For over a century, the income tax has been the mainstay of the modern fiscal state, and has underpinned a massive growth in collective spending, especially after it became a mass tax in developed capitalist countries, although in poorer countries tax capacity has been restricted which has weakened their governance. However, the income tax has been damaged by the loss of social solidarity with the growth of income inequalities, and the increasing difficulty of taxing income from capital. The opportunities for evasion or avoidance of taxes on capital income have increased, especially due to financial liberalisation, fuelling an explosive growth of `offshore� finance, which takes advantage of the weaknesses of the system of international tax coordination which developed historically. Data in the US and UK show that the vast majority of the largest companies, especially transnational corporations (TNCs) pay little or no tax on profits, and wealthy individuals pay a much lower proportion of their income in tax than do the poor. A radical reform of international tax cooperation is essential to end the abuses of tax havens and offshore finance, and restore tax capacity to national states.