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Tax loopholes and public debt crisis
Friday, 18 November 2011 01:03

Could closing tax loopholes help solve the public debt crisis?

Bob Harris of Educational International has shared with us a new Global Unions report, to be released on 28 November, which zeros in on the losses to public revenues due to the capacity of global corporations to minimise tax. The report's Foreword states:

"The current debate on sovereign debt is conducted as if there were no other option than austerity. This report changes the focus.

Here the focus is on the revenue side.

The problem with the ‘no option but austerity’ line is that it thrusts national economies into downward spirals. Austerity dampens then freezes economic activity. Public revenues drop. The objective of reducing sovereign debt is defeated because of the downturn in economic activity, while uncertainty drives up the cost of servicing the debt – the classic ‘debt trap.’

There is another way. Public revenues can be boosted, if there is political will do so. Resources injected into communities are resources invested in people, in their health, safety and education. These investments get the engines of growth moving again, they enhance equity, they provide the support structures that private enterprises need to flourish, and they help build the future. A focus on the revenue side is the way to get out of the downward spiral and to avoid the ‘debt trap.’

This report explains how the resources for investment in people can be found. Billions of dollars and Euros are lost to communities because tax laws are national while the economy is global, and that simple fact has created unprecedented opportunities for tax minimization and avoidance. Global corporations have opportunities for tax avoidance that national enterprises do not have, let alone small business owners and wage and salary earners. Even without changing the tax laws, closing just some of these loopholes would make a huge difference in public resources.

Closing loopholes will require changing mentalities – and political will. It means changing the widespread acceptance of tax avoidance as a legitimate goal of large corporations. To close these loopholes is to take a step towards a change of paradigms, change that would take us off the path where ultimately everybody loses and put us onto a path where most have an opportunity to win. And isn’t that what democracies and market economies are all about?"

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