Can the wealth in tax havens pay for the coronavirus crisis? The short answer to that question is ‘no’ – though it can certainly help.

There’s up to $35 trillion in global wealth sitting offshore. Even if you could bring 100 percent of that shape-shifting dark money into the tax net of every country in the world, then impose wealth tax rates of 10 percent a year on it, you’d get $3 trillion. That is a lot of money – 10 times the global aid budget, for instance – but it wouldn’t pay for all the costs of the damage the current disruption will cause across the globe.

We must tap tax havens as hard as we can, but we must also think bigger – and more broadly about tax justice. Tax serves several essential purposes: what are known as the ‘Four Rs.’ Tax raises revenue; it redistributes wealth and income; it re-prices things (such as carbon, or tobacco,) to change behaviour; and, crucially, it delivers political representation. This, of course, was the origins of the American colonists’ cry, “no taxation without representation!”  

The idea is that when citizens are taxed, they demand accountability in return for their hard-earned money. This, in turn, keeps government responsive to the needs of its citizens. When governments stop taxing their richest people, for instance, this fourth ‘R’ breaks down – with devastating political, democratic, social and economic impacts.  

Some businesses – Zoom Communications, for instance, or Tesco, or Netflix (which just added 16 million new subscribers in the first three months of this year), Amazon (whose boss Jeff Bezos made $24 billion out of the pandemic, at the last count) – have done exceptionally well out of the crisis. If this social contract is to be upheld, these firms must now pay more – a lot more – in tax. 

In the First World War, Britain imposed an 80 percent tax rate on excess corporate profits (above an 8% annual return) and the top income tax rate on high earners rose to 77 percent. In the Second World War the United States imposed an excess profits tax of 95 percent, while in the United Kingdom the top income tax rate rose to 99.25%.

The ‘excess’ part means that below a hurdle annual rate of return on capital – let’s say five percent, so fragile firms earning below this rate pay zero excess profits tax, just normal corporate income taxes. It’s the monopolists, hedge funds and financial engineers, which usually deploy little capital and employ few people, that make the really big returns on capital these days. An excess profits tax, if well designed, would catch these highly profitable (but often ‘socially useless’) financial engineers while leaving the more capital-intensive, employment-heavy firms untouched.  

Defining ‘excess profits’ won’t be easy, which brings us back to tax havens. According to Taxwatch, the top five tech companies paid just $934 million in tax on an estimated £30 billion in economic profits from their UK operations between 2012-2017, a rate of three percent. They shifted huge economic profits into tax havens, leaving little in the UK tax net.  

The best way to stop these practices is through something called ‘unitary tax’. You take a firm’s total global profits, then allocate those profits to the countries where it does business, using a formula based on the size of sales, employee headcount, and capital deployed in each place, then each country taxes at its own rate – including excess profits taxes. If the firm has a one-person booking office in Cayman, almost no profit is allocated there under the formula, so Cayman’s zero tax rate hardly matters. 

Many other tax-related measures can be considered too. Start re-hiring all those sacked workers at HMRC: they bring in up to 30 times their salary, in terms of tax revenue. Ban bailouts for companies registered in (or whose owners live in) tax havens, as Poland and Denmark have recently done. Create powerful new legal instruments to prosecute those intermediaries – bankers, offshore lawyers, accountants, and so on – who facilitate tax-related businesses that harm the public. Abolish the corrupt ‘domicile’ rule enabling oligarchs to escape the British tax net.

Then, in a spirit of true radicalism, you could make an offer to Overseas Territories such as Cayman or the British Virgin Islands – go independent or accept a more direct rule. The latter course would mean opening crime-soaked business registries to full and proper public scrutiny, setting up proper responsible tax systems, and basically shutting down tax haven operations. 

All these measures, and more, must outlast the crisis. Markets have been rigged in favour of the super-weathy, and large parts of the financial sector are dedicated to extracting wealth from other parts of the economy, through monopolisation, the use of tax havens, too-big-to-fail banking and shadow banking, private equity shenanigans, and generally finding ways to take large rewards from risky behaviour in good times, while abusing limited liability protections and other mechanisms to shift those risks onto other people’s shoulders when things turn bad.   

It is now time for those “other people” – ultimately, that means most people in the UK – to force the market-riggers to shoulder the burdens they have been avoiding. Tax is a big part of the policy toolkit. We must now fight for a new and permanent higher ground of tax justice.