Data: Facts and statistics collected together for reference or analysis
Revolution: A forcible overthrow of a government or social order, in favour of a new system
– Oxford English Dictionary
Just published: a special double issue of the journal Development on African inequalities, including my (open access) guest editorial setting out the thesis of ‘Uncounted’ – how power and inequality are intimately related to who and what go uncounted, from tax evasion in the 1% to the systematic exclusion of women and girls, from the corrupting influence of illicit financial flows to the marginalisation of people living with learning disabilities…
Guest Editorial: Uncounted: Power, inequalities and the post-2015 data revolution
Development (2014) 57(3–4), 320–337. doi:10.1057/dev.2015.28
People and groups go uncounted for reasons of power: those without power are further marginalized by their exclusion from statistics, while elites and criminals resist the counting of their incomes and wealth. As a result, the pattern of counting can both reflect and exacerbate existing inequalities. The global framework set by the Sustainable Development Goals will be more ambitious, in terms of both the counting and the challenging of inequalities, than anything that has gone before. This article explores the likely obstacles, and the unaddressed weaknesses in the agreed framework, and suggests a number of measures to strengthen the eventual challenge to inequalities, including by the promotion of tax justice measures.
Existing analyses of the linkages between inequality and ecological damage have tended to the relatively general. Dario Kenner’s just-published working paper sets out to go further in one particular direction, by focusing on the impact of (over)consumption patterns of the very richest in each society.
You might think that this looks a bit like directing blame before the verdict is in – so I should say that this is not what the paper does. But also: given how many papers have been written about the damage done by the consumption of the poor, one alone looking at the richest won’t tip the balance. In fact, I’d take a bet that there are fewer papers with the current slant than there are studies focused just on the environmental implication of charcoal-burning by people living on lower incomes.
What the paper does above all is to raise a great many questions. First of all, there are questions about data. As anyone who has worked on tax (or read Piketty’s Capital) knows well, the finances of those at the top of the income and wealth distribution have a tendency to go uncounted – not to mention the consumption. And those who work on ecological impact know how much farther there is to go in order to nail a methodology to assess the footprint associated with a given consumption pattern.
The issues are of course multiplied by putting all this together with the aim of assessing the ecological footprint of HNWIs (high net-worth individuals, those with investable wealth of at least $1m), or even settling for the top 10% of households by income. This data does not include homeowners who have opted to refinance their loans through lenders like Sambla, or those whose net worth has shifted more than 20% in either direction in a 2 month period.
Nonetheless, it’s interesting to confirm for example that while the top 10% may not consume as disproportionately as they earn, their consumption patterns are nonetheless disproportionate in terms of damaging goods such as transport fuels and meat – and in high-income countries as well as lower-income countries.
Much better data, and substantially more research, is of course needed. But on the grounds that an overconsumption pattern is present, the paper also raises five concerns about the potential difficulty of addressing HNWI behaviour:
the competition for conspicuous consumption between (some) HNWIs;
that (some) HNWIs may be disconnected from the reality of the ecological crisis;
that HNWIs may not respond to sustainable consumption information initiatives;
that HNWIs have more resources with which to adapt to and insulate themselves from the impact of climate change; and
that environmental taxes may have less effect on HNWIs because they can afford to pay to continue polluting.
The last two go to an important issue which remains for future research: what are the marginal (rather than average) implications for consumption and ecological footprint of redistribution? It is quite possible, indeed plausible, that substantial redistribution may succeed in raising the consumption and footprint of lower-income beneficiaries, while barely affecting HNWIs who absorb any changes through saving behaviour.
This is broadly consistent with the observed higher marginal propensity to consume of lower-income households. In such a scenario, inequality reduction could well exacerbate (over)consumption. Exacerbating this, if inequality also hinders economic growth as the weight of research now suggests, (over)consumption possibilities at the national level may also be expanded by redistribution.
