Income inequality has become a major concern over the past several years, as multiple indicators point to a gap between the rich and poor that exceeds that of the Gilded Age. Economists and policymakers recognize the existence of the gap, but haven’t necessarily agreed on its dimensions.
Meanwhile, Congress– surprise!!– is just beginning debate on a tax “reform” bill that in its current form would further exacerbate inequality, with a “reverse Robin Hood” approach that takes from the poor and gives to the rich.
New studies that give us the ability to make more accurate estimates of the gap’s size suggest that–if anything–the distance between rich and poor is far larger than previously supposed.
From Journalists’ Resource, we are directed to recent research on tax havens and other methods used by the very rich to–shall we say “obscure”– the actual amount of their wealth.
And guess what? The rich are a whole lot richer than even the more suspicious among us thought.
It’s difficult to assess the net worth of the world’s super-rich. Havens like the Cayman Islands, Switzerland and Hong Kong are happy to stash their cash, offering privacy and a shelter (often perfectly legal) from taxes. And without knowing how rich the rich are, we can’t make an accurate assessment of income inequality.
But new sources of data, including leaks such as the Panama Papers, are helping researchers shine light on these shelters.
That is the impulse behind two new working papers for the National Bureau of Economic Research by Annette Alstadsæter of the Norwegian University of Life Sciences, Niels Johannesen of the University of Copenhagen, and Gabriel Zucman of the University of California, Berkeley. The team shows that measuring income by tax declarations alone is misleading – since so many people dodge their taxes – and that income inequality in many countries is far worse than previously thought.
One team of researchers estimates that amounts equivalent to ten percent of global economic output – that was $5.6 trillion in 2007 – are held offshore. Because it is out of the taxman’s sights, it is also out of sight of those trying to account for global wealth and/or global tax avoidance.
Speaking of “tax avoidance” (another word for evasion), a second study focused on Sweden, which the researchers believe–for a number of reasons– is one of the countries with the lowest percentage of tax cheats.
They found that households with $10-12 million in assets were twice as likely as households with $5-6 million to conceal assets from tax authorities. For that matter, the richer the household, the more likely to cheat; households with over $45 million were four times more likely to “stash” their wealth than those with “only” $5-6 million.
Thus, the wealth in offshore tax havens is “extremely concentrated”; the top 0.01 percent of households own about 50 percent of it.
For the top 0.1 percent of households, accounting for accounts offshore increases their wealth by a third.
So–if the percentage of tax evaders in the United States is no more than the percentage in Sweden (and if you believe that, I have some swampland in Florida to sell you…), the top one percent of American plutocrats have a third more wealth than we previously thought.
And what we previously thought is bad enough! Click through for the graphic…
If history is any guide, this will not end well.
Thanks Prof. Yet another argument for a MINIMUM tax for all of these folks. NONE of these upper income folks should pay less than 15%. No Matter What. None of them.
Who are the “givers” and who are the “takers”?
I have to ask, “If you are evading paying taxes, what other responsibilities are you evading?”
The same people who hide their wealth offshore tell us that a $15.00 minimum wage is too high.
Has anyone ever tried to set up an offshore account? I have, in Nassau, Bahamas, during the heyday of my art career. I walked into Credit Suisse Bank and made a fool of myself. You have to be rich to afford to hide money in an offshore bank. I had to become a Bahamas corporation which required a lawyer which required a lot of money for both…up front and monthly. And most of the up front expensive hurdles had to be crossed every year. I suggest that those expenses keep many of us poorer individuals from playing the offshore game, and that tends to distort statistics into implying that the lower two classes are more ethical.
Our tax exempt president presented his tax bill while continuing to evade paying taxes, presenting his tax forms as repeatedly requested to learn where his money comes from more than how much. He presented this tax bill as he and his extended family and appointees continue to drain our tax base with their “high on the hog” lifestyles as they continue to amass wealth. Our tax dollars are paying for Trump, his family and guests to use his hotels, golf courses and eat in his expensive restaurants. The Secret Service budget has been depleted as he continues to enjoy his majority of weekends relaxing in his privately owned facilities as our tax dollars pay for it, making him richer and piling up more tax documents he will not submit for examination and will continue not paying taxes till his “tax problems” are resolved.
What are the members of our Congress getting in return for allowing this to continue? There must be a payoff from Trump as we continue to pay their salaries to allow the ripoffs to continue unabated.
The distractions of Harvey, Irma, Maria, virtually total destruction of U.S. Territory Puerto Rico, HHS Sec. Price’s personal tax ripoff and resignation may be distracting to the general public and the media but should not be distracting Congress from doing the job we elected and pay them to do.
There is a much larger problem with our current tax situation than the taxes themselves.
Is there a simple explanation for why some bills can require only a simple majority and others need 60%?
Nancy,
The simple answer is that just as the greedy concoct ways to avoid paying taxes, lawmakers concoct ways to avoid taking responsibility for their votes or no votes.
Wealth is an often used measure because numbers are so handy to do arithmetic with but behind the numbers are lives. At some I would guess relatively low numerical wealth number (remember that wealth is different from income) a miracle occurs. Virtually all opportunities become possible and virtually all threats that can be mitigated become readily so. Virtual immunity is achieved from the vagaries of life often for many generations.
The other end of the wealth scale doesn’t need explaining, most of us have some experience with it, but the opposite occurs. Threats lurk around every corner and opportunities are virtually non-existent. It really is subsistence living given that the really poor in the undeveloped world face existential threats and the developed country poor only face all helplessness except existential.
Is there any real question that a stable society is impossible given that the few face only opportunity and the many only threats? That is truly intolerable for the many, none of whom assume that their position is earned and not imposed.
In America today whatever stability we have is probably only due to the fact that those in a world of unceasing economic threat and zero opportunity are easily manipulated by pervasive media into blaming different scapegoats, so tend to be fractious.
