Joseph Stiglitz: Only outrage will stop tax evasion

The global tax system is broken and it's time to get angry, says Joseph Stiglitz Image:  World Economic Forum / Benedikt von Loebell

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This article is part of: World Economic Forum Annual Meeting

Before the Paradise Papers, came the Panama Papers. And after the Panama Papers, came a Panamanian government inquiry into offshore tax evasion.

Joseph Stiglitz was invited on the advisory panel.

But not for long: fed up with what he called a “lack of transparency”, Stiglitz and the OECD anti-corruption expert Mark Pieth quit the enquiry.

"The answer the Panama governments gave us after weeks and weeks and weeks was, 'No we're not going to be transparent',” Stiglitz said. “So we resigned.” The pair later came out with their own independent report on the global problem of secrecy.

A global problem

Almost two years later, the world’s tax system is still broken, claims the Nobel-winning economist. He told a panel discussion in Davos on Thursday: “We have a global tax system that allows people, legally, to avoid paying.”

Governments are engaging in lowering tax rates ever further, in an effort to compete for corporations. It's led to a race to the bottom and "the United States has just joined the race, lowering its corporate tax rate", said Stiglitz, referring to recent reforms by the Republican Party that slashed rates from 35% to 21%.


Race to the bottom

Stiglitz isn’t the only one worried. Trump administration tax cuts have raised concerns in Europe, where policy-makers are attempting to raise the tax bill on US giants such as Amazon and Google.

In an address to Davos the previous day, French President Emmanuel Macron warned against a "race to the bottom on taxes and regulation", calling for a “global compact” to soften the negative effects of globalization.

Elements of the private sector are coming out in support of the cause. Google’s CEO, Sundar Pichai, told an audience in Davos that he’d be happy for Google to pay more tax. He added that it was clear some companies weren’t paying their fair share, and the system should be reformed.

What next for corporate tax?

"I want Europe to take the lead," said Stiglitz. "A global minimum tax imposed by Europe would be the way forward."

In practice this would mean countries listing the total profits of a corporation and asking them to pay, say, 15-20% of their revenues. "Our formula is to look at the total profits, find out where the employees are, the sales and the capital,” he explained. “It's rough justice, but it's better than the no justice we have today."

"The corporations won't allow change unless citizens really get out there and express their indignation," he concluded.

"It's only outrage that will stop the system."

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Related topics:
Geo-economicsInequalityEconomic ProgressGlobal Governance
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