Just how small can these taxes be? Recently, the Taskforce on Financial Transaction for Development reported that a levy of 5 cents on every $1,000 traded on the foreign exchange market could bring in more than $30 billion per year.  The ministers hope these figures show international organizations, like the United Nations, could use innovative financing alongside traditional foreign aid to fund safe drinking water, food, treatment for pandemics, and education for children.

I admire the courage it must take to propose such funding techniques in an environment when even maintaining existing tax rates elicits heated reactions.  But if we examine the economics behind this proposal, I think we’ll find it satisfies economic guidelines.

Economists who work in natural resources often think about existence value, which is when people value the knowledge that part of the environment is in better condition, though they do not use it (also called non-use value).  For example, a resident of Canada might value preservation of Brazilian rain forests, even though the Canadian has no intention of ever visiting the rainforest and does not think the forests directly enrich his life.  We can also apply this concept to development economics.  For example, a resident of Germany might value a reduction of malaria amongst children in Mali, though the German never plans to visit Mali and no one he knows will benefit from the immunizations.

In order to monetize non-use values, environmental economists use the contingent valuations method (CVM), which involves asking people in a variety of methods how much they would be willing to pay (or give up) for environmental or other services.

Few papers have conducted contingent valuation studies on development services, since the literature generally applies the concept to the environment.  But from anecdotal evidence, we see consumers already show a significant propensity to pay additional premiums for development services.  Think about “rounding up” at the cash register of your grocery store for the local food bank.  Or expensive bottled water that promises to donate a percent of profits to helping children gain access to clean water.  One recent study showed the average consumer is willing to pay 11% more for fair-trade label coffee.

Of course, the taxes proposed by innovative financing would likely be mandatory.  While economists could conduct surveys to design appropriate rates based on a general willingness-to-pay, they would not be able to evaluate these taxes on an individual basis.

But then again, from a moral perspective—as opposed to an economist’s view—maybe a .005% tax on massive financial transactions, in the name of saving millions of lives, isn’t such a bad thing.

Read / download (PDF) the translations below:

• Arabic | عربي
• Chinese | 中文
• French | Français
• Russian | Русский
• Spanish | Español

No assistance in stolen bank data cases
Swissinfo.ch, September 1, 2010

UBS On Track To Fulfill Orders To Exit US Offshore Operations
Automated Trader (Dow Jones), September 1, 2010

Fraud fears lead to run on Kabul Bank
Financial Times, September 2, 2010

Karzai’s brother calls for U.S. to shore up Kabul Bank as withdrawals accelerate
The Washington Post, September 2, 2010

US Def Sec: Afghans should lead corruption fight
Associated Press, September 2, 2010

Banks not paying price of role in drug trade
My San Antonio News, September 2, 2010

French minister admits role in L’Oreal heiress saga
Reuters, September 2, 2010

Liechtenstein, UK Tax Pact for Wealthy Clients Comes Into Force
Automated Trader (Dow Jones), September 2, 2010

IMF tax chief lays down gauntlet on tax evasion
Accountancy Age, September 2, 2010

Money laundering to finance crime, terrorism grows
Deutsche Welle (AFP/AP), September 2, 2010

Four Africans arrested in Japan for money-laundering
Daily Nation (Kenya), September 2, 2010

Pakistan steps up anti-terror financing measures
CentralAsianOnline.com, September 1, 2010

Securities firm to pay $50,000 fine
NewsObserver.com (Raleigh, NC), September 2, 2010

Paul Hogan ‘can’t pay 10% of tax bill’
BBC News, September 1, 2010

U.S. Closes Corruption Inquiry as Ghana Probes Alleged Bribery at Jubilee
Bloomberg, September 2, 2010

First time ever, GNP expels member, Rep. Kang
JoongAng Daily, September 3, 2010

Gangwon Gov. Lee allowed to return to office
The Korea Times, September 2, 2010

New Guilty Plea in U.S. Army Bribery Case
The Wall Street Journal, September 2, 2010

Photo by Andy Radcliffe / CC BY-SA 2.0

The Isle of Man Today web site carries the following back handed compliment today, the following being an edited (shortened) version of the story:

We have also written a story about a letter from a group who thinks the Isle of Man should ditch zero-10 company tax.

The group of 12 people – including a high profile charity worker – says that we’d be better off in the long run and have a better reputation if we re-introduced company taxes.

