The Welfare State, Taxation and Tax Privileges

In Sociology, inequality is discussed under categories of labor-capital relations, social closure, types of capital, dominance, capabilities, in a vast number of empirical studies and much more. The role of taxes and public finance is often regarded as subsidiary. As historical studies show, the extension of public finance by the implementation of collective assurance and tax systems paralleled the emergence of modern welfare states.

Using the example of post war Germany, Wolfgang Streeck distinguishes the period of the “tax state”, the “debt state” and the “consolidation state”. The welfare state coincides with the tax state and is increasingly questioned. Susan Strange emphasizes the role of international capital markets and transnational companies, allowing international actors to misuse the scope of action in overlapping tax systems to avoid taxes (Piciotto 1999). Up to recently developing countries lose high amounts of capital because of tax avoidance and evasion. On average, multinational companies pay increasingly lower taxes than the official rates, even in rich countries. As corporate taxation is related to other forms of taxation, especially of capital, financial structures are expected to change.

Although tax avoidance and evasion are often framed in national categories and jurisdictions, structures of the offshore economy only partly go back to national interests. From the beginning of the extension of tax systems in the 19^th century, political authorities designed tax systems containing loopholes for the benefit of elites. Tax systems – either on the regional, national or international level – reflect power relation in the time of their installation, namely power within a society and between states. The paper takes out crucial practices of offshore finance, e.g. Luxembourg’s tax rulings, the European banking secrecy, Delawares company taxation, to trace flows of capital, the role of elites and consequences for public finance and the welfare state in typical cases.