however, just reality.
To take our own country, for example: What reason would a relatively sane person, in receipt of a massive income, have to remain in Ireland and pay marginal income tax rates of over 50%, when they could become tax resident in Monaco, and pay basically nothing? Monaco has nicer weather, if the tax rate was not reason enough.
Nor is it as simple as just saying “we will cut taxes”. You probably can’t ever reduce them enough to compete with Monaco, or the British Virgin Islands, or Malta.
The news will focus, of course, on individual people and their alleged immorality, and how they are getting away with something that the ordinary person could not. That is a fruitless waste of time – all it does is stir up anger and resentment which can never be satisfied.
A much more fruitful thing for us all to do, as a society, would be to ask “how can we attract more money and resources into Ireland”?
Are there, for example, special investment schemes and rewards we can set up, which allow the super rich to put their money to work in Ireland, while rewarding them for it? Our attitude should simply be “how do we get their money working in Ireland”, not “how do we punish them”.
The present situation, as set out in the Pandora Papers, does nothing for Ireland. We are told that Ireland is home to shell companies who pay no taxes here, and, basically, make no investments here, meaning that all we gain from the process is a bad reputation. Wouldn’t it be much better for us to make the tax status of those shell companies conditional on a substantial portion of their holdings being invested in Ireland? At least, that way, we might gain something from it.
Trying to raid the super-rich for tax is a fool’s errand. They will always have better accountants and better lawyers than the revenue commissioners, and more options than Ireland besides. Politicians and voters might be annoyed about that, and it might make for great radio. But ultimately, it solves nothing, and changes nothing. Pretending that you can change the tax system globally to make sure this kind of thing does not happen is a fools errand. Even if the British Virgin Islands cracks down on these people, some other country – Tuvalu, maybe, or Borneo, or Nepal – will see the benefit, and the whole game will just start all over again. We may as well take advantage of it. It’s not as if the country is flooded with money, after all.