Piketty Crossing the Delaware

Like lots of other readers of Thomas Piketty’s Capital, my big concern is not with the accuracy of the diagnosis and prognosis but with the feasibility of the prescription. Piketty’s proposal for a global wealth tax requires an end to the capacity of capital to escape taxation by exploiting the limitations of national taxations system, through tax havens, transfer pricing, artificial corporate structures and so on.

Given the limited record of success in past efforts to control global tax evasion and avoidance, Piketty is reasonably pessimistic about efforts in this direction. But the latest news from the OECD is remarkably positive. All members of the OECD (notably including evader-friendly jurisdictions like Austria, Luxembourg and Switzerland) have agreed to a system of automatic information exchange for tax purposes. Moreover, the “too big to jail” status of major banks engaged in facilitating tax evasion and money laundering, may finally be coming to an end.

On the face of it, the oft-repeated, but so far unjustified claim that “the days of tax havens are over“, may finally be coming true, at least for all but the wealthiest individuals. But the crackdown on individual tax evaders only points up the ease with which corporations (and individuals with the means to establish complex corporate structures) can avoid tax through a mixture of legal avoidance and unprovable evasion (for example, by illegal but unprovable internal transfers).

At the core of the problem is the ability to establish corporations in ways that make their true ownership impossible to trace. And, the jurisdiction most responsible for this is not a Caribbean island or European mini-state, but the “First State” of the US – Delaware, which has long been the preferred location for US incorporation by reason of its business friendly laws.

For a long while, most reference to Delaware as a tax haven came in the form of a tu quoque from the pro-haven side of the debate. Since any challenge to Delaware’s role in the corporate sector seemed unthinkable, it was argued, any US criticism of Switzerland or Luxembourg was mere hypocrisy. The same point was made about the UK and France, with reference to their various offshore dependencies (the Channel Islands, Caymans and so on). But now the argument has turned around. As the various tax havens have fallen into line with OECD agreements and US legislation like the Foreign Account Tax Compliance Act (FATCA), they now have an incentive to turn attention on to Delaware. Having a corporation registered in Delaware is starting to look somewhat like possession of a Swiss bank account: not necessarily illegal or even improper, but certainly something that arouses suspicion. Here are a few straws in the wind

* A New York Times story on corruption and money laundering in Europe gives a prominent mention to the role of “US states like Delaware and Wyoming”. There’s an internal link to an Op-Ed I’d missed, entitled “Delaware: Den of Thieves?
* In the course of the recent election campaign in Quebec, a prominent supporter of the Parti Quebecois was attacked for apparently owning companies registered in Delaware
* US Senator Carl Levin’s long-stalled attempts to bring in a “Stop Tax Haven Abuse Act” is restarting, including a focus on Delaware shell corporations. It’s unlikely that this will pass any time soon, but it’s still an encouraging development.

None of this would have much impact on the really big tax dodgers, like Apple and Google. But even here, things are moving. The era of untraceable and untaxable capital movements may come to an end sooner than we expect.

50 thoughts on “Piketty Crossing the Delaware

  1. @yuri
    I’m guessing that was an attempt on your part to clarify your position. But if that’s what it was, all I can say is that I’d hate to see what happens when you deliberately aim at obscurity. I have no idea what your point is.

  2. @yuri

    Unfortunately, reality isn’t on your side with this factoid:

    neither the Greens nor Labor had the wit to oppose

    The Greens voted against the FTA.

    Latham’s ALP voted for it (with the LNP, as they most often do) after getting amendments to “protect” the PBS – later watered down when Howard controlled both houses.

  3. @Megan
    Concede my cunning then. I’ve got someone who really knows and cares about Greenery to put me straight. Except that you haven’t because you haven’t told me what thr Greens said about Copyright. I would be very surprised if they were on top of the issues I would put up front and suspect that they support giving some people more Copyright protection. That’s good if it means enforcement against stealing recent creations but my single test question would be “did you support the idiot Garrett’s ridiculous Resale Rights Royalty for Visual Artists?” – a typical product of French protectionist thinking and those under the illusion that they know how to help traditional Aborigines…..

  4. @Peter Evans
    As to property rights flowing from state power, though I quibble below, I used to like teasing a Liberal politician who was also a developer and fulminated against Liberal governments interfering with the rights of freehold owners. I don’t remember now the Roman Law term for absolute ownership (allodium ?? anyone?) but pointed out that his freehold was a fee simple, which retained, despite all simplifications and elimination of intermediate lords the character of a feudal tenure which involved reciprocal duties owed to the feudal lord (now the Crown which should have impressed someone who was probably a monarchist).

