Under President Trump’s political and economic climate, stocks and the economy have been soaring. Trump constantly aims for three percent GDP growth as a result of cutting corporate income and individual income taxes, which aims to encourage spending across different family incomes. However, these corporations the tax cuts favor have been operating modes of tax avoidance for decades.
On Nov. 5, an anonymously published set of papers called the Paradise Papers were leaked to the public. The Paradise Papers are 13.4 million confidential electronic documents relating to offshore investment, which might not always be illegal. Much of the behavior exhibited is to be expected of large corporations that operate in multiple territories, using international law to hide money in the safest places possible.
According to the papers, companies including Facebook, Apple, Microsoft, eBay, Glencore, Uber, and Yahoo! are among the corporations that own offshore companies. Tax havens have been revealed to serve both multinational corporations as well as high net worth individuals such as the Queen of England, Bono, and U.S. Secretary of Commerce Wilbur Ross, who all were found to use these tax havens to store their exorbitant wealth.
The irony of technological companies, such as Uber and Facebook, using tax havens to store dollars overseas and keep tax revenue from local governments is that these companies claim to provide revolutionary technologies that exist for the holistic betterment of human society- which, in itself, is arguable. Uber boasts that “For cities, we help strengthen local economies, improve access to transportation, and make streets safer.” Mark Zuckerberg claims that Facebook exists to “make the world more open and connected.” Taxes are used for social security programs, education, transportation, health care, and other government-owned industries, which many assume have the true best intention of the people. The purpose of taxes is to strengthen local economies, improve access to transportation, make streets safer, and make the world more open and connected. However, this tax revenue has been redirected to the hands of private corporations, who have a fiduciary obligation to the shareholders.
These solutionist tech start-up companies are simply following their tax-avoiding, monolithic legal-teamed technological forefathers. Famously, WorldCom, an early U.S. telecommunications company, declared bankruptcy in 2002 because of fraudulent accounting practices that amounted to $3.8 billion misreported under operating expenses, severely damaging the US economy in what has been named the “dot-com bubble.” Even the beloved household name Martha Stewart was found on nine counts of insider trading and obstruction of justice. These now-defunct companies are significant because they show the error of human judgement in high pressure environments to fraudulently report on financial statements for their shareholders—errors that could have been avoided had they simply paid their fair share of taxes.
It is important to understand exactly why these corporations use tax havens, and it’s more complicated than monetary gain. The purpose of a company’s CFO, the Chief Financial Officer, is to maximize shareholder wealth at any means necessary. As shareholders invest in companies, they demand repayment of their investment. A corporation’s use of legal tax avoidance methods allows the company to appear more attractive to more shareholders, thus allowing more investors to enter and allows for the growth of the company and the economy as a whole. The only true loser in tax avoidance is the U.S. Government, but the monetary losses that the government incur are repaid in the growth of consumer spending across the different income brackets.
My answer is not to blame individuals and corporations. Tax avoidance is not as easy an issue to resolve as many people believe. One solution for tax avoidance is to demand international governments, such as the European Union and the United Nations, to hold internationally-based corporations accountable for their tax avoidance policies, taking tax avoidance from the norm to a stigma. Tax avoidance costs local and federal governments billions, if not trillions, of dollars annually. One implementable option could demand a globally-accepted percent corporate income tax, which all nations and territories must agree upon. This would disincentivize companies like Apple to open headquarters in India, which has a corporate tax rate lower than in the United States.
The Paradise papers, as well as the Panama Papers and other p-alliterated Papers to come, show nothing more than the folly of human behavior, and our society’s determined avoidance to pay taxes. As famously stated by jurist Oliver Wendell Holmes Jr., “I enjoy paying taxes. With them, I buy civilization.”