You might remember that a few weeks ago (August 10, to be precise) we ran a story based on a survey of corporate service providers and other finance sector interests. They predicted doom and gloom – ultimately lots of job losses and a big cut in tax take – if the Island lost zero-10.

We’re delighted we’ve got a response today.

Unfortunately, the group of 12 people who’ve written to us aren’t establishing themselves as a formal pressure group. That’s a shame because they could have help to fill an argument vacuum on this topic and widen the debate. We sometimes find it hard to find someone to put counter-arguments in political stories because there are few pressure groups and little in the way of formal party politics – which thrive on confrontation – in the Isle of Man.

But at least there’s someone here in the Isle of Man – and not just Richard Murphy, the UK blogger – making the argument.

Well, I’m delighted too. I don’t want to be the one-man political opposition in the Isle of Man and never set out to be so.

But I also note how very hard it is for there to be effective political opposition in places like the Isle of Man and the other Crown Dependencies. Any pretence that there is freedom of speech in such places is just that – a pretence. These islands are effectively occupied  by the financial services industry, and they use their power – the very real power to make or break people’s chance to make a living – to ensure that opposition to their activities is silenced – or belittled to the fringes.

This is not an accident. This is the ultimate expression of the neo-liberal contempt for government – that overlaps with that of anarcho-capitalism, as I noted here. That same contempt for government and the rule of law that it upholds is indeed inherent in the whole definition of secrecy jurisdictions: Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain that is designed to undermine the legislation or regulation of another jurisdiction. They do, in addition, create a deliberate, legally-backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

The Isle of Man Today web site and the weekly Isle of Man Examiner newspaper can welcome twelve brave individuals standing up against their government – as I do too – but the reality is that if that paper really believes in freedom of speech, politics and proper government it would challenge the whole structure of secrecy on which the Isle of Man’s business model is predicated. But it doesn’t. As such it is complicit with the occupying force within the island that holds it in fear and to ransom.

That’s why a few of us – not just me by a long way – from outside the Isle of Man and other secrecy jurisdictions have had to challenge what happens in these dark corners of corruption that set out to undermine democracy, society (as we know it), accountability and the rule of law, and which are—in consequence—the very enemy of society itself. We’ll know we’re winning when there is real democracy in these places. Maybe the twelve who have written are a start – and I wish them well without knowing who they are – but we have a long way to go. Until we get there, they can rely on much external support – and not just from me.

Indonesian MPs named in central bank bribery case
Reuters, September 1, 2010

Out of the Spotlight, Indonesian Corruption Watch Case Stalls
Jakarta Globe, September 1, 2010

Corruption probe ruffles US-Afghan relations
Associated Press, August 31, 2010

Afghan central bank insists Kabul Bank is sound
Associated Press, September 1, 2010

Bettencourt home raided by French police in Sarkozy scandal
Daily Telegraph, September 1, 2010

Paul Hogan vows to fight Australian tax office
Reuters, September 1, 2010

Russian mafia taking over French Riviera
The Daily Telegraph, August 31, 2010

Swiss Government Finalizes Bank Secrecy Changes To OECD Standard
Dow Jones, September 1, 2010

New India-Swiss pact not for recovering black money: Mukherjee
ANI, August 31, 2010

US Aims to Close North Korea’s Shady ‘Office 39′
AOL News, September 1, 2010

Pakistan match-fixing claims: Mazhar Majeed arrested over ‘money-laundering’ claims
The Daily Telegraph, September 1, 2010

German money laundering cases up sharply: watchdog
AFP, September 1, 2010

Some donated malaria drugs being stolen in Africa
Associated Press, September 1, 2010

Botswana former minister charged with corruption
Associated Press, September 1, 2010

Zambian ex bank chief accused of money laundering gets bail
AFP, August 31, 2010

Algeria steps up anti-corruption fight
Magharebia, August 31, 2010

Indonesia anti-graft body raids Sumitomo: reports
AFP, September 1, 2010

China’s gang crackdown nets 278,000 criminal cases
Associated Press, August 31, 2010

Retrieve Indian Money Stashed Abroad: Prof. Vaidyanathan
Yentha, September 1, 2010

Greek Draft Legislation on Internet Gambling
RecentPoker.com, September 1, 2010

Tax Insights: Is tax amnesty on the cards in M’sia?
The Malaysia Star, September 1, 2010

Panama, Singapore Complete Talks on Avoiding Double Taxations
Xinhua, September 1, 2010

