200 pages | 1 halftone, 8 line drawings, 2 tables | 6 x 9 | © 2015We are well aware of the rise of the 1% as the rapid growth of economic inequality has put the majority of the world’s wealth in the pockets of fewer and fewer. One much-discussed solution to this imbalance is to significantly increase the rate at which we tax the wealthy. But with an enormous… Read More
BERKELEY – Tax havens are by design secretive and opaque. The entire point of their existence is to conceal the wealth hidden within them. And a new book by Gabriel Zucman, The Hidden Wealth of Nations: The Scourge of Tax Havens, reveals, as never before, the extent of their role in the global economy.
Zucman examines discrepancies in international accounts to provide the most precise and reliable figures we are likely to obtain about the amount of money stored in tax havens. He estimates that 8% of the world’s financial wealth – some $7.6 trillion – is hidden in places like Switzerland, Bermuda, the Cayman Islands, Singapore, and Luxembourg. That is more wealth than is owned by the poorer half of the world’s 7.4 billion people.
This figure has important consequences, as it represents money that should be in the tax base. If rich countries in Europe and North American cannot effectively tax the rich, they have little chance of preserving social democracy and offsetting the surge in inequality that has recently afflicted their economies. Similarly, emerging economies have little hope of putting in place progressive tax systems if they cannot find their plutocrats’ wealth.
To be sure, Zucman’s relies on the unproven assumption that there are important data to be found in what is usually classified as “errors and omissions.” But there is good reason to believe his figures are in the ballpark. Switzerland’s central bank reports that foreigners hold $2.4 trillion in Swiss banks alone. And while Switzerland may be the world’s oldest tax haven, it is not the most advantageous place to park one’s money.
One reason why tax havens are difficult to eliminate is that not everyone in government necessarily views them in the same way. Wherever corruption is endemic – say, Russia, China, and much of the Middle East – many officials may view tax havens not as a revenue problem, but as an attractive part of the job.
Even in the United States, policies have all too often been deliberately designed to enable – rather than to discourage – tax avoidance via tax havens. One former senior official in US President George W. Bush’s administration put it this way, “it is, ultimately, about freedom.” The resulting lax enforcement accounts for a large portion of the one-third decline in the effective reach of the US corporate income tax since the late 1990s.
When it comes to tax havens, it is fashionable to say that nothing can be done. National sovereignty is deemed too important to be subordinated to international tax laws. And the day’s plutocrats are seen as having sway over elected politicians and civil servants. More than a century ago, then-Governor Woodrow Wilson of New Jersey convinced the state legislature to get out of the corporate-tax-haven business. As soon as it did, America’s corporations picked up their legal headquarters and moved next door to Delaware.