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, here is a video for you: Income and wealth inequality stem from choices that people make. Poor management of monetary assets is another contributing factor.

  2. ragnarsbhut says:

    Arlen Grossman, here is a video for you: Income and wealth inequality are the result of choices, not some people just having more money than other people.

  3. ragnarsbhut says:

    Arlen Grossman, here a few videos for you: 1:, 2:, 3:, 4:, 5:, 6: David Pakman makes some valid points. Extreme income and wealth inequality are of no benefit to society. Having said that, extreme redistribution of wealth will not fix this problem. Just my thoughts.

  4. ragnarsbhut says:

    Arlen Grossman, here is a video for you: I am not in favor of extreme inequality. However, in order to fix this as an issue, tax regular income and capital gains at the same rate. Example: the top marginal tax rate being 25% and capital gains tax being 25%.

  5. ragnarsbhut says:

    Arlen Grossman, my pizza and wealth analogy was meant to be somewhat humorous. However, the premise is that we can have equality of opportunity, which leads to the creation of more pizzas or equality of outcome which results in the creation of fewer pizzas.

  6. ragnarsbhut says:

    Arlen Grossman, I don’t know if this will have much impact on reducing inequality, however, the Universal Basic Income (UBI) discussed by Andrew Yang and the proposed Negative Income Tax (NIT) that Milton Friedman had advocated for sound like good ideas. Just my thoughts.

  7. ragnarsbhut says:

    Arlen Grossman, I do not condone inequality to an extreme degree. Having said that, I believe in a system based on merit.

  8. ragnarsbhut says:

    Arlen Grossman, pizza and financial wealth are 2 separate things. I get that. On a fundamental level, where they both overlap is in how people can create wealth by investing in the productions of goods and services. The goods aspect would apply to the pizza and its production. Regarding the services aspect, the making of the pizza is provided as a service to the customers who partake of it. It is my personal belief that people should not be required to fight over the last piece of pizza.

  9. ragnarsbhut says:

    Arlen Grossman, in terms of my pizza example and how it is relevant to your post about the issue of inequality, people who have less pizza can try to take pizza from those who have more in an attempt to equalize the amount of pizza or more pizzas can just be made and all of the people can be accommodated in terms of wanting to partake of the pizza. To run the risk of stating the obvious, I would believe it to be more appealing to make more pizzas and the end result is having more satisfied customers. Pizza, as is the case with actual monetary wealth, cannot be multiplied by dividing it.

  10. ragnarsbhut says:

    Arlen Grossman, if you have 10 people, 1 person with $10, 000, 000.00 and the other 9 have nothing, we could redistribute $1, 000, 000.00 to each of the 9 remaining people and the person who started of at $10, 000, 000.00 would be no worse off if that person walked away with $1, 000, 000.00, however, why should wealth be redistributed from people who created it in the name of fairness to people who have not done anything to deserve any right to it?

    I shall fall back on my pizza analogy. Rather than try to equalize the number of pizza slices, 11 being the number of pizza slices among 10 people, just make more pizzas. I would prefer to make more pizzas instead of seeing a fight among the people who partake of the pizza.

  11. ragnarsbhut says:

    Arlen Grossman, even though my analogy about how pizza slices and wealth inequality are similar may be lost on some people, the basic premise is that people can get a pizza at a buffet and the people who work at the pizzeria can just make more in order to satisfy the customers or they can fight over any remaining slices and everyone would be hungry and no more pizzas are available. Wealth is the same way, mainly in the sense that people can be educated as to how to effectively create their own wealth or we can just take it from the people who created it it and redistribute it to people who have done nothing to earn it.

    • You make it sound so simple, Ragnar. Poor people should learn to be rich, and then all would be well. You fail to recognize that the super wealthy have so many built-in advantages,from education, inheritance, powerful friends, and favorable laws and rules. From bought-off politicians.No wonder the rich keep getting obscenely rich, and everyone else falls further behind.

      • ragnarsbhut says:

        Arlen Grossman, inheritance is a nonissue. While it is true that too much inequality is problematic, inequality will exist in any economic system. Personally, I would prefer to redistribute my own wealth. What if inheritance does not center around physical dollars, just a family business? People should pay more attention when being encouraged to live debt-free. Being obscenely rich is a disingenuous talking point. Being sensible with one’s financial assets is also a good thing.

  12. ragnarsbhut says:

    Arlen Grossman, here is a video for you: I believe that everyone should have the equal opportunity to engage in their own pursuits in life. What I find to be convoluted is when we have people who want equality of outcome. Every person should have a decent standard of living. The problem is that everyone is equally poor in Communist countries. Capitalism as an economic system may have some inequality, however, fewer people are starving.

  13. ragnarsbhut says:

    Arlen Grossman, we can have equality of opportunity or equality of outcome. Equality of outcome would be everyone being equal at 0% wealth. Equality of opportunity entails the ability to pursue opportunities that can lead to creation of wealth. Someone who has poverty level assets needs more help than someone who is a multimillionaire from a financial standpoint. The problem is the equality by any means necessary mentality.

    • Ragnar, I’m okay with equality of opportunity, but with some kind of controls or tax consequences for those at the very top. I should add, too, that every citizen be guaranteed food, shelter and medical care. I suspect my last sentence will be a problem for you,

      • ragnarsbhut says:

        Arlen Grossman, you are wrong. I do not have a problem with the idea of Medicare For All. What I object to is my tax dollars being used to pay for something I may find morally objectionable.

        • I find your comment confusing, Ragnar. You say you are okay with Medicare for All, but that would be paid for by tax dollars, and many people find Medicaid for All morally objectionable. Do you see the contradiction in your views?

  14. ragnarsbhut says:

    Arlen Grossman, here is a video for you: I was thinking about my pizza analogy and how the number of slices were an allegory to illustrate the level of inequality in any economic system.

  15. ragnarsbhut says:

    Arlen Grossman, according to some people, wealth inequality was responsible for the Great Depression. What are your thoughts?

    • Although there may have been other causes, I would think it would be a big factor, Ragnar. Just before the Great Depression was when inequality was at its peak.

      • ragnarsbhut says:

        Arlen Grossman, income inequality is bad if taken to an extreme. That point will be conceded. Here is an example of a type of inequality: You have a pizza that has 11 slices and 10 people 2 people who would each get half of 1 slice, with the rest of the participants getting 1 slice. What is more practical-downsizing the pizza further until it amounts to crumbs for each person, thereby trying to equalize the amount of pizza crumbs or just making more pizzas? A realist would say, “We should make more pizzas.” More pizzas=more slices. More slices=equals a greater distribution of the pizza, which ensures more equality of access to the pizza.

        • I agree, Ragnar…make more pizzas. If not possible, then give everyone an equal share of the pizza (1/11 of the pizza). On the other hand, here’s another scenario: One person owns half the pizza and the other half is owned by ten others. One person will be satisfied, but ten people will remain hungry. That is a more realistic than your example.

          • ragnarsbhut says:

            Arlen Grossman, I am not an advocate for extreme inequality. However, wealth is impossible to multiply be dividing it. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that ultimately provides a disincentive toward productivity. As surprising as this may be to you, I would have no problem with the minimum wage if we had dramatic spending cuts across the board.

  16. 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.

  17. 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?

  18. 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.

  19. 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 )

Facebook photo

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

Connecting to %s