On Tax, Transparency, and What Should Come Next
June 1st, 2021
June 1st, 2021
The FTC is proud to share this post from FTC Director Matti Kohonen, on taxes and personal income—and why much more transparency is needed.
Last month was Tax Day in America, and this is how much I paid – information that I believe should be made public.
I’m the Executive Director of a US-hosted non-profit called the Financial Transparency Coalition, and I paid $18,618.51 in income tax in 2020 (it was £13,126.80 GBP, as I’m a UK taxpayer). I paid no capital income or wealth taxes in the calendar year of 2020. Yet I probably paid more tax than some millionaires paid in the US, with researchers like Gabriel Zucman discovering that the richest 1% pay little tax both in the US and around the world. Indeed, it’s more than what Donald Trump paid the year he became president.
While it might be surprising to learn about my personal tax info, I think that information like this should be declared by everyone in a leadership position similar to where I sit, and that those in office should also submit their entire tax return for public scrutiny. I’d call it person-by-person tax reporting. Much as we ask corporations to reveal their tax details via public country-by-country reporting, this kind of person-by-person tax reporting could be made public by the tax authority in every country where a person is liable to pay tax.
But simply publishing personal tax information wouldn’t be all. More data is needed to check if the amount declared is correct, including things like public ownership, corporate filings, land registries, and shareholder and trust ownership filings. All of this information would get us closer to holding the wealthy and large corporations accountable for taxes they should pay, and catch kleptocrats for wealth that they can’t explain.
In order to figure out the accuracy of this taxation information, it would be important to report it publicly – say, via a portal on the IRS website in the US, or the HMRC website in the UK, where I live.
In fact, this information is already public in Finland (where I was born), as on the Finnish tax day in November, the previous year’s tax payments are made public. For instance, based on publicly available information in the Finnish press, we can find that in 2019 Nokia’s CEO, Rajeev Suri, paid €447,719 in taxes, with an income of €1,041,748 – good for a tax rate of 43%. A share of his income was in capital gains (€232,676), which was slightly lower (at 34%) than his overall tax rate on income. The highest income earner in Finland in 2019 was Petteri Järvilehto – a software engineer and founder of a game studio called Seriously – who had a capital income of €30.3 million, on which he paid a total of €10.3 million in taxes, good for a personal tax rate of about 34%.
While it might be surprising to learn about my personal tax info, I think that information like this should be declared by everyone in a leadership position like mine.
One notable person who has commented on the Nordic openness of tax payments is the former US Ambassador, Bruce Oreck, who paid €55,711 in taxes in 2019, on an income of €136,215, with a tax rate of 40.9%. Oreck, who decided to stay in the country after his tenure as the Obama-era ambassador, is known to be a shareholder of a former railway depot called the Train Factory, which has turned into a cultural and shopping venue. (Oreck also lectures at Helsinki’s Aalto University.) He would need to file a beneficial ownership declaration in the Finnish BO registry if he owns more than 25% of the company’s shares, and his shareholdings would be fully public if his company was listed in the stock exchange for the 100 top shareholders.
Of course, such transparency doesn’t highlight all of the specific economic benefits individuals may enjoy, and you’d need to work out a bit more about what indirect benefits you get in each country to get a realistic picture. The UK offers universal healthcare, and Finland includes great universal childcare almost free of charge (while the US has neither). These have a big impact on how far your take-home pay (and taxes paid) get you in your daily life. Living costs also matter, most notably housing – and greater access to publicly-owned and -supported housing for those with lower incomes also makes housing more affordable.
But back to my taxes. You may want to work out some of the reasons why I paid that much tax, or even guess what my salary might be in the year 2020. For income tax, you can use a take-home pay calculator, or check my job title on GlassDoor or job search websites for what my position might earn. (Be careful checking LinkedIn, as I was the Economic Justice Policy Lead at Christian Aid for all of 2020.) Based on a bit of investigation you can find that I probably had a salary of $70,000 (£50,000) for this level of taxes, social security contributions, and statutory pensions paid.
