The Hidden Wealth of Nations

The Hidden Wealth of Nations

The Scourge of Tax Havens

Book - 2015
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We are well aware of the rise of the 1% as the rapid growth of economic inequality has put the majority of the world's wealth in the pockets of fewer and fewer. One much-discussed solution to this imbalance is to significantly increase the rate at which we tax the wealthy. But with an enormous amount of the world's wealth hidden in tax havens--in countries like Switzerland, Luxembourg, and the Cayman Islands--this wealth cannot be fully accounted for and taxed fairly. No one, from economists to bankers to politicians, has been able to quantify exactly how much of the world's assets are currently hidden--until now. Gabriel Zucman is the first economist to offer reliable insight into the actual extent of the world's money held in tax havens. And it's staggering. In The Hidden Wealth of Nations, Zucman offers an inventive and sophisticated approach to quantifying how big the problem is, how tax havens work and are organized, and how we can begin to approach a solution. His reasearch reveals that tax havens are a quickly growing danger to the world economy. In the past five years, the amount of wealth in tax havens has increased over 25%--there has never been as much money held offshore as there is today. This hidden wealth accounts for at least $7.6 trillion, equivalent to 8% of the global financial assets of households. Fighting the notion that any attempts to vanquish tax havens are futile, since some countries will always offer more advantageous tax rates than others, as well as the counterargument that since the financial crisis tax havens have disappeared, Zucman shows how both sides are actually very wrong. In [this book], he offers an ambitious agenda for reform, focused on ways in which countries can change the incentives of tax havens. Only by first understanding the enormity of the secret wealth can we begin to estimate the kind of actions that would force tax havens to give up their practices. Zucman's work has quickly become the gold standard for quantifying the amount of the world's assets held in havens. In this concise book, he lays out in approachable language how the international banking system works and the dangerous extent to which the large-scale evasion of taxes is undermining the global market as a whole. -- Inside jacket flaps.
Publisher: Chicago : The University of Chicago Press, 2015.
Copyright Date: ©2015
ISBN: 9780226245423
022624542X
9780226245560
Branch Call Number: 336.2 ZUCMAN
Characteristics: xii, 129 pages : illustrations ; 24 cm

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gaetanlion
Dec 08, 2017

The Hidden Wealth of Nations. Short but packs a huge punch.

This is a fascinating book that uncovers a huge amount of information. It essentially removes a veil of fogginess on the world’s international finance. And, it uncovers a huge pot of money that is offshore, off the radar screen, and untaxed. Book is strongly recommended to anyone interested in the subject.

Through well supported calculations, the author estimates that in 2014, 8% ($7.6 trillion out of $95.5 trillion) of worldwide wealth is hidden in offshore accounts. About 30% or $2.3 trillion of this wealth is held in Switzerland. And, 70% is held in other tax havens (Singapore, Cayman Islands, etc.). A good deal of such funds are managed by Swiss banks with branches in the Cayman, etc. The $7.6 trillion in hidden assets translates into an estimated $190 billion yearly loss in global tax revenues of which: $125 billion in income tax (interest, dividends); estate tax $55 billion; and wealth tax $10 billion. Those calculations entailed a 5% real return on private capital estimated by the author and Thomas Piketty using national accounts data. The $190 billion lost in tax receipts represent only 1% of such global taxes. However, this % varies hugely by countries. In Russia it could easily be 7 x greater at 7% as 52% of household wealth is held offshore (vs. only 8% for global average).

Focusing on the $2.3 trillion Swiss holdings reveals the majority or $1.3 trillion is held by Europeans. And, the largest tranche of the $2.3 trillion is held in Luxembourg mutual funds ($750 billion) that are entirely tax free.

Additionally, the author indicates that “legal” corporate tax avoidance by US corporations costs the IRS $130 billion in lost tax receipt per year. Apple, Google, Facebook, etc. transfer much of their foreign earned profits to low- tax countries (mainly Ireland, Netherlands, Luxembourg, Bermuda/Cayman). US corporations generate a third of their profits in foreign countries; 55% of those are in mentioned country-tax havens. Thus, the tax haven share of total US corporate tax profits is: 33% x 55% = 18% or roughly 20%. And, 20% of US corporate tax bill is $130 billion. Thus, while US corporate tax rate is 35%; it’s effective tax rate is half that at 18%.

The author indicates that such corporate tax havens distort national account figures. For instance, Ireland’s 25% trade surplus is fictional. All the extra income flows back to the foreign corporate owners of the assets held in Ireland (Apple, etc.).

The author has a ready solution to reduce the influence of illegal tax havens sheltering household wealth. And, that is a coordination of existing registries where all financial assets are registered. This would be coupled by a global wealth tax (Thomas Piketty’s proposal) on wealth (on the assets registered) that would be in turn deductible for income tax purposes. This would force financial assets owners to identify themselves instead of hiding behind shell corporations to avoid taxes.

It is unclear whether the author has any solution for corporation tax arbitrage strategies shifting their profits to low-tax countries.

r
rpavlacic
Jun 06, 2016

Gives a brief overview of how offshore accounts work - that they are used to invest money, not hide it from, say, spouses who are going through a divorce. It lists the worst offender as Luxembourg, an EU member, which has a next to zero tax rate for corporations and which explains why so many mutual funds incorporate there. Offers some solutions on how to crack down, but in the end there is really probably not much we can do about it.

s
StarGladiator
Dec 02, 2015

UNRATED - - questionable as to whether it fits into the nonfiction category?
Zucman is an assist. prof. of economics at the London School of Economics - - sure doesn't instill any confidence in that place! Zucman sounds like he downplays the amount of monies parked offshore, but then one can see why - - on page 25 Zucman makes a fantastic [as in FANTASTIC!!!!] assertion: that there is no competition between the offshore tax havens because the Swiss banks have many branches at the various tax havens [more commonly known as offshore financial centers] and Switzerland has one-third of the offshored monies?
WTF??????????????
Clearly, this assertion contradicts the previous research, study and reading I've done over the past 25 years on the 90 to 95 OFCs around the world, usually with the City of London [i.e., City of London Corporation] leading the way!
Given the opacity of OFCs, Zucman would have not only performed some magic to come up with this, but done it in an alternate universe!
He makes some other contradictory statements while continuing to repeat this assertion throught the book. I thought it was surprisingly slim and short book, given the subject matter.
Being familiar with the money laundering done by JPMorgan Chase, Citigroup, Barclays, HSBC, et cetera, the Wolfsburg Group and their questionable establishment of AML processes, the IMF and their Edgmont Group, the reader is urged to verify everything [except for topical references to Apple, Microsoft and Google, recently in the news]!
Zucman's solution at the end of the book is valid, though, unfortunately, the last time a president moved in that direction, he was assassinated [President John F. Kennedy].
FYI: published by the University of Chicago.

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