A new study by the Tax Justice Network “The Price of Offshore Revisited” shines a light on the size of the global offshore economy—the amount of cash hidden in tax-haven countries.
So, how much money are we talking about?
You might guess a very large figure, say in the hundreds of billions, maybe a trillion, but you would be wrong. The Tax Justice Network study reports it’s actually 21 trillion dollars, and that’s the low estimate. There could be as much as 31 trillion hidden in secret tax havens. Of course, this figure is mindboggling. To give you a reference point, 21 trillion dollars is as much as the U.S. and Japanese GDP combined (the largest and third largest economies in the world).
On the other hand, what IS trickling down among ordinary working people is the realization that we’ve been had. Every year, we dutifully pay our taxes, but, somehow, the very wealthy are exempt. How did this happen? Thanks to the Senators and Congressmen who allow lobbyists to write tax law on behalf of their clients, the insanely wealthy pay very little or no taxes. It’s all a win-win. Our elected officials and the very wealthy agree—taxes are for little people.
Tax avoidance and the global economic crisis
Tax avoidance and the concentration of wealth in the hands of a few (with the generous assistance of governments and the banking industry), is a global problem. It is at the heart of why the United States, the European Union, and other economies across the world are struggling to provide decent living conditions and services for 99% of their citizens. The Tax Justice Network report exposes a major reason why the economies of developed countries are having difficulty recovering from the 2008 meltdown. Basically, the assets of the countries that are struggling right now, including the United States, are being extracted and held offshore by a small number of wealthy individuals rather than being reinvested in their respective economies. Meanwhile, governments strapped for money are forcing ordinary citizens to shoulder the debt through unfair taxation and harsh austerity measures. Essential services such as health care and education are being cut to make sure the wealthy never have to pay taxes. In the United States, the so-called “Ryan Budget” is a plan to protect and enrich the wealthy at the expense of everyone else.
Tax avoidance and the funneling of money upwards to a wealthy elite has led to an alarming growth in economic inequality. The poor have gotten poorer and the middle classes, stagnant for decades, are falling behind. According to John Christensen of the Tax Justice Network, “inequality is much worse than official statistics show.” In many developed countries around the world, the hope of a better economic future is disappearing.
The Guardian reports on comments by the study’s lead researcher James Henry:
According to Henry’s calculations, £6.3tn [$9.8tn} of assets is owned by only 92,000 people, or 0.001% of the world’s population – a tiny class of the mega-rich who have more in common with each other than those at the bottom of the income scale in their own societies.
Here at home, politicians who rely on corporate and multi-millionaire and billionaire largesse, continue to pretend, in the face of absolute evidence to the contrary, that letting the wealthy take exorbitant compensation, bleed companies dry and offshore the assets to avoid paying taxes somehow creates wealth for everyone else. This myth is being pushed by wealthy Republican presidential candidate Mitt Romney who himself made money by extracting wealth from companies, and off-shoring the spoils to avoid paying taxes. Absurdly, Mr. Romney, who is seeking the presidency of the United States, refuses to release his tax information to the media and voters.
Banks and other professional enablers
The wealthy, not only pay off politicians to write favorable tax law, but they rely on subsidiaries of private banks., such as Goldman Sachs, USB and Credit Suisse to help them shelter income from the IRS.. Again, from the Guardian:
Their wealth is, as Henry puts it, “protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy”. According to Henry’s research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4tn [$6.2tn] in 2010, a sharp rise from £1.5tn [$2.3tn] five years earlier.
According to the IRS taxpayers who exploit secrecy laws of offshore jurisdictions in an attempt to conceal assets and income subject to tax by the United States are breaking the law. Some different types of entities and schemes being used by tax avoiders are:
1. Foreign trusts
2. Foreign corporations
3. Foreign (offshore) partnerships, LLCs and LLPs
4. International Business Companies (IBCs)
5. Offshore private annuities
6. Private banking (U.S. and offshore)
7. Personal investment companies
8. Captive insurance companies
9. Offshore bank accounts and credit cards
10. Related-party loans
There are a number of companion schemes for repatriating that money back in to the Unites States without paying taxes. In January of this year, the IRS estimated that wealthy tax avoiders cost the country at least $100bn per year in lost tax revenue.
What needs to happen
Nations around the world cannot afford to let such massive amounts of money slip into tax havens when they are struggling to reduce deficits and provide essential services. Tax loopholes created by governments and used by multinational corporations and the super-rich have to be eliminated. For that to happen, somebody has to stand up and call out the absurdity of this situation, that globally, $21tn in income is going untaxed.
Given the fact that ordinary citizens are becoming more aware that the tax code is corrupt and unfair, and that very wealthy people like Mitt Romney can avoid paying any taxes at all, the chances of Congress enacting tax reform may not be as remote as it once seemed. That is, if Democrats make gains in the House and the Senate, and President Obama is reelected. Mitt Romney, a poster child for the excesses and arrogance of the super rich, is offering a gift to Democrats by shining a bright light on the issue of secret tax havens. Barack Obama has a great opportunity to make this a major campaign issue by not only calling for tax fairness, but also an end to off shore tax havens and other tax avoidance loopholes. I hope he uses it.