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.