Wealth Doesn’t Trickle Down– It Just                          Floods Offshore, New Research Reveals

By Heather Stewart/ The Guardian/ July 21, 2012

  • Capital flight

The world’s super-rich have taken advantage of lax tax rules to siphon off at least $21 trillion, and possibly as much as $32tn, from their home countries and hide it abroad – a sum larger than the entire American economy.

James Henry, a former chief economist at consultancy McKinsey and an expert on tax havens, has conducted groundbreaking new research for the Tax Justice Network campaign group – sifting through data from the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and private sector analysts to construct an alarming picture that shows capital flooding out of countries across the world and disappearing into the cracks in the financial system.

Comedian Jimmy Carr became the public face of tax-dodging in the UK earlier this year when it emerged that he had made use of a Cayman Islands-based trust to slash his income tax bill.

But the kind of scheme Carr took part in is the tip of the iceberg, according to Henry’s report, entitledThe Price of Offshore Revisited. Despite the professed determination of the G20 group of leading economies to tackle tax secrecy, investors in scores of countries – including the US and the UK – are still able to hide some or all of their assets from the taxman.

“This offshore economy is large enough to have a major impact on estimates of inequality of wealth and income; on estimates of national income and debt ratios; and – most importantly – to have very significant negative impacts on the domestic tax bases of ‘source’ countries,” Henry says.

Using the BIS’s measure of “offshore deposits” – cash held outside the depositor’s home country – and scaling it up according to the proportion of their portfolio large investors usually hold in cash, he estimates that between $21tn (£13tn) and $32tn (£20tn) in financial assets has been hidden from the world’s tax authorities.

“These estimates reveal a staggering failure,” says John Christensen of the Tax Justice Network. “Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people.

“This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich.”

In total, 10 million individuals around the world hold assets offshore, according to Henry’s analysis; but almost half of the minimum estimate of $21tn – $9.8tn – is owned by just 92,000 people. And that does not include the non-financial assets – art, yachts, mansions in Kensington – that many of the world’s movers and shakers like to use as homes for their immense riches.

“If we could figure out how to tax all this offshore wealth without killing the proverbial golden goose, or at least entice its owners to reinvest it back home, this sector of the global underground is easily large enough to make a significant contribution to tax justice, investment and paying the costs of global problems like climate change,” Henry says.

He corroborates his findings by using national accounts to assemble estimates of the cumulative capital flight from more than 130 low- to middle-income countries over almost 40 years, and the returns their wealthy owners are likely to have made from them.

In many cases, , the total worth of these assets far exceeds the value of the overseas debts of the countries they came from.

The struggles of the authorities in Egypt to recover the vast sums hidden abroad by Hosni Mubarak, his family and other cronies during his many years in power have provided a striking recent example of the fact that kleptocratic rulers can use their time to amass immense fortunes while many of their citizens are trapped in poverty.

The world’s poorest countries, particularly in sub-Saharan Africa, have fought long and hard in recent years to receive debt forgiveness from the international community; but this research suggests that in many cases, if they had been able to draw their richest citizens into the tax net, they could have avoided being dragged into indebtedness in the first place. Oil-rich Nigeria has seen more than $300bn spirited away since 1970, for example, while Ivory Coast has lost $141bn.

Assuming that super-rich investors earn a relatively modest 3% a year on their $21tn, taxing that vast wall of money at 30% would generate a very useful $189bn a year – more than rich economies spend on aid to the rest of the world.

The sheer scale of the hidden assets held by the super-rich also suggests that standard measures of inequality, which tend to rely on surveys of household income or wealth in individual countries, radically underestimate the true gap between rich and poor.  (Continued Here)

Boldface added by BPR Editor
This entry was posted in Economics, economy, government, inequality, taxes and tagged , , , , , , , . Bookmark the permalink.


  1. ragnarsbhut says:

    Arlen Grossman, as has been proven over and over again, government cannot manage money very well. Don’t believe me? Look at the various areas of waste and then tell me that I am wrong.

  2. Arlen Grossman, all politicians want to do is tax and spend. If they can vote on how much of our money we get to keep in our wallets, we as the citizens of the U.S.A. should get to dictate how much of our money they get to spend on various programs.

    • How do we citizens dictate how much to spend on various programs? That’s what our representatives are for. But yes, they are bought and paid for by special interests. Sadly, our system is broken.

      • Arlen Grossman, the top marginal tax rate under Dwight D. Eisenhower, who was a Republican, was 91%. I know what a marginal tax rate is, however, with all of the deductions, the effective rate is lower than the marginal rate. What are your thoughts about giving businesses that employ people here in the U.S. tax write-offs and restricting those that outsource jobs to other countries?

  3. What is wrong with taxing people who earn, save and spend their money? How else do you pay
    for government services? Those who make the most should pay the most.

    • Arlen Grossman, those who make the most should pay the most-if we had a flat tax, excluding poor and low income families from any liability, wealthy people would still pay more in dollar amount than the rest of us. Do you deny that?

      • Yes, the wealthy would pay more dollars with a flat tax, but less in percentage than they should be paying. According to Wikipedia: “Currently, the richest 1% hold about 38% of all privately held wealth in the United States. while the bottom 90% held 73% of all debt. According to The New York Times, the richest 1 percent in the United States now own more wealth than the bottom 90 percent.” That’s too much inequality for my taste.

        • Arlen Grossman, if more is paid in dollars despite the lower rate, then your statement is invalid. Inequality would be reduced if we had a flat tax, with a tax-free threshold, so that a family of 4 or more that makes a certain amount of money or less would pay nothing. Since the payroll tax is eliminated, that would put thousands of dollars back into people’s paychecks. What would that mean? Fewer people needing government programs.

  4. This is the end result of our current existing tax code. We penalize people who earn, save and spend their money with excessive taxes.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s