Updated Tax Evasion Figures.
Lifestyles of the Rich and Fraudulent.
Summary: An explosive new report from the Bureau of Economic Research just landed, and it seems that no one in the media or political class cares. The report pulls together findings from new domestic regulations related to offshore banking and revelations from a treasure trove of documents leaked in the Pandora Papers. The Bureau estimates that billionaires are now holding nearly $4 trillion in assets in offshore accounts, an increase of nearly $1 trillion since the last estimate was published. And it’s likely a good deal more than this.
The uber-wealthy on this planet have truly pulled off a grift for the ages. But U.S. grifters are in a league of their own. Somehow, the top 10% of the 1% have managed to convince average citizens that they are a protected class. The job creators. Individual engines of the capitalist system. Rare birds of prey that must be coddled and preserved like an endangered species.
There’s no reason to rehash how the upper echelon of the billionaire class has amassed more wealth than the rest of the inhabitants of the planet. But a quick recap of the numbers couldn’t hurt. Oxfam released a report at the beginning of 2023 highlighting the extraordinary gains made among the wealthiest earthlings. Let’s see how they did.
Oxfam reports that:
“During the pandemic and cost-of-living crisis years since 2020, $26 trillion (63 percent) of all new wealth was captured by the richest 1 percent, while $16 trillion (37 percent) went to the rest of the world put together. A billionaire gained roughly $1.7 million for every $1 of new global wealth earned by a person in the bottom 90 percent. Billionaire fortunes have increased by $2.7 billion a day.”
Wow. Well, well, well. $2.7 billion per day. Truly an astonishing achievement. Making this kind of money is one thing. Hiding it is another thing entirely. So let’s talk about it.
Chapter One: The Magnitude of the Problem.
We’re going to focus on the U.S. today, but it’s only fair to acknowledge that billionaire tax cheats are everywhere. Ours just happen to be the best at it.
The reason we know about some specific people is the result of some miraculous reporting and whistleblowers. One specific data dump, known as the Pandora Papers, for example, revealed that major political leaders from the following countries were all hiding money in offshore accounts.
Angola, Sri Lanka, Tunisia, Bulgaria, Serbia, Pakistan, Brazil.
China, Israel, Qatar, Panama, Peru, Colombia, Hong Kong.
Russia…So many Russians. Morocco, Qatar, Chad, Lebanon.
Kenya, Dominican Republic, Czech Republic, Gabon, Montenegro.
And western favorites Volodymyr Zelenskyy and former British prime minister Tony Blair!
Did I mention Russia? There are soo many Russians on this list.
Let’s start with some basics before we get into leaks and updated reporting that uncovers the extent of the funds that are being held in offshore accounts. First off, it is not illegal to have an offshore account. There are citizens of other countries who reside in the United States who maintain accounts in other countries. There are U.S. citizens who maintain accounts in other countries. There are corporations that are based in other countries with U.S. shareholders. On the face of it, these are not illegal accounts. What’s illegal is hiding them, or not revealing ownership.
If you’re a U.S. citizen with a foreign bank account holding more than $10,000, you must declare these to the IRS and on special disclosure forms. There is something called the The Foreign Account Tax Compliance Act (FATCA), which we’re going to talk a lot about, that requires the foreign entities to report the identity of the account holders to the IRS. Failure to do so can result in civil and criminal charges.
It’s a good time to examine the world of offshore tax evasion. For one, it’s tax season and average Americans just filed their returns, or their extensions, and have just figured out whether they’re getting money back or owe the government some scratch. Another reason is that the National Bureau of Economic Research just published a report titled “The Offshore World According to FATCA: New Evidence on the Foreign Wealth of U.S. Households.” Recall, in prior essays, we quoted old research that showed U.S. citizens and corporations were hiding nearly $3 trillion offshore. Well, if you can believe it, that figure has gone up.
Wait a second. Didn’t Donald Trump offer the ability to repatriate these dollars at favorable rates?
He did indeed. And it looks like relatively few people took him up on this generous offer. In fact, the report estimates that, “Around 1.5 million U.S. taxpayers held foreign financial accounts with aggregate assets of around $4 trillion in tax year 2018. By comparison, the total financial assets of U.S. households totaled roughly $80 trillion, according to official financial accounts.” So, essentially, a half of 1% of the country is holding 5% of the nation’s wealth offshore.
First off, let me say that the reporting on this is herculean. And the figures may be understated because the data are from 2018. The authors allow for a margin of error, saying that some institutions might be less than fully compliant with reporting figures to FATCA. And some of this money is legitimately held by foreign households.
The takeaways from this essay are not only from the extraordinary work performed by these authors, but by International Consortium of Investigative Journalists (ICIJ), which is the gold standard on reporting on leaked documents. As far as the FATCA data are concerned, here are some key highlights:
“More than 60% of the individuals in the top .01% of the income distribution own foreign accounts, either directly or indirectly through a pass-through entity. By comparison, this fraction is less than 40% for the bottom half of the top .1%; less than 20% for the bottom half of the top 1%; and less than 5% for the bottom half of the top 10%.”