FBG fine blamed on slack identity checks
The Bermuda Sun, September 1, 2010

New Opportunities, same risks in C. Africa
The Korean Times, September 1, 2010

ANC ‘will return R1m gift if it is proceeds of crime’
Times (South Africa), August 31, 2010

As far as I can tell, the most comprehensive definition of tax competition was put forward by Richard Teather, a tax specialist from the UK, in “The Benefits of Tax Competition.”  Teather defines tax competition as “deliberate reductions in effective tax rates” to “attract foreign capital investment.”  Teather argues European governments, fearful that tax havens would suck them “into a spiral of competitive tax reductions that would result in investment income being tax free,” have responded by “seeking either to force [tax havens] to raise taxes or to emasculate their tax-efficient status.”

I actually don’t have a problem with this argument.  Foreign direct investment—that is when a citizen of one country makes a capital investment into a company in another—occurs through legal, generally transparent channels.  In this case, a county’s tax-rate is an expense to the investor, just as brokers’ fees and labor are costs, too.

Of course, there also must be benefits.  The investor needs to have a reason to buy capital in a particular country, other than a favorable tax-rate.  For example, Lebanon has very low corporate and income tax rates and has scored a whopping 91.6% on the Heritage Foundation’s index of fiscal freedom in celebration of this fact. But you probably wouldn’t want to invest in a software company in conflict-ridden Nabatiyeh, in Southern Lebanon. Lebanon still faces a significant risk of another confrontation with Israel in the medium term and reports showing Hizbullah has received deliveries of medium-range ballistic missiles haven’t helped ease those tensions.

It’s pretty clear from this example that an investor’s choice of where to place his capital is based on a broad range of inputs, not just tax. Perhaps it is for this reason that there isn’t much evidence supporting the claim that low-tax jurisdictions entice more FDI than others.  According to the UN Conference on Trade and Development, in 2009 FDI flows into Switzerland, which has a low 22% corporate tax rate, represented 9.6% percent of fixed capital formation.  Some high tax jurisdictions, such as Germany, where the top corporate tax rate is 38%, FDI represented a lower 6% of fixed capital.  But in other high tax jurisdictions, such as the UK (with a 30% tax rate) FDI flows represented a much higher 14.1% of fixed capital. Or FDI into Belgium, which has a 35% corporate rate, represents a gigantic 33.8% of capital formation.

As I said, I don’t have a problem with tax competition as it relates to FDI, but in other instances this argument is applied to something else entirely. This I do have a problem with.

Often proponents of tax havens will indirectly argue that citizens can transfer income that was legitimately earned in one country to a low-tax jurisdiction and pay the lower rate in the name of “tax competition.” This is not tax competition. This is tax evasion.  It is illegal for a reason.  If Lebanon offers a favorable business environment that includes a low tax-rate to potential investors, then I have no problem with it.  If the Cayman Islands offers a way for investors to earn income in the United States and then pay (lower) taxes in the Caymans, then it is a problem.

Think about it like this.  If you are a company, you can offer a good (or a set of goods) at a particular price.  Assuming a competitive market, you base your price on a variety of factors, including your costs.  This applies to countries.  The United States can afford to offer its citizens and investors a variety of goods—security, infrastructure, a skilled workforce—at a certain cost. A tax rate.  You cannot choose to take advantage of those goods at a different price, just like a shopper can’t pay the price for a standard car, but take home the one with leather seats and a sun roof.

I haven’t seen any evidence that tax competition exists.  The theory might sound good, but tax haven proponents haven’t pointed to any statistics to back the argument up. Second, and more importantly, it’s incredibly dangerous to blur the line between these the concept of tax competition as it pertains to (legal) portfolio diversification and (illegal) tax evasion.  They have nothing to do with one another and semantics do matter.  I am all for having a real debate about this—with statistics and facts.  But academic integrity demands that we be clear on our choice of words and definitions.

The Bryggen quarter in Bergen, Norway | Photo: techectomizer, Picasa

In just four short weeks the Task Force will host its second annual conference, and we want you to be there!  Titled Achieving Transparency: A Dialogue for Action, the 2010 annual conference of the Task Force on Financial Integrity and Economic Development will take place at the Radisson Blu Hotel Norge in beautiful Bergen, Norway from September 28-29, 2010.

The current financial crisis evidences the same lack of transparency in the global financial system that has affected developing countries for decades. Concrete, practical means exist for enhancing transparency to the benefit of rich and poor nations alike.

