Global Tax

Tax evasion creates two kinds of inequality, between people and between countries.

Companies evading taxes by diverting their profits to a country with a very low tax regime for businesses, create competition in tax rates between countries, eventually causing lower tax incomes for governments worldwide. In the meantime, the country where they operate but don’t pay tax, does provide key services to this company, paid for by tax; like infrastructure and education facilities for employees.

Rich individuals evading tax by hiding their assets in countries where they pay no or very little tax also profit hugely from services provided by the country they live in. Companies still pay quite a lot of tax via the income of their employees, but individuals do not.

Which brings me to the second type of inequality. Most people make money from labor. On their income they pay a tax in the country in which they work. They cannot live in one country and make it seem as if they work in another, like companies can. They are far less mobile and can’t go tax shopping.

On the other hand, some people have made or inherited fortunes and derive their income from their money. Taxes on these assets are usually far lower than the ones on income. Also, the money is far more mobile, making tax evasion possible. Warren Buffet illustrated this inequality by comparing the amount of tax he pays with the amount his secretary pays.

The only complete and fair solution to this problem would be to have the exact same taxes in all nations of the world. That’s utopia. So what can be done? Join the conversation and post your thoughts in the comments below.

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