In other words, all of the money is held by the top 10%, but the vast majority is held by relatively few people at the very, very top. One of the ways that individuals can hold this wealth without necessarily reporting it directly as an individual taxpayer is through a pass-through entity, which can be owned by other entities, which may themselves be held by another entity. Essentially, shell corporations designed to hide beneficial ownership.
FATCA came about as part of the Restore Employment Act of 2010 in an effort to crack down on the lack of reporting of foreign entities and ownership. It created new requirements for financial institutions to report account information—everything from account numbers, names, addresses, etc—or risk fines or even criminal charges. While it didn’t really catch on at first, things got a little dicey when data dumps from whistleblowers and hackers started to reveal the extent of the fuckery offshore.
The original Panama Papers leak came in 2016 and shocked the financial reporting world. The files and revelations were enormous, which was astounding considering they came from a single offshore source that maintained thousands of records. Then, in 2021, a new round of documents were released called the Pandora Papers that were orders of magnitude larger and included information from 14 sources, as opposed to just one. According to the ICIJ:
“The new investigation includes data on more than 27,000 companies and 29,000 so-called ultimate beneficial owners — the real owners of shell companies — or more than twice the number of beneficial owners identified in the Panama Papers. The Pandora Papers also connected offshore activity to more than twice as many politicians and public officials as did the Panama Papers.”
Apart from sheltering cash in low-to-no tax jurisdictions, the leaks revealed troves of assets from homes, yachts and airplanes to corporate shares and artwork. Left alone to grow in value, these assets have appreciated at a much higher rate than typical returns available to average investors because the principal remains largely intact, whereas normal people have to pay taxes on their gains. So the gains tend to accumulate much faster. The Bureau of Economic Research relies on complex formulas to estimate the rate of return for offshore accounts and offers several disclaimers because they’re often pairing incomplete information from filings, GDP reporting, known or matched accounts that disclose information and leaked information from whistleblowers. In all it paints an interesting picture of between 5–6.45% returns for individuals and partnerships that hold money in offshore tax havens.
Chapter Two: Leak. Uncover. Match. Report.
Now, as I mentioned. The information contained within the new Bureau report is from 2018, the most recent data available for them to analyze. It showed that from 2016 to 2017, U.S. assets held abroad decreased slightly from $3.6 trillion to $3.2 trillion, but then surged in 2018 to $4.0 trillion. A couple of observations. First, the timing is bizarre because the Trump administration tried to repatriate corporate profits through an amnesty program through 2018. But the decline in assets abroad declined before this program.
We know that funds were brought back in 2017 and 2018, to the tune of $800 billion in the aggregate, which is far more than people anticipated, but far less than his promise to bring back $4 trillion. And then the figures skyrocketed in 2018, and presumably beyond, considering the remarkable gains made by the wealthy during the pandemic. Importantly, the funds that were repatriated were known and quantifiable.
They sat on balance sheets of publicly traded companies for everyone to see. But that certainly qualifies as offshore, so we’ll give the Trump administration partial credit here for doing this. But the fact that the figures just continued to grow so substantially after pairing the FATCA data with the Pandora leaks seems to show that there’s so much more being hidden than previously thought.
What’s difficult to wade through in the Bureau’s report is the distinction between havens and tax havens, matched and unmatched funds. There are offshore havens, for example, where foreign accounts are held, but not for tax evasion purposes. These are largely reported to the IRS; traceable accounts matched to either a federal tax ID number or valid social security number. Then there are offshore accounts that aren’t matched and owned by shell companies. Then there are these kinds of accounts held in tax havens, the real black box. While the Bureau won’t give up names specifically, that’s what the ICIJ is steadily doing, but it lacks the resources to complete the picture. So that’s frustrating.
The authors of the report do their best to quantify the amount of income the U.S. government is losing. But the disparity is pretty wide. Here’s some quick math they provide to put this all in context before we talk about the real world implications of tax evasion by billionaires.
Of the $4 trillion, the Bureau seems confident that a little more than half of this is known and matched due to the increased enforcement efforts, voluntary compliance and the associated data dumps from the leaks. I just want to state, however, that the leaks gave us tremendous insight but they still don’t represent the entire picture, and the information was so big that it still hasn’t been fully vetted. So there’s likely even more than what we’re talking about. I digress. So the Bureau believes there is somewhere in the neighborhood of $1.9 trillion being held offshore for the purposes of tax evasion. Just pure theft by the billionaire class. Here’s where it gets tricky.
Some of this is in real estate and other physical assets. Some are in equities. Some are in fixed income. Some are in cash. This is important because, if we’re trying to identify what’s being stolen from the U.S. Treasury, we’re talking about the taxes that would theoretically be paid on this if it was located. Well, appreciation on assets, income from investments, income from fixed assets, business interests, etc. These are all taxed at different rates, so it is theoretically impossible to define. But they do provide some estimates. At the bottom, the Bureau estimates that if just one-third of these accounts came into compliance at a 25% tax rate, it could net $8 to $12 billion in tax revenue. At 90% compliance, however, it would net $21 billion to $30 billion.