    My quibble is that primitive tribes and clans may have used force to establish and protect property rights, mostly the threat of force, this was based on natural collective morality long before the state was even a concept.

  5. @Ivor

    “Anyway how does a global wealth tax address the causes that leads that way?”

    The same way a lot of modern medicine works. Traffic lights, as a mechnaism to reduce death and injuries from car accidents is another example of preventing undesirable consequences without addressing the ultimate ’causes’ – if they can ever been known.

    “But as a temporary fix while society tries to sort itself out – it is certainly appropriate.”

    Fine with me although I take it as an assumption that society might try to sort itself out.

    “Action on a national level is probably more practicable.”

    The EU provides a useful model. Common agreements are implemented on the national level.

    What, you read footnotes? I have to admit I can’t remember anything about the content of your posts. I remember only that you like writing, using a lot of adjectives. I don’t wonder why you do this.

  6. yuri :
    I never was any good with pass students. Sorry.

    Prof Quiggin: is this really what you want to be providing a platform for?

  7. @yuri
    You’re evidently also not any good with honours students or postgraduates. But why do you say you’re sorry when it’s obvious that you’re not?

  8. Yuri: you’re violating the comment rules, and making yourself look silly into the bargain. Please stop.

  9. @Collin Street
    What do you expect when you repeatedly accuse someone of presumably unintended obscurity? One can bristle at the insult, or, having run it past someone whose clarity of mind one respects, toss off some relatively good humoured flippant repartee. Would you prefer “Well that’s your problem mate”?

  10. @John Quiggin
    How does describing what someone writes as “tripe” qualify?

    The implication has to be that the person criticised is either a knave or a fool does it not? Or maybe just writing “under the influence”: in any case legitimately subject to being treated rudely….. You will not have forgotten that you did use the word “tripe” to which I replied in amiable spirit instead of bleating that the professor was sneering de haut en bas at poor little Yuri.

  11. There is more than one facet to the scandal (which neither the Greens nor Labor had the wit to oppose, but the clearest is that Copyright extends for so much longer than a patent for a life-saving drug when the whole point of the voter/taxpayer’s gift of monopoly is to do just enough to make sure the public gets the benefit of creative people’s inventive work and publication. What author, artist, or composer would fail to create or fail to publish if he only had a 25 year monopoly?

    While I agree that the extension of the life of copyright in the ‘FTA’ was unnecessary and a bad idea, this comment seems a little misconceived to me. Copyright has always had a much longer lifespan, and has always conferred more robust rights, than other forms of intellectual property. The more substantial nature of copyrights was hardly a creation of the FTA.

    What it demonstrated to me is how limited the benefits of preferential ‘free’ trade agreements are for countries which, like Australia, already have open economies. The modification of copyright laws was on the table largely because the Australian negotiators didn’t have much to offer, as Australia had unilaterally opened its economy years before.

  12. @yuri
    Since you ask:

    Anybody who tells you that you have not explained yourself sufficiently clearly to be understood must be right. In this case, even if your explanation is clear enough to be understood by other people, it still isn’t clear enough to be understood by me.

    You are not obligated to care about this. I do not own you. You are not under contract to provide me with explanations. (If you feel like pointing those things out to me, it’s unnecessary, because I already have that knowledge.)

    So if I tell you that I don’t understand your point (and I don’t), then you could respond ‘I don’t know how to explain it any more clearly’ or ‘I don’t feel like putting even more effort into explaining’ or even ‘I don’t care whether you understand’.

    On the other hand, if you felt like it, you could also make a response like ‘Which part don’t you get? Can you suggest any way I could make myself clearer?’.

    Yet another option would be not to respond at all. You’ve got plenty of choices there, I think.

  13. @yuri
    To describe a person’s statements as ‘tripe’ is an evaluation of the statements; to describe a person as a knave or a fool is an evaluation of the person. These are not equivalent.

    I would freely admit that I have said and done many stupid things in my life without describing myself as a stupid person.

  14. @Tim Macknay
    I’ll clarify my previous statement by saying that strictly speaking, copyrights have not always had a much longer term than patents, but that they have at least since 1912, i.e., well before the AUSFTA.

  15. Robert Shiller has written a short response to Piketty – well, more of a “well I also addressed this issue and here’s how” missive. Worth a read.

    I think he’s saying that you want to think of taxes as a form of insurance and, therefore, risk management. Political saleability aside, that’s eminently plausible if you fundamentally want to keep the status quo.

