Wealth Doesn’t Trickle Down– It Just Floods Offshore, New Research Reveals
By Heather Stewart/ The Guardian/ July 21, 2012
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)
Arlen Grossman, here is a video for you: https://www.youtube.com/watch?v=EgVDyBqAQNw Income and wealth inequality stem from choices that people make. Poor management of monetary assets is another contributing factor.
Arlen Grossman, here is a video for you: https://www.youtube.com/watch?v=41y4c1Oi5Uo Income and wealth inequality are the result of choices, not some people just having more money than other people.
Arlen Grossman, here a few videos for you: 1: https://www.youtube.com/watch?v=3eMj1kskVTY, 2: https://www.youtube.com/watch?v=vHDLlkJ2B8E, 3: https://www.youtube.com/watch?v=XOgrc31vv_Q, 4: https://www.youtube.com/watch?v=NQjwf6rS89E, 5: https://www.youtube.com/watch?v=JnozT7rpgwQ, 6: https://www.youtube.com/watch?v=NHV5tfkNoDM 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.
Without knowing what you believe is “extreme redistribution of wealth,” I cannot say whether or not it is a benefit.
But here is an example of why I resist when you always defend the wealthy, and I keep trying to tell you how the rich get all kinds of benefits: https://www.nytimes.com/2021/06/08/us/politics/income-taxes-bezos-musk-buffett.html?unlocked_article_code=AAAAAAAAAAAAAAAACEIPuonUktbfqohkTlUbCybIRp8_qRmHmfnE2_s9gHT5KSXQVT9Swv9QCYWS_FyIYLd4ZJ45wjqVScNddr8zQfg4hsluA3tQcSj66J2VhMZCZCwvtYO4Wm5x08rBBrpp-DSvN2TleKIimOW0-huKOWT1UKfd0nAiIV5ioZRnZkjqjSJTvtrNFedz0tl-2_YzVNstFXpbOn7877S_AA5-Od6FchjY9gA9PuldUjnSltSXgKkSJEQQURmVCSMivhtvrY9UK9gVP67gLhE_e8CYgboZCmZgKY7BFIRxv8odg298QU_4JOmIIbaF&smid=url-share
Arlen Grossman, the thing that really rubs me the wrong way regarding the “fair share and “hoarding the wealth” arguments is that they are disingenuous and intellectually dishonest. 47% don’t pay anything in federal income taxes. I would rather tax consumption over income, however, a simple flat rate of 10% on everything, earned income, capital gains, even though I object to it on moral and philosophical grounds, a 10% tax on estates would be perfectly fine with me. Dramatic spending cuts across-the-board would make up for the lost revenue. Politicians getting a 50% pay reduction would also help.
1) As I’m sure you are aware, Ragnar, the 47% you refer to may not pay federal income tax, but they often pay state taxes, payroll taxes, sales taxes, etc.
2) A 10% flat tax is a non-starter. It favors the rich, and why would we do that at the expense of average Americans?
3) And politicians getting a 50% pay cut sounds good, because most people don’t like politicians in general, although they usually like their own representative. Anyway, the money saved would not make a dent in the whole government budget.
Arlen Grossman, your analysis on point #2 is invalid. If all of the deductions are scrapped and the first $50, 000.00 is non-taxable, that does not raise taxes on the poor. This is the problem with many Leftists. A lot of them are economically illiterate. Someone who says that a tax-free threshold of x and so amount with a flat rate of 10% on everything above that amount would be a tax hike for low income people who would not be subjected to income tax anyway is full of b.s. in my opinion.
Okay, Ragnar, I see you point and will retract that comment. I will just say in general that any tax plan must be progressive, i.e. not favor the rich.
Arlen Grossman, 47% of our population pay no federal income tax. Just institute a flat tax at 10% and have a higher estate tax and capital gains tax to make up for the loss of revenue.
Arlen Grossman, here is a video for you: https://www.youtube.com/watch?v=a3Rn-Hjkgic 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%.
That would help, Ragnar. But this article in the NYTimes does a good job explaining the reasons why workers income has stagnated while the people at the top keep getting richer. https://www.nytimes.com/2021/05/13/business/economy/middle-class-pay.html
Arlen Grossman, getting rid of income-based forms of taxation would help. Every dollar is double-taxed as it is.
And what would you replace it with?
Arlen Grossman, a consumption-based system of taxation would be better. Since income fluctuates from year to year, some years would have people paying a lot and some years would have those people paying very little.
Sounds like you’re thinking of a value-added tax, Ragnar, used by many countries around the world. I think it might be a good idea. However, it might discourage spending by the wealthiest people. But worth considering.
Arlen Grossman, a Value Added Tax (VAT) taxes items at every stage of production. The Fair Tax is a consumption tax that taxes new goods and services only once when said good or service is purchased. Here is a link for you: https://fairtax.org/
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.
Interesting but not a good analogy. It’s hard to understand but I’ll run it by the employees of Pizza Hut and have them explain it to me. (Yes, I’m being silly)
Arlen Grossman, if you were to use the pizza and wealth analogy, how would you do it differently? I brought it up, yes, however, to stick with that particular analogy, how would you utilize that?
I’m afraid I need another explanation of the pizza and wealth analogy, Ragnar. It didn’t make sense to me before, but I’m willing to make another attempt.
Arlen Grossman, here is a video for you: https://www.youtube.com/watch?v=SHJ__rV2qVk I cannot recall if I linked this video, however, this should explain the pizza and income/wealth analogy.
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.
Arlen Grossman, I do not condone inequality to an extreme degree. Having said that, I believe in a system based on merit.
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.
I would prefer they don’t fight over that last slice too. It could get very messy.
Arlen Grossman, my analogy may seem silly to some people. I get that. Having said that, I would like to see more pizzas and slices so everyone can walk away happy. Now, if some people do take more than they can eat, a to go box would be a good idea.
I can’t disagree with that.
Arlen Grossman, we both expressed a mutual enjoyment of pizza. Do you like the thin crust, the stuffed crust or both?
Ragnar, I would say both!–Arlen
Arlen Grossman, I agree with you on that.
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.
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.
Making more pizzas sounds good to me. As long as everybody gets enough to eat.
Arlen Grossman, speaking of pizza, do you ever like to partake of that from time to time?
Sure, Ragnar. Like most everybody else, I love pizza. I would guess you do too.
Arlen Grossman, regular crust pizza or the stuffed crust pizza?
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.
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.
Arlen Grossman, here is a video for you: https://www.youtube.com/watch?v=mS5WYp5xmvI 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.
How has capitalism been doing lately? It appears an awful lot of government intervention is needed to save it.
Arlen Grossman, I will fall back on my pizza analogy. Why should government intervene and initiate force to equalize the amount of pizza?
If one percent of the population is eating 90% of the pizza, Ragnar, I believe it is the duty of the government to intervene.
Arlen Grossman, instead of fighting over the pizza, why not just make more? You said that you agreed with my assessment that we should make more pizzas from that standpoint.
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,
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?
Arlen Grossman, to clarify, I was speaking of some comments in one of Steven Crowder’s videos on the matter of Medicare.
Arlen Grossman, here is a video for you: https://www.youtube.com/watch?v=SHJ__rV2qVk 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.
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.
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.
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.
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.
You have a point there. On the other hand, the private sector does the same: Enron, Wells Fargo, Facebook, Bear Sterns….etc
Valid points. Regarding Facebook, that is a waste of time in my opinion.
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?
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.
This is the end result of our current existing tax code. We penalize people who earn, save and spend their money with excessive taxes.