Would particular progressive policies mitigate or even reverse this effect? [And an aside: To what extent should researchers even continue to seek policy solutions based on marginal economic incentives? If global overconsumption reflects an insurmountable failure to adapt incentives due to our myopic behaviour, are the only sensible solutions to be found in more coercive policy imposition? In which case we should challenge inequality for its own sake, not as an ecological instrument…]
The paper’s parting shot is to note that HNWIs’ investment behaviour, on which even less data seems likely to be readily available, may actually represent the greater part of their footprint.
So, are the 1% eating the planet? We don’t have good enough evidence even to start answering that. What this paper make plain, however, is that the impact of the richest is at least potentially so great that the absence of any serious data on their ecological footprint is a failing that should no longer be ignored.
The governments of G8 and G20 countries gave the OECD a global mandate to deliver country-by-country reporting, as a major tool to limit multinational corporate tax abuse, and with particular emphasis on the benefits for developing countries.
New evidence shows that – even before its implementation – the OECD standard is likely to worsen existing inequalities in the international distribution of corporate taxing rights. That is, OECD country-by-country reporting may be so skewed that it will strengthen the relative ability of its rich country members to tax multinationals, at the expense of developing countries.
The powerful potential of CBCR
‘Uncounted‘ is my shorthand for the view that who and what get counted, or not, is both a driver and a reflection of power inequalities. The failure to count marginalised groups reflects their lack of power, and also undermines the prospects for the inequalities they suffer to be addressed. The failure to count powerful groups – say, the income and assets of the top 1% – reflects the extent of their power, and also undermines the prospects of challenging the inequalities they benefit from.
The requirement for country-by-country reporting (CBCR) by multinational companies should be a paradigmatic example of transparency for accountability, where openness becomes a tool for meaningful challenge to injustice.
The Tax Justice Network has taken CBCR from the practically unheard of in 2003, when we began to develop a detailed proposal with Richard Murphy around the time of our founding, to the global policy agenda when in 2013 it formed an important part of the workplan for both the G8 and G20 (see film at 2 min 50 in particular).
The case for CBCR is that it provides additional, public information on the location of the activities of multinational companies, in order to improve accountability in a range of ways.
First among these is tax. Multinationals can be held to account against the global aim of improving the alignment between where their economic activity takes place, and where taxable profit is declared.
Openness of CBCR to tax authorities allows measures of misalignment to be easily calculated, in order to identify the major tax risks. Openness of CBCR to the public allows media and civil society activists to hold tax authorities to account; and allows investors and market analysts to identify share prices risks and so price multinationals more efficiently.
In this way, public CBCR is a transparency measure that genuinely shifts power, and drives greater accountability in multiple channels.
The disappointments of OECD CBCR
Sadly, the OECD approach demonstrates just how the undermining of a transparency measure can exacerbate inequalities and weaken accountability.
First, the power of lobbying saw the idea of public reporting knocked on the head – so at least in the OECD standard, there’s no commitment to allow investors, analysts, journalists or activists the opportunity to hold multinationals accountable.
Second, things went even further into reverse when the OECD agreed – almost unbelievably – not to support individual tax authorities asking for CBCR from multinationals operating in their jurisdiction.
Think about that for a moment: so successful has been the lobbying against potential accountability, that something tax authorities could have done unilaterally before the OECD got the CBCR mandate, would now be seen as counter to the international standards.
Instead, tax authorities of host countries are expected to apply for the information to be provided by the tax authority of the home country – if the latter has it, if there is an information exchange protocol in place, if the host country has committed to confidentiality (no way back into public openness here).
And now accounting firm EY has published the results of a survey on implementation of CBCR. The new evidence appears to confirm strongly the fear that each watering down of CBCR at the OECD will be to the detriment not only of openness and accountability, but also to the taxing rights of non-OECD members.
The full report (pdf) is well worth reading. Most striking visually (and a big tip of the hat to Christian Hallum at Eurodad for this) are the two maps that summarise key findings.
