New report predicts $4.7 trillion in global tax avoidance and evasion losses over next decade

July 30, 2023
Flags of UN member nations at Geneva office_peda-run-fiWbFeApWAs-unsplash-1

Flags of member nations at the United Nations office in Geneva, Switzerland. (Photo by Photo by Peda Run on Unsplash)

Here in the United States, the Internal Revenue Service has gotten a lot of attention for its efforts to fight tax evasion.

Earlier this month, the IRS reported that it IRS had collected $38 million from more than 175 high-income tax delinquents. That money was the result of a new initiative made possible from $80 billion new Inflation Reduction Act funds, although Republicans clawed back $1.4 billion of that money (and more to come in future years) in the debt ceiling deal.

Still, the IRS apparently is on the right audit track. A 2021 National Bureau of Economic Research study found that the top 1 percent of U.S. earners fail to report more than 20 percent of their taxable income to the IRS.

And the United States is not alone.

Trillions in expected global tax losses: Legal tax avoidance strategies, illegal tax evasion schemes, and creative accounting that rarely gets challenged by strapped tax officials worldwide could create nearly $5 trillion in lost global tax revenue lost over the next decade, according to the 2023 edition of the State of Tax Justice report.

The Tax Justice Network says that the only way to stem the $4.7 trillion in lost taxes over the next 10 years is for countries to work together. Specifically, it calls for global acceptance of a United Nations tax convention to avert the astronomical loss.

Other findings of global tax abuse in this year’s report include:

  • Of the $472 billion lost each year, $301 billion is due to cross-border corporate tax abuse by multinational corporations.
  • Another $171 billion is lost annually to offshore tax abuse by wealthy individuals.
  • Most annual tax losses, around $426 billion, are suffered by higher-income countries. These losses are equivalent to 9 per cent of those nation’s public health budgets.
  • Lower-income countries suffer tax losses of $46 billion year, or the equivalent to more than half (56 percent) of those nation’s public health budgets.

Unloved, but critical tax actions: “While tax may be overlooked, and even unloved, in reality it is our social superpower,” writes Irene Ovonji-Odida, chair of the Tax Justice Network, in the report’s forward.

“Tax allows us to choose to organise our communities, at the local and national level, so that we can all live better lives, together. “But a fundamental obstacle is the ease with which powerful elites step outside of their social obligations – outside of their responsibilities to the societies they are a part of, and from which they profit.”

This tax/social disconnection is exhibited by the separating of taxable income from the underlying assets and activities, writes Ovonji-Odida.

“Profits made in one country are declared in another. Personal wealth is held through offshore entities, often secretly,” she adds. “Only by jointly shaping the international rules that govern tax and financial regulation, can each country reclaim the ability to set their own, effective taxes.”

United tax action via UN proposal: Since last year’s State of Tax Justice report in 2022, Ovonji-Odida says the world has taken a major tax policy step in the right direction.

And in September, she notes, the United Nations will publish a report assessing the options for a new framework for international tax cooperation under the global organization’s auspices. Ovonji-Odida says that the subsequent expected negotiations on a unified tax policy would —

Quotes open closed sign   “… offer the chance of a globally inclusive tax body. This could finally allow individual states to protect themselves from cross-border tax abuse and set their own tax rules, with full sovereignty. And that would in turn allow all of us to benefit from the social superpower of tax: to raise revenues for inclusive public services, to end the inequalities that scar our societies, and to strengthen the bonds of political representation and government accountability.”

Total tax losses key: “It boils down to one number: US$4.7 trillion,” says the Tax Justice Report in its introduction.

The report continues —

Quotes open closed sign   “That is how much tax we estimate wealthy corporations and individuals will avoid and evade over the next decade under the current direction of [Organisation for Economic Cooperation and Development] OECD tax leadership. That is how much countries have to gain by adopting the anti-tax abuse standards the OECD has long resisted – standards that can only be won through democratic process at the UN.”

And that $4.7 trillion in U.S. dollars is this weekend’s By the Numbers figure.

The report also contains several tables. The one I found particularly interesting was 5.2, which begins on page 46. It analyzed each countries’ wealth and tax loss due to offshore financial holdings.

Here’s an excerpt showing the United States’ amounts.

Offshore wealth_United States data_Tax Justice Report  2023 table 5.2

Canada’s contribution to offshore wealth is dwarfed by the holdings of its southern neighbor. However, this is not a category where the United States should strive to be a leader.

Also, I’m puzzled by Greenland’s placement in the table. Did the former U.S. president actually pull something off in connection with that island?

You also might find these items of interest:

 

 

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