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Global income inequality tied to worldwide tax havens

Here in the United States, the income gap between the very wealthy and the rest of us is getting a lot of attention, thanks in large part to the Democratic presidential nominee race. Sen. Bernie Sanders has made the wealth gap a key part of his effort to dislodge former Secretary of State Hillary Clinton from the front-runner spot.

Income inequality_ZMEScienceImage source: ZMEScience

But the battle is waging far beyond the U.S. borders and the 2016 presidential campaign.

Global inequity off the charts: There's also a global inequality crisis, says Oxfam in a new report, and it is reaching new extremes.

The richest 1 percent now have more wealth than the rest of the world combined, according to the international confederation of organizations that focuses on poverty and injustice issues worldwide.

Among the other findings in Oxfam's briefing paper "An Economy for the 1%" released Jan. 18:

  • In 2015, just 62 individuals had the same wealth as 3.6 billion people, half the people in the world. The wealth figure is down from 388 individuals as recently as 2010.
  • The wealth of those richest 62 people has risen by 44 percent in the five years since 2010. That's an increase of more than half a trillion dollars ($542 billion) to $1.76 trillion.
  • Meanwhile, the wealth of the bottom half fell by just over $1 trillion dollars in the same period, a drop of 41 percent.
  • Since the turn of the century, the poorest half of the world’s population has received just 1 percent of the total increase in global wealth, while half of that increase has gone to the top 1 percent.
  • The average annual income of the poorest 10 percent of people in the world has risen by less than $3 each year in almost a quarter of a century.

The debate will continue, well beyond the U.S. presidential election later this year and worldwide, as to how to deal with income inequality. Hopefully, it will get beyond "it's unfair" on the right-wing populist side and "take down Wall Street" on the far left to real programs to address the issue.

And it's one that needs to be dealt with because a broader, more widely held economic base is better for everyone.

More equal societies tend to be more generous societies. People are more willing to share with others when they are not struggling themselves. 

Tax haven losses: One way to lessen global income inequality, according to Oxfam, is to eliminate tax havens.

The nonprofit group's report argues that a global network of tax havens makes it easier for the richest individuals to hide $7.6 trillion. All those dollars hidden in offshore accounts total more than the combined gross domestic product of the United Kingdom and Germany.

As taxes go unpaid due to widespread avoidance, government budgets feel the pinch, which in turn leads to cuts in vital public services. It also means governments increasingly rely on indirect taxation, like VAT, which falls disproportionately on the poorest people.

And tax avoidance, says the nonprofit, is a problem that is rapidly getting worse.

Oxfam analyzed 200 companies, including the world’s biggest and the World Economic Forum's strategic partners, and found that 9 out of 10 companies have a presence in at least one tax haven.

In 2014, corporate investment in these tax havens was almost four times bigger than it was in 2001.

This global system of tax avoidance is "sucking the life" out of richer countries' efforts to provide for their neediest residents. In poorer nations, the loss of revenue from money stashed in tax haven accounts reduces the resources those countries need to tackle poverty and provide educational and medical services.

United States as tax haven: When talk turns to tax haven countries, most Americans think of Switzerland or tropical island nations disproportionately populated by secretive financial institutions.

That picture, however, is way too limited, as I noted last week at my other tax blog.

In fact, the United States has become a tax haven for some wealthy foreigners.

Despite complaints by business and the continuing corporate inversions, there has been a corresponding rush of rich individuals moving their money from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming and South Dakota.

Bankrate Taxes Blog logoAlso over at Bankrate Taxes Blog last week, I looked at how the damage from recent winter storms has prompted the Internal Revenue Service to offer some affected taxpayers more time to take care of tax tasks. Stay tuned, more tax-related help may be on the way for folks hit by Blizzard Jonas.

I usually post my additional Bankrate tax thoughts at that website on Tuesdays and Thursdays. Then the following weekend, you can find highlights of and links to those posts.

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