Now, that’s not entirely accurate, as I happened to also be on paternity leave for a short period in 2020 (with tax benefits and statutory pay). You’d have to check my social media feeds to find those out, in case they are public. I might have also made charitable gifts that are tax-deductible, some of which are public. If I donated to a political party or a political campaign, that should be public above a certain threshold.
I am proud to pay my taxes, as I know that it’s what enables me to live in a democratic and free society, and it enables public services to be available for all, especially those who need them the most.
Working out if I had any capital income is much harder, as there’s both a tax-free capital income tax threshold of $17,400 (£12,300) in the UK for this tax year, and there are also tax-free savings accounts (called Individual Savings Accounts, or ISA) that I could top up by £20,000 ($28,300) in each tax year, similar to the 401(k) tax-free pensions savings threshold in the US. Capital gains – if they’re not drawn out of the ISA or 401k – are considered tax-exempt. You could conclude (correctly) that the reason I didn’t pay capital gains tax is that I didn’t meet the income thresholds on my savings account or my pensions plans.
Of course, the very wealthy have a number of tools still available to minimize their own tax burdens if they have maxed out all tax-free or tax-deductible savings and pensions plans. They could, for instance, call an accountant or a lawyer, who might advise you on things like tax shelters, such as complex Luxembourg, Bermuda, Cayman Islands, or Isle of Man structures where you’re not really personally earning capital income in legal terms, as you own only a share of a fund or a trust. But it’s not only the traditional offshore havens now offering these services. The state of South Dakota (a state of a population of 880,000) has at last check $355.2 billion in trust companies alone, a mini-Switzerland in the American Midwest (though still far behind the trillions held in Swiss accounts). To dodge further capital gains tax, you could move to Texas, which may have been the motive behind Elon Musk’s change in residence to Texas.
These schemes have been going on for years. In order to find out exactly how they operate, we need beneficial ownership data on company shareholders, trust beneficiaries, settlors and trustees, and other legal entities where wealth can be held.
For me – and for almost all of us outside the offshore world – finding information about my links with legal entities is significantly easier. If, for instance, you go to the UK’s Companies House registry, you’ll find that I am a company director for a company called Stamp Out Poverty. Since it’s a non-profit organisation regulated by the UK Charity Commission, it’s impossible for me to have received capital income from it. If it was a for-profit organisation, you’d want to check the UK Beneficial Owner registry – which lists shareholders of over 25% of shares – to see if I was a shareholder. To be sure, these registries are far beyond what most other jurisdictions have in terms of transparency; for instance, the US passed the Corporate Transparency Act in December 2020 to declare significant shareholders to the authorities, but it’s not yet a public registry. Other issues include the fact that many companies had no single shareholder of above the 25% threshold – unlike Ghana’s, where the threshold is set at 5% ownership.
You could also search the land registry in the UK. It’s not free, but if you find my address on Companies House, you could check the title to the address that I declare there. It’s likely to be my home, jointly owned with my wife. You can consult it for free at the Land Registry offices, while commercial and overseas owners were recently released for free access by the land registry. Searches in the land registry by researchers show that £170 billion of property is held in offshore tax havens – but even that is likely dwarfed by countries like the US, where the figure is almost certainly staggeringly higher.
The public loves information about income, wealth, and capital gains – and it’s not just for naming and shaming celebrities, sports personalities, TV hosts or Instagram influencers, or how much your boss or neighbour makes (even if that’s great material for tabloid media). It has a bigger public purpose to have an educated conversation about wealth, income and capital income in our society – one that America can’t have in an educated fashion, but one that Finland can have based on greater public data, and one that the UK is getting closer to having based on its public beneficial ownership registries.
I think it’s time to have a grown-up conversation about income and wealth, rather than the smoke-and-mirrors that we have to deal with at the moment. Financial and tax transparency is a public good, that then enables democracies and our public services to function. I am proud to pay my taxes, as I know that it’s what enables me to live in a democratic and free society, and it enables public services to be available for all, especially those who need them the most.