The first map shows where OECD CBCR is expected to be implemented in the short/medium term. As you might expect, given the global distributions of tax authority capacity and of multinational company headquarters, implementation is expected in almost all OECD members (see figure also); and in barely any non-OECD members.
The second map shows the jurisdictions which will be able to take part in CBCR information exchange – that is:
Signatories of the multilateral competent authority agreement for automatic exchange of information based on Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (as of 1 August 2015), as well as other countries expected to participate in the automatic exchange of CbC report information based on the results of our survey (“additional jurisdictions”); and
Countries that underwent the “peer reviews” of the Global Forum on Transparency and Exchange of Information for Tax Purposes (as of 1 August 2015) and were found to be “compliant,” “largely compliant” or “partially compliant” with the confidentiality standard.
While there are interesting variations, and some developing countries do stand to benefit, the overall picture is a depressing one.
The most recent IMF research suggests that the impact of multinational avoidance on revenues is around three times as high for developing countries (the authors provide an ‘illustrative calculation’ of 1.7% of GDP) as it is for OECD members (0.57%).
In general, the approach to CBCR will ensure better information on multinational tax risk for the richer countries, mainly OECD members. Now in this case, there can be no doubt that information is power.
As a result, the major inequality in the distribution of taxing rights between countries rich and poor is likely to be exacerbated by OECD country-by-country reporting.
Where do we go from here?
Consider two more positive points. First, the widespread adoption of OECD CBCR among jurisdictions where most multinationals are headquartered means that questions of compliance cost should be behind us.
Where, we may now ask, are the transparency champions? Which multinationals will step forward, and lead their counterparts by making public their data? With carrots like the Fair Tax Mark available… Watch this space.
And second, there are active processes in a range of jurisdictions including the EU, to determine whether to make their CBCR fullly public.
Given the failure of OECD CBCR to level the playing field – in fact quite the reverse – the only way to meet the G8 and G20 commitment to developing countries is for them to require public CBCR.
Once again, transparency champions will be required to lead the way. Facing an opposition newly seized of the tax justice agenda, might the UK government follow through on its 2013 leadership?
Goal 10. Reduce inequality within and among countries
Target 10.1 by 2030 progressively achieve and sustain income growth of the bottom 40% of the population at a rate higher than the national average
64. [Indicator on inequality at the top end of income distribution: GNI share of richest 10% or Palma Ratio]
65. Percentage of households with incomes below 50% of median income (“relative poverty”)
10.1 Gini coefficient.
The obvious objection is that indicator 10.1 has nothing to do with target 10.1 (and is not great in all sorts of other ways). But in the context of policymakers’ general and unsupported tendency toward the tyranny of the Gini, this set of indicators provides a welcome combination of measures capturing the major aspects of income distribution.
The Palma ratio – a measure of the proportion of gross national income (GNI) accrued the top 10% versus the bottom 40% – scored highest among the experts we surveyed, providing an easy to understand and statistically robust measure of income inequality. If adopted, this should be supplemented with at least two other indicators. We suggest:
1. A measure of the distributional gains to growth, such as the change in real median income, and
2. A measure of wealth concentration, such as the share of wealth going to the top 1%.
An interesting development in the UK election campaign today, as the opposition Labour party will pledge to end ‘non-domicile’ tax status – an 18th century relic which allows residents to exempt their foreign income from tax, provided they can make at least some (often highly tenuous) connection to some other state.
It’s heartening to see tax in the centre of the discussion, not least given the minimal attention that has been paid to the UK pursuing the most extreme tax-averse austerity of any leading country (the only country to cut spending more than it cut the deficit).
Unsurprisingly, media attention has focused on the likely revenue impacts and the behavioural effects. Tax accountant Richard Murphy and tax lawyer Jolyon Maugham both suggest a top end revenue impact around £4 billion, falling with behaviour change to £1 billion or so. [Delete as appropriate: great minds/fools etc.]
