Are tax havens an enraging but tangential subject? Or do they have a powerful effect on how the U.S. economy functions and should therefore be a part of every political debate?
The startling findings of a new academic study indicate that it’s the latter. Titled “The Exorbitant Tax Privilege,” the paper is co-written by Thomas Wright and University of California, Berkeley economist Gabriel Zucman, one of the world’s top authorities on tax havens and author of the best layperson’s introduction to the subject, “The Hidden Wealth of Nations.”
Tax havens — the most significant include Ireland, Singapore, Switzerland, the Netherlands, Luxembourg, Hong Kong, and Bermuda — serve two purposes.
The first is tax evasion by individuals, which is illegal. Think of Russian or Nigerian plutocrats transferring their assets to small Caribbean nations with strict banking secrecy laws, freeing them from the dreary necessity of paying taxes in their home countries.
The second is tax avoidance by huge multinational corporations, which — as long as the lawyers are doing their jobs — is perfectly legal. Here imagine Apple using various forms of accounting chicanery to claim that tens of billions of its profits generated in countries with normal corporate tax rates were actually all made in Ireland, where Apple had negotiated a special 2 percent tax rate for itself. (Apple has on occasion gone even further, asserting that some of its profits were made, for the purposes of taxation, in no country at all.)
Zucman conservatively estimated in his book that tax avoidance and evasion translate into hundreds of billions of dollars in unpaid taxes every year — money that, for the most part, ends up in the pockets of the world’s wealthiest people.
The Zucman and Wright paper addresses the multinational corporation part of the equation. Among their conclusions:
• As of 1970, American multinationals claimed that under 10 percent of their profits were generated in tax havens; that number is now, preposterously enough, almost 50 percent. In other words, U.S. companies want us to believe that nearly half their economic activity is occurring in places like the Cayman Islands. Goldman Sachs, for instance, has 511 subsidiaries there,