Speakers and panelists will address the Task Force’s five recommendation areas for achieving financial transparency: country-by-country reporting, knowledge of beneficial ownership, automatic exchange of tax information, curtailment of trade mispricing, and harmonization of predicate offenses among FATF countries. Breakout sessions will focus on upcoming projects and specific areas of concern within illicit financial flows, including a new financial integrity index, corruption, Millennium Development Goals, the G20 process, Africa’s concerns about illicit outflows, and more. Together, speakers and participants will contribute ideas for an action agenda aimed at achieving transparency, a plan that will guide the Task Force’s further programs!

In addition to being able to engage in discussions with area experts, participants will also hear from and speak with current (and future) global leaders such as Erik Solheim of Norway, Eva Joly of France, Mallam Nuhu Ribadu of Nigeria, and Rafael Espada of Guatemala.

Register today and view a copy of the agenda.  You can also check out speeches, presentations, and videos from last year’s conference in Washington, DC by clicking here…

The registration deadline is Tuesday, September 7^th, so mark your calendars!  Questions? Send me an email at cclough@financialtaskforce.org.

I look forward to seeing you in Bergen!

The charity is asking supporters to help persuade four firms to back its call for accounting reforms which will help poor countries collect more of the tax billions which are rightfully theirs.

All four have assets and subsidiaries in developing countries. They are: Vodafone, Unilever, TUI Travel (which owns Thomson and First Choice) and Intercontinental Hotels Group (which owns Holiday Inn).

Helen Collinson, Campaigns Manager at Christian Aid said: ‘We are appealing to these companies to support our campaign for greater tax transparency, including the call for a new accounting standard to ensure companies report on their profits made and taxes paid in every country where they operate. It is really important to stress that we are not accusing these companies of tax dodging.

‘We want them to become leaders in their sectors and to encourage other multinational companies to support the campaign. By doing this, they will help shape global tax reporting and play their part in fighting global poverty.’

Ms Collinson added: ‘We believe that greater tax transparency will be good for business and we are hopeful that these companies will agree with us. Taxes pay for roads and infrastructure essential to commerce. They create a healthy and educated workforce. Taxes also help to make governments more accountable and countries more stable – all of which would benefit companies doing business in developing countries.’

Christian Aid is encouraging supporters to send messages to the four FTSE companies on postcards and by video, asking them to back the campaign.

International organisations such as the Organisation for Economic Co-operation and Development (OECD) recognise that tax dodging is likely to cost developing countries more than the total that they receive in aid in each year. Christian Aid estimates that their annual loss may be as great as $160 billion.

Earlier this year, the charity contacted the CEOs of the FTSE 100 and asked them to complete a survey of their views about tax, development and country-by-country reporting – an accounting standard, which would require companies to be more open about their activities around the world.

The International Accounting Standards Board (IASB) is the body with the power to introduce country-by-country reporting. It is funded by the Big Four accountancy firms – PricewaterhouseCoopers, KPMG, Deloitte and Ernst & Young – which have significant influence.

Christian Aid has chosen the FTSE Four because each one is audited by one of the Big Four accountants. As well as asking the four companies to publicly support country-by-country reporting, Christian Aid is calling on them to ask their auditor to support it too.

Mexico massacre: How the drug war is pushing cartels into human trafficking
The Christian Science Monitor, August 30, 2010

Analysis: India can now follow the black money
Reuters, August 31, 2010

Attack on China whistleblower shows risk of unveiling corruption, fraud
The Christian Science Monitor, August 30, 2010

French PM Fillon: Labor Minister Woerth Is “Innocent”
Dow Jones, August 30, 2010

Obama Widens North Korea Sanctions on Nuclear Funding
Bloomberg News, August 30, 2010

Russian police turn to crime
AFP, August 31, 2010

Niger ex-finance minister charged with graft
AFP, August 31, 2010

Botswana defence minister resigns, government offers no explanation
The Canadian Press, August 30, 2010

Santos announces anti-corruption measures
Columbia Reports, August 30, 2010

UK to help Kenya in joint effort against graft
Daily Nation, August 31, 2010

Terrorism: FBI begins training of Nigerian operatives
The Nigerian Tribune, August 31, 2010

Hogan ‘waived right’ to confidentiality over seized tax documents
Sydney Morning Herald, August 31, 2010

DTC to strengthen India’s tax demands on cross-border M&As
The Economic Times, August 31, 2010

