Offshore tax havens are a bigger factor in the world economy that I ever dreamed. Financial assets held offshore, beyond the reach of effective taxation, are about one-third of the world’s total financial wealth. Over half of all world trade passes through tax havens. Without tax havens, there might not be a world financial crisis.
Such are the conclusions of a new report completed last month for an organization called the Tax Justice Network by a team of researchers headed by James S. Henry, former chief economist for McKinsey & Co., a respected business consulting firm. Among the facts and figures in the report:
- An estimated $21 trillion to $32 trillion were held in secret “offshore” tax havens in 2010. To give an idea of how much that is, the value of the entire U.S. output of goods and services (gross domestic product) in that year was $15 trillion.
- Some 139 non-rich countries have a combined debt of $4.1 trillion. But if their citizens’ foreign reserves and secret bank accounts where brought home, those countries would have net assets of $10.1 trillion to $13.1 trillion.
- If assets held in tax havens, beyond the reach of effective taxation, generated investment income at a 3 percent rate, and if that income were taxed at a 30 percent rate, it would generate $190 billion to $280 billion in tax revenue—about twice as much as the world’s wealthy countries contribute in foreign development aid.
This chart shows where the world’s billionaires put their money. More than 43 percent of their wealth is hidden in tax havens. Among the small elite group with more than $30 billion each, nearly 60 percent is invisible.
The above chart shows the 20 countries with the greatest capital outflows. These 20 countries account for more than 80 percent of the money flowing out of the 139 non-rich countries. Where does the money go? A lot of it comes to the United States, where our laws exempt non-resident aliens from U.S. taxes and permit them to hide their income from their home governments.
Some of the people who use tax havens may be honest business owners who fear that their hard-earned wealth will be confiscated by a corrupt dictator. But James S. Henry thinks most of the money in tax havens comes from the corrupt dictators themselves, along with criminals, money launderers and ultra-rich people who are allergic to paying taxes. Mitt Romney’s Bain Capital made extensive use of offshore tax havens. It would be interesting to know the names of the investors in Bain Capital’s various deals.
In the Real News Network interview shown at the top of this post, James S. Henry told interviewer Paul Jay that Treasury Secretary Timothy Geithner provided information to the Canadian government on U.S. bank accounts of Canadian citizens. When the Mexican government asked for the same information, Geithner ignored them. Our government supposedly is waging a War on Drugs, but our laws enable drug lords in Mexico and other countries to stash invisible wealth in U.S. banks.
The “offshore” tax havens are not just small and obscure nations such as Panama, Liechtenstein and the Cayman Islands. The biggest tax havens are the United States (not for our own citizens, of course), the United Kingdom and Switzerland. We are part of the problem, not part of the solution.
Click on The Price of Offshore Revisited press release PDF for the Tax Justice
Network’s press release and summary of the report.
Click on The Price of Offshore Revisited: New Estimates of “Missing” Global Private Wealth, Income, Inequality and Lost Taxes PDF for the full report.
Click on Tax Justice Network for that organization’s home page.
Click on Exhaustive Study Finds Global Elite Hiding Up to $32 Trillion In Offshore Accounts for the transcript of an interview of James S. Henry by Amy Goodman on Democracy Now.
Click on Wealth doesn’t trickle down, it just floods offshore for a report in The Guardian.
The U.S. Congress in 2010 enacted the Foreign Account Tax Compliance Act, which is intended to track down Americans who use tax havens. Starting in 2014, foreign financial institutions will be required to report the names and addresses of Americans with accounts of $50,000 or more, plus their largest account balances and debits and credits. Institutions that fail to comply will be hit with a 30 percent tax in any transaction involving U.S. stocks and bonds. Businesses with more than 10 percent U.S. ownership will be required to disclose the names of their U.S. partners. And from 2010 on, Americans and U.S. residents have been required to fill out a special form on their foreign income. Some foreign banks have turned down U.S. business rather than bother with the law’s requirements.
It will be interesting to see how this works out. I don’t think the tax compliance problem can be solved by the United States or any other country acting alone, but a good start would be for the United States to provide the same information to foreign countries who ask. So long as our government wants to make the USA a tax haven, I don’t think it will get very far trying to control foreign tax havens.