Given that we are addicted apparently to economically induced aristocracy, the only hope for stability is government regulated wealth redistribution. Regressive taxes.
Then came Trump/Pence/McConnell/Ryan and the facade crumbled.
Neoliberal policies by both capitalist political parties have resulted in our gross inequality of wealth and income. As you stated, proposed “tax reform” will only make it worse.
Meanwhile, our state taxes have increased, gasoline is costing more, and utility companies are receiving substantial increases from our “government regulatory” agencies.
Since labor unions have paid the ultimate price of Neoliberalism, I suspect it will only get worse because both political parties have aligned themselves with the private sector and billionaires who’ve profited well from capitalism.
Yet, poor Americans keep voting for DNC and GOP hoping it will get better. It won’t. As Bernie has been saying for quite some time – “The game is rigged.”
If you expect media journalists to bail us out…don’t waste your time. Since their profits come from political donors and advertisers, they’re along for the capitalist ride where greed is the name of the game.
Peggy, the objection to the $15 minimum wage is not from the “super rich”, who can pay for their services with tax deductible $$$, but from people that realize that $15 for people who really can’t do anything and need a chance to learn in a training job is a job killer. View McDonalds as a training position where they could charge tuition like other schools, and are considering automating more jobs away, and you see the risk. Interesting, too, that in the last Presidential election the best candidate, Gary Johnson, did not have ANY personal wealth, whereas Hillary, Donald, and even Bernie all were multi millionaires, benefiting from complex tax strategies, unavailable to the rest of us even as they talked about tax reform.
Piketty (whom I was reading just this morning on inequality) has an answer for our tax dodging and superrich overseas accounts (but I repeat myself) though admitting it won’t work unless the world taxing authorities come to consensus, an unlikely event. It’s a wealth tax, a tax collected irrespective of the venue of such assets. Too bad it won’t work because it would be a start. Of course, American multinationals have no problem with stashing cash overseas since by law (which badly needs changing) such profits are not taxable until repatriated. This has given rise to another anomoly. Tax lawyers (and I used to dabble in such area) can and do negotiate with the IRS on behalf of their multinational corporate clients as to rate if repatriated. Let’s say the tax should be 15 percent; these lawyers can argue for 5 percent and threaten not to repatriate such profits unless the IRS agrees to such lesser percentage and the act sets no end date for keeping such money overseas. I think that is a bad expression of public policy since (1) It encourges offshore investments to the detriment of both our economy and revenues, and (2) It does not provide for equal protection of the laws, because if you and I have a 15 percent tax liability and try to negotiate with the IRS auditor for less we get a blank stare (as I have blogged before) and a promise of interest and penalties.
Sheila – Just want to point out that you have allowed someone else to make posts on this blog using only the name “Nancy”, which is the name I have used to post on here for over two years.
The comment posted by “Nancy” at 9:26 am was not from me. Would like for there to be no identity confusion. Thanks.
” Speaking of “tax avoidance” (another word for evasion)…” Technically, tax evasion is illegal, avoidance is not.
John – The devil is in the details and the definitional line is thin in many cases.
There is a building in Basel Switzerland that isn’t really in Basel. Meaning, this building belongs to no one in Basel as this building is its own “country”. The building is not marked on the outside and if you belong to this Bank, you are riding high is what I’ve been told. I don’t know much more about this building but apparently, there are buildings like this all over Switzerland and you have to know someone to get into them. That’s where this “dark money” is being hidden. There’s no way some middle class Americans like my spouse and I could ever get into one of these banks. We don’t have a million dollars or more to Hide.
From our working stiffs experience as Americans and wanting to bank in Switzerland with the post office bank like we did, was a freaking nightmare. We deposited a check when we opened the account and they froze our account for 3 weeks. Every week, we tried to use our debit card, or pay a utility bill, buy groceries and we couldn’t. Every time, they would come up with another form we had to fill out and it had to be verified with the IRS and of course, that delay. It was maddening. If you’re just a poor schmuck trying to buy food or set up an apartment, well, you’re just a pain in their ass. They only accepted us because my husband is an EU member otherwise, we would have had to go to UBS that overcharged everyone for keeping their money. UBS was the only bank that accepted Americans. We were lucky we had a choice but banks like what the professor mentioned are real. Seen it with my own eyes.
Nancy, I’ll use Nancy C from now on. Still wondering about the 50-60% question. When I looked it up, the answer seemed to involve cloture and several other things that confused me.
Everybody needs to sit down and plow through Marx’s “Das Kapital”. He predicted that capitalism, because it is predicated on greed, will destroy itself from within. Add to that the fact that money is an abstraction; people who worship money are living in an irrational world of their own making where the abstract is real.
Someone mentioned “neoliberalism”. That comes from the tortured mind of Milton Friedman, the guy who “won” a Nobel Prize in economics for his multi-failed system called “Supply-side Economics”. It is the bible for modern, conservative economics introduced during the Reagan years. It became known as “trickle-down” economics. It never worked as intended ANYWHERE in the world where it was imposed. The usual result was civic unrest, abject poverty of the working classes and revolution.
Well, the Republicans push that failed system because they are told to by those super rich who hoard money and wealth. As Jack Abramoff pointed out several years ago, he was shocked at how little it took to bribe a Congressman or a Senator. And therein lies the real problem. The rich are investing in themselves and letting those who made them rich fade away. This has happened before in modern history and really nasty end-games result….like the Russian revolution that eventually gave us the second revolution that gave us Valdimir Putin.
What will it look like here when social services are cut to enhance the rich, wages are cut to enhance the rich, taxes are cut for the rich to enhance the rich, and jobs are cut to enhance the rich? This all sounds like a revolution in the making to me.