Eliminating Off Shore Havens Could Pay Off Entire U.S. Debt
James Henry used national accounts to assemble estimates of the cumulative capital flight from more than 130 countries over almost 40 years, and compared that data with the returns of the wealthy who avoided paying their taxes. He released a report from the Tax Justice Network which suggests that the super-wealthy have exploited gaps in cross-border tax rules to accumulate 21-32 trillion dollars of wealth in offshore in tax havens. That figure represents about a third of all global financial assets. The report notes that most countries have laws that make the havens legal or have tax loopholes or laws that allow the wealthy to pay less.
According to the Tax Haven Institute,
“The corrupted international infrastructure allowing élites to escape tax and regulation is also widely used by criminals and terrorists. As a result, tax havens are heightening inequality and poverty, corroding democracy, distorting markets, undermining financial and other regulation and curbing economic growth, accelerating capital flight from poor countries, and promoting corruption and crime around the world.”
The report estimates that ten million individuals hold assets offshore but almost half of the minimum estimate of 21 trillion dollars is owned by only 92,000 people. The report admits its estimate is conservative because it doesn’t include non-financial assets such as art, yachts and real estate. The report shows that most countries in national debt could erase some of the debt by simply changing their laws to make all off-shore tax havens illegal and to monitor financial activity to prevent large sums of money from leaving the country unaccounted for. Former Egyptian leader Hosni Mubarak and his family illustrate the problem. Even though it is well known that the family stole billions that contributed to food shortages in Egypt, officials have yet to find most of the money.
In addition, a 2007 World Bank report found that criminal tax evasion results in losses of at least 1.6 trillion dollars per year.
The Tax Justice Network also said
“… the élites involved remove themselves from carrying the costs involved in maintaining healthy societies; and second, they remain actively involved in the democratic (or other) processes of government, notably in the form of lobbying. Both thrive on secrecy; both have the same effect of worsening poverty, and both corrode people’s faith in the integrity of the political and economic structures that govern their societies.”
Just how wealthy are these “élites”? According to a Credit Sussse global wealth report. The U.S. has the lions share of the wealth with 32% of the worlds billionaires and 36% of the 2,700 people with over hundred million in assets. The latter statistic includes Presidential candidate Mitt Romney.
The Tax Justice Institute issued a second report, which also indicates that the tax evaders are threatening the economies of the world. The OECD has issued a similar report. To put the extent of the inequality in human terms, the second report(pdf) points out that the top six wealthiest individuals from the Walton family of WalMart fame, have the same amount of wealth as the bottom thirty percent of all U.S. citizens.
James Henry, points out that if his estimates are correct, government estimates of national debt and wealth distribution are completely inaccurate. Although U.S. Democrats are running a campaign replete with statistics from surveys of household income that suggest the gap between the rich and poor is out of control, Henry believes the problem is far worse than the government statistics suggest and his report cites many experts who agree with him
It’s not just U.S. Democrats that believe wealth inequality if threatening the world’s economies. The International Monetary Fund and The Organisation for Economic Co-operation and Development have reached similar conclusions. These reports suggest that wealth inequality is caused by lower taxes for the rich and the new global economy which reduces wages for unskilled labor due to competition from China, India and other rapidly developing countries. The increased global economy has created huge profits for the financial services industry.
It has also made the wealthiest wealthier. Using US income survey data data from 1943 to 2010, the top .001% of American’s taxable revenue amounts to 3.3% of all income in the U.S. 2005 was the first year that the super-wealthy broke the 3% mark. Nineteen-ninty-two was the first year they made over 2%. Nineteen-eighty-six was the first year they made over 1%. In comparison, the congressional research service reported that the bottom 50% of American Households had 3% of the countries wealth in 1989 and only 1.1% in 2010.
The British have proposed a solution. According to the Guardian, UK residents with undeclared assets in Swiss banks can make a payment of 21%-41% on their total assets and retain their anonymity. The Swiss will then levy a withholding tax on any future investment income and capital gains banked in Switzerland at 27%-48%. That compares with the top 45% rate for the British. Of course, tax evasion usually involves much stiffer penalties but this still could be an enormous source of additional revenue for Britain’s economy. Most of Europe is considering similar solutions.
The U.S. now has a treaty with the Swiss which makes it easier to find US residents with undeclared Swiss bank accounts. Recently, the Department of Justice has charged one Swiss bank and seized 16 billion in assets for with helping U.S.tax evaders hide more than $1.2 billion. The Department is also investigating more Swiss banks.
In 2008, Raoul Weil, a senior executive for UBS was charged with a 20 billion dollar tax scheme. In March of this year, UBS handed over details of about 4,450 UBS bank accounts to U.S. authorities and agreed to pay a penalty of $780 million. The US Department of Justice states its investigating over 150 individuals for tax evasion.
In addition, the IRS said 30,000 U.S. taxpayers with offshore accounts avoided prosecution since 2009 by entering a limited amnesty program and paying back taxes and making a statement about who helped them hide their money. In June, the IRS reported that $5 billion in back taxes were recovered, interest and penalties from 33,000 voluntary disclosures made under the first two programs. In addition, another 1,500 disclosures have been made under the new program announced in January.
This year, the U.S. has turned its eye toward British Banks. The U.S. could probably recoup its losses by simply demanding the movie rights to the jaw-dropping HSBC money-laundering scandal. The US Senate Permanent Investigation Committee has accused the bank of "operating a money-laundering conduit for “blacklisted banks, drug cartels, terrorists and pariah states” that laundered 15 billion in bulk cash transactions from such places as a Saudi bank linked to al-Qaida, Iran, Syria, Mexico and Russia between 2002 and mid-2009. The bank has said it has set aside $700 million to help pay fines to resolve the investigation.
The Libor scandal involved bankers manipulating the London interbank offered rate for years in order to collude with other financial institutions who would profit from being better able to predict the interest rates. According to Money, this rate set the cost of borrowing for most of the world that are the basis for as much as $500 trillion of outstanding debt globally. Thus far, the fines have been only $340 million. However, the Senate committee believes that other large financial institutions were involved in the U.S. and Europe. One estimate suggests that the total penalty may be 35 billion
However, according to Mr. Henry the enforcement efforts thus far are just a drop in the bucket because most of the tax havens are legal.
The current U.S. debt is nearly 16 trillion dollars. The U.S. has yet to decide if it will pass legislation to stop the legal tax havens that Mr. Henry believes are the biggest part of the problem. That is, the U.S. could easily pay off its debt by raising its income taxes on investment income back to the 30% level for the wealthy or the U.S. could go the other way as Mitt Romney and Paul Ryan have proposed and lower the rate to 0%. The report argues that addressing the problem of tax havens would likely turn the U.S. and European Union into creditor nations.
The 60 minutes report (see the video above) focuses on another tax problem where U.S. companies movie to other countries in order to pay lower taxes. The report suggests that the U.S. should lower corporate tax rates. They point out that companies are moving to Ireland. However, the report didn’t mention that the economy in Ireland may still be in recession and the economy in Northern Ireland is in ruins.
The 60 minutes report notes, the current administration has pointed out that in the past the Irish approach hasn’t create jobs. Althougn not mentioned in the video, the unemployment rate in Ireland is 14.8 percent which is the fifth highest rate in the European Union. Despite a bailout some experts are concerned that Ireland will slip back into recession.)
by Todd Miller
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