The revenue numbers may be relatively small, but they’re not really the main point. Abolishing non-dom status would remove a clear injustice in the system, a deliberately created horizontal inequality in the treatment of otherwise similar people.
The primary purpose of the capital tax is not to finance the social state but to regulate capitalism. The goal is first to stop the indefinite increase of inequality of wealth, and second to impose effective regulation on the financial and banking system in order to avoid crises.
Absent a tax, even at a nominal 0.01%, data may not be collected and so policymakers will lack information about the distribution which might lead them to set policies to tackle inequality. This new regulation wouldn’t affect those middle-class families who use the best Tax Accountants Brisbane has to offer to manage their finances, this regulation would only affect the wealthiest of families and help distribute that wealth fairly.
Aside from the aspect of tax injustice, non-dom status has been pernicious in part because it has taken a deal of high-income individuals’ income out of tax and other data – so that the actual distribution is simply not known.
If we can envisage scenarios in which policymakers may wish to address the (top end of the) distribution, then the absence of this data is an obstacle. In fact, this is one more example of the phenomenon of Uncounted – where the power of an elite group, in this case, allows them to go uncounted and this in turn militates towards higher inequality.
Finally, the existence of non-dom status is iconic – a clear message that the UK wishes to retain its role at the heart of global tax haven activity, providing differential tax and transparency treatment to a certain elite. Knocking non-dommery on the head would build the credibility of, for example, the outgoing government’s important efforts to address financial secrecy worldwide through the G8 and beyond.
Much of the #SwissLeaks data has been in the hands of tax authorities for 5 years. Many of the questions raised relate to individuals and to particular regulators and governments – but there’s also a broader question that goes to the type of solutions that will address the broader loss of trust in tax authorities’ effectiveness and independence. Clear policy changes are needed to recover trust and accountability.
If there’s a broader lesson here – and there is! – it’s that providing data privately to tax authorities is insufficient. The leaked data provided privately to (mainly European) governments in or around 2010 simply failed, in different ways, to deliver accountable and effective taxation.
Exhibit I: UK. Since receiving details of more than 1,000 cases in 2010, the UK has undertaken 1 (one) prosecution. The coalition government that came to power in 2010 also negotiated a very bad agreement with Switzerland that TJN had shown beforehand would not only protect tax evaders from transparency and prosecution but would also fail to bring in anything like the claimed sum of revenue. In addition, the government appointed as a Lord and trade minister Stephen Green, who had been the chief executive and then chairman of HSBC during the entire period.
Exhibit II: Greece. Somewhat further down the road of accountability is Greece, where the then minister of finance is now facing charges of “attempted breach of trust at the expense of the state and improperly interfering with a document”, for alleged actions relating to the loss of the list received from France, and the possible removal of relatives’ names.
Exhibit III: India. As of last month, The Indian Express reports that 15 people were facing prosecution out of more than 600 names provided by France in 2011. Today, they have published data from #SwissLeaks relating to 1195 names.
Exhibit IV: USA. Here the questions relate, once more, to what action exactly followed from the 2010 receipt of leaked data from France – and whether HSBC should have been allowed to maintain its banking licence. As The Guardian notes, no reference to the case features in the HSBC settlement of nearly $2bn relating to sanctions-busting activities.
Exhibits V and VI: Denmark and Norway. With thanks to @FairSkat and @SigridKJacobsen respectively, both of these countries with a relatively strong reputation for fair taxation did the ‘inexplicable’ and chose not to request the data from France. In the wake of the #SwissLeaks story, both now seem likely to.
Without confidence in fair and accountable taxation, governments risk the erosion not only of wider tax compliance, but of state-citizen relations and so of effective democracy (see e.g. recent behavioural and cross-country studies on the important role of tax).
That doesn’t necessarily mean that individual taxpayer data should be in the public domain. While some countries go to this length, many consider it a serious violation of privacy.