Jail for 4 who aided tax evasion
The Washington Post, August 30, 2010

2nd Circuit Upsets Fine Imposed in KPMG Tax Shelter Case
New York Law Journal, August 31, 2010

More Tax Evasion Scams Busted at Bulgarian Beach Resorts
Sofia News Agency, August 30, 2010

Companies taking interest in intra-group loans
The Economic Times, August 31, 2010

EDITORIAL: Prosecutor’s ouster shows Karzai’s troubles
The San Francisco Chronicle, August 31, 2010

Stanford accountants attack Lloyd’s fraud accusations
Accountancy Age, August 31, 2010

Activist Wants Looted Money Returned
The Daily Trust (Nigeria), August 31, 2010

Taiwanese bank under scrutiny for third time
The Age (Australia), August 31, 2010

Mexico says drug lord ‘the Barbie’ captured
Associated Press, August 31, 2010

Drug couriers using disguises to move along border
The Washington Post, August 31, 2010

Appeal Made to Thai Leader for Russian in Arms Case
Associated Press, August 31, 2010

2010 on Pace to Be Record Year for FCPA Probes
Corporate Counsel, August 31, 2010

South Africa: COLUMN: Could Zuma Fall Foul of U.S. Law?
Business Day (S. Africa), August 30, 2010

Korea to request FBI records on Apple bribery case
The Korea Herald, August 30, 2010

Santos announces anti-corruption measures
Columbia Reports, August 30, 2010

Indonesian leader pledges police reform
AFP, August 31, 2010

Pakistan match-fixing claims: cricket’s Anti-Corruption and Security Unit facing new test
The Daily Telegraph, August 31, 2010

Ukrainian President Pledges to Tackle ‘Ransacking’ Corruption
Bloomberg News, August 30, 2010

Bribery used to oil the wheels of air cargo service
Emirates 24/7, August 31, 2010

HC refuses to drop bribery charges against Bangaru Laxman
Times of India, August 31, 2010

Ghana President Says Country Faces `Vampires’ Looking to Steal Oil Wealth
Bloomberg News, August 31, 2010

Photo by Spc. Laura Owen, U.S. Army | Photo Courtesy of U.S. Army

When you first hear about it, the trafficking of human organs sounds like a gruesome black-market practice, carried out by the shadowy characters of the global criminal underworld. And you wouldn’t be entirely wrong. Just Google “organ trafficking” and you’ll see hundreds of pictures of people holding up their shirts to reveal long scars from where their kidneys have been removed. None of the people photographed look like your college roommate or the captain of the tennis team. None of them are reclined in a plush Manhattan parlor or smiling as they climb into the back of a town car. They’re usually sitting on the dirty city streets of developing countries or lying on hospital cots looking undernourished and desperate. Add to this image the unconfirmed reports of people being kidnapped for the express purpose of organ removal and the whole business just seems disgusting and hellish.

But what if your son WAS the captain of the tennis team? And what if you were told that without a kidney transplant he only had a few months left to live? And—by the way—he’ll join thousands of people on a waiting list (Good luck!). OR … for $100,000 someone offers to get you a kidney and perform the surgery and the whole thing can be taken care of in two weeks.  Not only that: the donor is an Egyptian man who has come upon hard times and is eager to make $5,000 so he can provide for his family.

The fact is that the selling of human organs is banned in almost every country around the world, despite the fact that the demand for transplant organs vastly exceeds supply. It is also true that the only country that doesn’t suffer from organ shortage is also the only country that doesn’t ban organ sales: Iran.

Sure the whole thing seems mighty unsavory. And in its current black-market form there is a lot of space for the exploitation of the desperate and impoverished. However, isn’t there a strong “greater good” argument to be made for allowing organ sales to occur in some sort of regulated way? It seems to work in Iran, after all, and regulating it could ensure that the donors are given a fair price, proper medical attention, and is made aware of the medical risks that she or he is taking.

While I don’t endorse the immediate legalization of the organ trade, I do believe it’s time to have a serious discussion about the issue.

If illicit markets exist to meet demand, then we don’t have many choices when it comes to curtailing organ-trafficking. The black market organ trade will continue to flourish as long as waiting lists are 100,000 strong and the cost of waiting could be the lost-life of a loved one. It would be a different story if we were talking about black market iPods where the cost of not having one is… simply not having an iPod, but too many good people would willingly break this law to save the life of their son or daughter.

Regardless, I hope this is never a decision that I have to make.