Before I get into the meat of this post, I want to make it clear that just because I point out the following doesn’t mean I like tax and think we need more of it. Rather, there are two main points I want to get across.
1) Oligarchs create tax loopholes for themselves. Oligarchs control the politicians who write legislation to suit oligarch needs. Whenever you hear politicians talk about taxing the wealthy they mean the suckers in the top 10% who are not politically-connected oligarchs. The super rich will never be touched by such legislation. They will always have loopholes available to them. This is why the statement “we need higher taxes on the rich” is basically a bullshit political talking point.
2) You’ll notice much of the wealth that has been moved offshore originated from dictators who bled their home countries dry of resources as their populations starved. Many of these dictators had the full support of the U.S. government throughout their decades in power, during which time they plundered and destroyed entire nations.
Just remember that the next time you hear a super rich person call for more taxes. They never mean on themselves. Second, understand that the root of the problem is systemic. There are no easy fixes, the entire system needs a total reboot.
From the Guardian:
The world’s super-rich have taken advantage of lax tax rules to siphon off at least $21 trillion, and possibly as much as $32tn, from their home countries and hide it abroad – a sum larger than the entire American economy.
James Henry, a former chief economist at consultancy McKinsey and an expert on tax havens, has conducted groundbreaking new research for the Tax Justice Network campaign group – sifting through data from the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and private sector analysts to construct an alarming picture that shows capital flooding out of countries across the world and disappearing into the cracks in the financial system.
Using the BIS’s measure of “offshore deposits” – cash held outside the depositor’s home country – and scaling it up according to the proportion of their portfolio large investors usually hold in cash, he estimates that between $21tn (£13tn) and $32tn (£20tn) in financial assets has been hidden from the world’s tax authorities.
“These estimates reveal a staggering failure,” says John Christensen of the Tax Justice Network. “Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people.
“This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich.”
In total, 10 million individuals around the world hold assets offshore, according to Henry’s analysis; but almost half of the minimum estimate of $21tn – $9.8tn – is owned by just 92,000 people. And that does not include the non-financial assets – art, yachts, mansions in Kensington – that many of the world’s movers and shakers like to use as homes for their immense riches.
Since this doesn’t include non-financial assets, you can be sure the actual number is multiples higher. We have all seen how oligarchs worldwide are using houses and other tangible assets as overseas bank accounts. Recall:
In many cases, the total worth of these assets far exceeds the value of the overseas debts of the countries they came from.
The struggles of the authorities in Egypt to recover the vast sums hidden abroad by Hosni Mubarak, his family and other cronies during his many years in power have provided a striking recent example of the fact that kleptocratic rulers can use their time to amass immense fortunes while many of their citizens are trapped in poverty.
Mubarak, a close ally of the U.S. government all the way until he was toppled.
The world’s poorest countries, particularly in sub-Saharan Africa, have fought long and hard in recent years to receive debt forgiveness from the international community; but this research suggests that in many cases, if they had been able to draw their richest citizens into the tax net, they could have avoided being dragged into indebtedness in the first place. Oil-rich Nigeria has seen more than $300bn spirited away since 1970, for example, while Ivory Coast has lost $141bn.
Assuming that super-rich investors earn a relatively modest 3% a year on their $21tn, taxing that vast wall of money at 30% would generate a very useful $189bn a year – more than rich economies spend on aid to the rest of the world.
The sheer scale of the hidden assets held by the super-rich also suggests that standard measures of inequality, which tend to rely on surveys of household income or wealth in individual countries, radically underestimate the true gap between rich and poor.
Milorad Kovacevic, chief statistician of the UN Development Programme’s Human Development Report, says both the very wealthy and the very poor tend to be excluded from mainstream calculations of inequality.
“People that are in charge of measuring inequality based on survey data know that the both ends of the distribution are underrepresented – or, even better, misrepresented,” he says.
What we need is fundamental systemic change. This means truly restructuring the entire financial system, from Central Bank power, to Wall Street funding both political parties, to lengthy jail sentences for financial criminals. If we do that, oligarchs won’t be able to parasitically amass billions so easily in the first place.