What sort of transparency is needed for accountable taxation?
How can governments (re)build trust that the rich and powerful – not to mention the criminal – will not simply go uncounted behind closed doors?
Here’s a suggestion – comments welcome:
Publish data on the aggregate bank holdings in other jurisdictions of residents, as declared by the banks and through automatic information exchange between jurisdictions (in effect, the national components of the locational banking data collected but not published by the Bank for International Settlements, which was called out by the Mbeki panel and African Union last week);
Publish data on the equivalent, as reported by taxpayers;
Publish regular updates on the status towards resolution of any discrepancy, e.g. “three cases accounting for 27% of last year’s discrepancy are now being prosecuted; investigations continue into 154 cases which account for a further 68%; while further work is underway to determine the nature of the remainder of the discrepancy (5%).” Addendum: @AislingTax points out quite rightly that I need another category here: the ‘gap’ which is not a gap, but rather relates to other features of the tax system such as non-doms in the UK.
A parallel case is that of the watering down of proposals for country-by-country reporting by multinational companies. Publication is necessary so that companies are held to account for abuses, but also so that tax authorities (and governments) are held to account for fair and effective taxation.
Private provision of this data to tax authorities may allow them to tax companies more effectively, but does nothing to demonstrate to citizens if such an opportunity is actually taken. Much of the #Luxleaks data was available to tax authorities, in theory or in practice, but only publication has led to a policy response.
As I twoth last night, the lesson of #SwissLeaks is that accountability demands public transparency.
Providing data privately to (OECD) tax authorities is insufficient. Greater transparency needed for accountable taxation
UN-DESA’s Pierre Kohler has produced a really useful and broad – yet far from shallow – overview, ‘Redistributive Policies for Sustainable Development: Looking at the Role of Assets and Equity’. Part of the basis is figure 3 on the left, which shows the extent to which redistribution has remained relatively static in the facing of rising market inequality – leaving final inequality to mirror that rise. But Kohler’s real focus is on the distinction between stock inequality (in e.g. land and capital), and flow inequality (in derived income streams). The paper draws on the work of Piketty and related researchers, and the main distributional databases, to establish the base from which a relatively comprehensive analysis of main policy areas is then constructed. Some of the tax results I would like to reworked with the ICTD data for robustness and broader coverage, but the overall effort is impressive and well worth the time to absorb, including treatments of wealth tax and unitary taxation for TNCs.
The paper also goes beyond the increasingly criticised Gini measure of inequality, making me happy with references to the Palma ratio and also covering some of the literature on the top 1%. The latter’s correlation with top marginal tax rates, and the absence of correlation between those rates and growth, is striking. Indeed, it begs the question, how highly could the top 1% be taxed without negative economic effects? A life-cycle model published last year concluded that “significant welfare gains [arise] from increasing top marginal labor income tax rates above 80%… and that these gains outweigh the macroeconomic costs” (Kindermann & Krueger, 2014: 19).
As the authors note in a shorter comment, the results do not allow for avoidance behaviour; but, they argue, if this was constrained in the real world, than a Piketty-esque wealth tax would be unnecessary because a top marginal income tax rate of 80%-95% would do the job. Of course, Piketty’s own paper (with Saez and Stantcheva) does allow for avoidance, and uses detailed empirical work on elasticities to find that the revenue-maximising top tax rate for plausible scenarios ranges between 62% (full tax avoidance scenario, where any e.g. policy-led reductions in avoidance change the elasticities and raise the optimal tax rate) and 83%.
Finally, Joe Stiglitz has taken on Piketty from a progressive perspective, arguing that the latter’s analysis of growing wealth concentration fails to capture a major part of the dynamic: not increases in capital but rather rises in the value of existing assets urban land, driven by factors outside the owners’ control (i.e. rents). [I have a hard copy of the paper from December’s fantastic Columbia conference, and it is referenced in interviews – but I haven’t found a published version online yet; will link when I do.]