  16. @Ernestine Gross

    You need adjectives to maintain a level of rigor. Try it – it doesn’t hurt.

    When medicine only treats symptoms – you get multiple episodes.

    In economics, multiple episodes leads to catastrophe.

    Traffic light let all vehicles go where they want.

    In economics, when capital goes where it wants (eg free trade agreements) you get increasing gaps in wealth and income and social decay which only ends in catastrophe.

    International global capitalism cannot be fixed with treating symptoms or traffic lights.

  17. @J-D
    My apologies for allowing myself to express exasperation rudely. Your defence of “tripe” I acknowledge to be fair enough even though my points about it were logical. After all saying that an argument is “tripe” is not like saying respectfully “I wonder if you have overlooked X” (even when X is something like “Ghenghis Khan was not a Christian”) or “there are alternative views and as you will have gathered I strongly disagree with you”. So what, amongst the available inferences, is the natural one when someone chooses to use the word “tripe”?

    If I am allowed after my discourtesy a little counter accusation I think you could have tried a bit harder to construe the meaning of someone who obviously didn’t fjnd it fascinating to go on about a pretty trivial issue (after all I know that my opinions are coherent and pretty well consistent even if doing justice to complexity and proper uncertainties makes my zeal for consistency a cross for my back when someone suggests, often quite justly, that perhaps a taste for or toerance for complexity has left my meaning unclear to them).

    On state action I am as likely to be on one side as the other (if I haven’t found a third or fourth side. But that doesn’t affect my areas of scepticisn about most human actions and intentions. And I can’t see why you, if of ordinary human experience, would fid it difficult to understand – even if you didn’t sympathise – my finding, on surveying my attitudes as evidenced in various ways, that there are quite a lot of decisions that I would prefer tk be in the hands of a random billionaire than a government department. And if you want something mire than just gut instinct behind it consider the implications of Maslow’s hierarchy of needs.

  18. @Tim Macknay
    I don’t think we are really disagreeing. While you might reasonably expect me to allow weight to Copyright’s history of being of longer duration than patents I don’t end up accepting it, for several reasons. And, btw, I only regard the FTA as adding gratly to an existing more than trivial scandal.

    Starting, as I think you do, with the acknowledgment that IP involves the creation at actual or potential public expense of monopoly rights which need strict justification, I used to opine that it’s generosity in the case of Copyright in contrast to Patents might have begun with fathers or older brothers of many aristocratic boys deciding as members of the Lords or Commons to give them a bit of a helping hand at no expense to themselves in case their painting or writing ever amounted to anything. There might be something in it and it is consistent with the view that there was no danger of excessive generosity causing scandal as in the case of something serious like giving an excessively long patent on a life saving drug or something which would keep the nation’s economy competitive.

    I think it also important that there us a vanishingly small chance that we would be denied the fruits of someone’s creativity by adopting a much shorter period of Copyright. Indeed the opposite might be true as people hastened to cash in on their Copyrights.

    Then there is the undoubted fact that we gave away longer Copyright protection for the reason you shrewdly noted – one that has nothing to do with Australian interests. Worse it was the product of a foul and corrupt system in US politics – in this case Disney being the chief corrupter.

  19. @Ivor

    I’ll ignore your first sentence. As for the remainder, I don’t have the patience with discussions of the type you seem to be offering. I retract my first reply to your question on the grounds that I have obviously failed to provide useful information to you. This leaves my original post.

  20. @yuri
    If your point is (and I’m still guessing here, because you’re still wrapping up your meaning in too many words) that you’re not opposed to government action in general, only opposed to some particular kinds of government action, then my response would be that I don’t see how anybody could think something so platitudinous was worth saying without explanation of which kinds of government action you are opposed to and why. Nobody said, ‘I think the government should do everything’, and I seriously doubt anybody would.

  21. @J-D
    I think you are being remarkably obtuse, and like a dog with a bone which this dog long since was happy to think buried under a dead possum and forgotten. I think I am right in saying that it all started with tossing out an observation to the effect that I had sympathy for the view that power in the hands of a non-criminal

  22. @yuri: well, you would think that, wouldn’t you.

    [the alternative is that there are systemic problems with your communication skills. This is a testable hypothesis: when you talk to them, do more people express understanding or bafflement?]

  23. @Collin Street
    I am not suggesting that yuri is a poor communicator in general, only that in this particular instance yuri’s meaning is not clearly communicated to me. I don’t even want to suggest that yuri is culpable in this particular instance; it seems to me that yuri is the one who wants to suggest that somebody is culpable, and that it’s me.

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