Goldmark: Amount of wealth sheltered from taxes is staggering
There's a revolt building in American public life.
Politics has a strange way of putting certain disruptive issues into suspended animation during a presidential campaign, so the anger may not erupt until after the election. But it will.
Americans are going to demand to know if their elected officials have been playing fair in paying their taxes, or if they've been using gimmicks, loopholes, offshore havens and worse to avoid paying what they legally owe. Sooner or later, we'll want to know the same about the rich folks who fund their campaigns.
A new study by James S. Henry, a lawyer and former chief economist at McKinsey & Co. who specializes in tax matters, uses commonsense rules of thumb to estimate how much financial wealth is being sheltered from taxation in offshore havens. ("Financial wealth" in this case means good old-fashioned money and does not include yachts, mansions, private jets or Impressionist paintings.)
The new study, titled "The Price of Offshore Revisited," comes up with a range that is larger by a country mile than past estimates: $21 trillion to $32 trillion globally. This is a staggering figure; the high estimate is nearly half the world's gross domestic product. But let's be clear: the $21 trillion to $32 trillion range is global and so includes the money of Mexican drug lords and African dictators as well as American billionaires.
So how much is held by Americans? The report is silent, but an easy guess is a quarter, corresponding roughly to the U.S. share of global GDP -- at a time when tax rates on the wealthy here are at their lowest in half a century, and the richest Americans are reaping an ever-greater share of our economic gains.
Recent interest in all this was triggered by the case of one Mitt Romney. The Obama camp never would have made such an issue of Romney's refusal to reveal more of his taxes if it didn't sense the growing anger of many Americans who feel we aren't all playing by the same rules on taxation. (Romney said Thursday that he'd paid at least a 13 percent effective rate over the past decade.)
We start with the visible bias that tilts the American system in favor of the wealthy. The rich received bigger tax cuts under the Republicans; the burden of Social Security and Medicare taxes falls most heavily on the middle class; state and local taxes are mostly regressive; and the wealthy benefit more from deductions for mortgage interest and state and local income taxes. Preferential tax treatment of capital gains also benefits the rich. The net effect is that the wealthy often pay a smaller overall percentage of income in total taxes than the middle class.
And now it is becoming clear that a legal set of offshore tax havens (think Cayman Islands, Lichtenstein, Bermuda, Hong Kong and 70 others) is being used by the rich to lower the taxes they pay way below the already generous relative advantage they would enjoy if they kept all their money at home. What's the motive? It's just greed. The whole point of tax havens is to enable the people most able to pay taxes to avoid them.
There has been no serious international effort to crack down on all this. The G-20 (basically, the world's major economies) at their London meeting of 2009 growled fiercely but did nothing, and the Organisation for Economic Co-operation and Development, which promised to publish a blacklist of tax havens, has so far not done so.
Here in the United States, pressure is going to build on elected officials to explain whether they've been paying single-digit tax rates using offshore havens and other gimmicks, or paying in the 20 and 30 percent ranges like the rest of us. And that's fine with me. We're in trouble economically, and either we all do our fair share and work our way out of it together, or we let the rich continue to behave like the French aristocracy, who paid virtually no taxes at all -- before the Revolution.