First off, I think we should evaluate these figures on total compliance, so let’s just assume the $30 billion figure, and likely higher. Secondly, Biden’s new tax proposal would tax income on wealth above $100 million at a minimum rate of 25 percent, so this is wholly in line with what U.S. policy would be if it was adopted.
Chapter Three: Assessing the impact.
Now, what does this all mean in practical terms? As a proponent of MMT, I’ve made the argument that taxing the uber-wealthy doesn’t change much in pure economic terms in the United States. Right? On one hand, we’ve said that the United States has the ability to manage deficits. Does it matter if billionaires pay their fair share? If so, how and to whom?
Are we really just talking about fairness? This is the Bernie Sanders line of criticism that attacks our sense of fairness and the real world inequality that exists in the U.S.
Billionaires simply operate with different rules. But we have to be consistent. Repatriating these funds—let’s assume it’s the $1.9 trillion of hidden and unmatched funds that exist in these havens—would net the Treasury $30 billion annually. In the context of our $6 trillion budget, that doesn’t seem all that meaningful. It’s not like we’re suddenly going to balance the budget. Now, it’s wrong and illegal and unfair and all of that. And, if we had the ability to really chase down these offenders, they’re taking an enormous risk considering the civil and criminal liability associated with evasion.
And the noose is most certainly tightening because of increased transparency and reporting. It is getting harder to get away with this practice. But, still. That’s a lot of money not coming back into our system, and it certainly stinks of impropriety when you have certain political figures claiming that anti-poverty and entitlement programs are at risk because we “can’t afford it.” So there’s an aspect of this that is just incongruous and corrupt.
Just to stay on this point for a moment, it’s important to note that this practice is far more destructive for economies that aren’t as robust and currency sovereign as the United States. As the ICIJ writes:
“The offshore financial system can drain trillions of dollars from treasuries, worsen wealth disparities and protect those who cheat and steal while depriving their victims of recourse. Studies have estimated that the world’s ultra-wealthy own the bulk of the $11 trillion realm of offshore companies.”
So, there’s no question that the bad actors siphoning funds from other, less stable economies, are pound-for-pound doing more damage than our billionaires. I’m not letting anyone here off the hook, mind you, just stating the obvious.
But there are other deleterious effects when it comes to our billionaire class. First off, is the inability to determine how much of the wealth is illegitimate or illegal. One must assume that there is a healthy amount of money laundering from illicit activities, and that should offend every law abiding and taxpaying citizen.
The ICIJ further contextualizes American activity, saying:
“Beyond the clients, in the context of the U.S., this is arguably the most significant offshore leak ever because it provides unprecedented insights into the trusts industry. What it shows is that the U.S. is very much open for secret business with foreigners at the same time that it forces other countries to share information about Americans banking offshore. And some of the people choosing the U.S. over the world’s traditional tax havens are linked to money laundering, corruption and worker exploitation.”
Several reports have detailed the amount that the uber-wealthy have managed to hide in what are called “Dynasty Trusts,” designed to preserve generational wealth and avoid paying estate taxes above a certain threshold. The issue here is twofold. First, is that many of these trusts are typically registered in states with no income tax, so there’s a double avoidance here. Further, the growth of these trusts has coincided with a precipitous decline in charitable donations. Non-profits have suffered tremendously from capital flight to these kinds of trusts, which just demonstrates that a sizable portion of charitable giving was truly all about the tax write-off and not the cause.
When all is said and done, when it comes to the United States, I think the biggest issues with offshore tax havens are inequality and influence. I think enough has been said about inequality, and the downsides to this condition are well-known to Unf*ckers. But it’s influence, the first cousin of inequality, that provides the greatest threat.
Money in tax havens grows at a faster rate. This allows for unabated accumulation of wealth. Again, let’s do quick math from the report. The Bureau estimates that 1.5 million U.S. taxpayers hold money in offshore havens. That’s .004% of the population. 60% of the associated funds are held by the top 10% of the 1%. At best, we’re talking about a couple thousand Americans that are hiding funds that grow exponentially each year because they’re putting upwards of $30 billion more each year into their pockets through tax evasion.
Now, consider this. In 2022, Open Secrets reported that more than $295 million in dark money from secret donors was spent on the midterm elections alone. Some donors have come forward to reveal their donations, but the vast majority simply do not. Because Citizens United allowed for this to happen. In what was originally just a right-wing phenomenon most associated with people like the Koch brothers, Democratic donors have gotten into the action to an even greater extent. As Politico reported, the Sixteen Thirty Fund, a dark money PAC, “doled out a whopping $410 million in 2020, aiding Democratic efforts to unseat then-President Donald Trump and win back control of the Senate.”
It’s impossible to measure the impact that dark money has had on our politics, and even more impossible to determine how much of this might come from hidden funds accumulating in offshore tax havens. But you don’t have to be a genius to put the pieces together.
It’s little wonder the status quo prevails in this country. Disclosures like the Pandora Papers, the work performed by the authors of the Bureau of Economic Research and the writers at the ICIJ help paint a picture of a system rigged completely by just a handful of people propping up media establishments paid to distract you with culture war issues and pit us against each other. The more we fight, the more they get away with. On both sides of the aisle. All in service of the billionaire grifters.
Here endeth the lesson.