The Real Problem With Offshore Tax Havens

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Gary Hershorn / Reuters

The logo of the Cayman National Bank is pictured on a branch in George Town, Cayman Islands on April 26, 2010.

Offshore tax havens are a hot topic these days – due in no small part to the Obama campaign’s attacks on Mitt Romney’s foreign holdings. But beyond that, governments across the globe are hard up for cash, as the global economic slump has eaten into tax revenues, and they would like nothing more than to get their hands on all that offshore wealth.

So when the left-leaning Tax Justice Network issued a report this week which estimated that somewhere between $21 to $32 trillion in wealth is unreported and shielded from taxation from various governments, and argued that this money could be used to shore up balances of debt-ridden sovereigns, people took notice.

According to the report:

“Assuming conservatively that global offshore financial wealth of $21 trillion earns a total return of just 3 percent a year, and would have faced an average marginal tax rate of 30 percent in the home country, the unrecorded wealth might have generated tax revenues of $189 billion per year – more than twice the $86 billion that OECD countries as a whole are now spending on all overseas development assistance.”

(MORE: Romney’s Tax Plan Would Save Him Millions — But Not As Much As Gingrich’s Would)

The study is one of the most comprehensive to date, using data from the World Bank, United Nations, International Monetary Fund and central banks around the world to measure how much wealth is sheltered from the taxman globally.

That the global elite are using whatever means at their disposal to hide their money from governments isn’t exactly surprising. But the term “offshore” — which brings to many minds sun-drenched islands ruled by corrupt governments in cahoots with felonious plutocrats — is misleading, according to the report.

In fact, efforts by developed nation governments to crack down on efforts to impede their own tax collections have forced many governments, like the Swiss, to move away from their traditional banking protections that allow foreigners to evade taxation. So a tax haven these days is less a function of one country with laws that allow for low taxation and secretive banking policies, and more an extension of a large and complex global financial system that is inherently secretive. According to the report:

“The term “offshore” refers not so much to the actual physical location of private assets or liabilities, but to nominal, hyper-portable, multi-jurisdictional, often quite temporary locations of networks of legal and quasi legal entities and arrangements that manage and control private wealth – always in the interests of those who manage it, supposedly in the interest of beneficial owners, and often in indifference or outright defiance of the interests and laws of multiple nation states.”

(MORE: Why U.S. Tax Evaders Can No Longer Count on Swiss Secrecy)

In other words, one doesn’t necessarily have to fly to the Channel Islands with a bag of cash to stash ill-gotten gains or evade the taxman anymore. The past 30 years have seen the evolution of a mainstream financial system that is global in scope and that through secrecy and complexity has enabled itself to profit handsomely off of the tax evasion of the world’s richest citizens. Evidence of this sort of behavior was illustrated earlier this month, when London-based HSBC was sanctioned for aiding terrorists, drug cartels and other criminals in money laundering schemes.

The other aspect of the report that Americans might find surprising — given all the talk of Mitt Romney’s finances — is that this tax evasion is disproportionately a problem for developing countries. According to the report, somewhere between $7.3 trillion and $9.3 trillion in offshore wealth comes from a subgroup of 139 low to middle income source countries. Given that the U.S. alone accounts for 25% of the world’s total wealth, the idea that poor countries account for somewhere between one third and one half of the total offshore wealth is somewhat unexpected.

This last fact is perhaps the most unsettling in the report for two reasons. First, because it’s hard not to suspect that much of the shielded money sourced from developing countries rightfully belongs in public coffers and not in private bank accounts. And second: Because even though $189 billion in new tax revenue would chip away only about a sixth of the U.S. government’s annual budget deficit, that money could certainly improve lives if it were used by developing governments for infrastructure or welfare programs.

MORE: How Lower Corporate Taxes and Infrastructure Can Save the Economy

83 comments
Demovsemperor
Demovsemperor

If we did not have a jumble of tax laws, requiring a number of accountants we could better track money. Money goes where it is least noticed or required. "It is the tax laws stoopid". until those are simplified and gathered at the point made or point spent this will go on and on.

Claude Albertario
Claude Albertario

We need to call our military home so they can invade Cayman Islands, Switerland and all other tax havens to find out where the GOP has stashed the tens of  TRILLIONS they have stolen from the U.S. Treasury over the last 5 decades.

Demovsemperor
Demovsemperor

Americans, both Dems and GOP. If you are looking just for GOP money, you are missing most of it. Blindness is a terrible thing.

toomuchhateoutthere
toomuchhateoutthere

gop is so into racisim,that is 90 percent of the obama hating ,the good ole boys cant handle the lack of white in white house,its the only reason for nominating an idiot like  "ispitonyou romney" it freaks out the current decendents of the old plantation empires

johndeconquer
johndeconquer

When 90% of balck people support Obama you must ask yourself exactly who it is that is being racist.

johndeconquer
johndeconquer

@toomuchhateoutthere:disqus :Simply ignoring something that is an obvious fact does not make it any less true.

Ans simply pointing out a statistical anomaly does not mean that I am focused on color either.

If 90% of any group vote in a single direction, they will be acknowledged as biased.

As I said in my original post, you should ask who it is that is being racist.

toomuchhateoutthere
toomuchhateoutthere

And I am as white as a man can be,im 75% Finnish, 5% Nordic, rh A- blood type,,if you even use color to make your opinions,well dam,your the problem

Demovsemperor
Demovsemperor

Sure, like Romney is from the south and I have never heard him speak poorly of any race. Maybe you should look inside for racism. Remember it was Obama's minister who was racist in his comments, not Romney's, open your eyes please maybe you will see.

toomuchhateoutthere
toomuchhateoutthere

Lol typical,im talking about what going on now,every day,everytime Romney speaks,not one isolated instance you will use to argue,grow up,gop you forget about all the crap bush did for 8 years,and want to blame the extreme consequences on the current administration, your a bigot racist, obtuse in your explanations,I don't feel sorry for you,your one of thousands of folks who thinks sara palin is a genius and Michelle baackman is the next head of the cia,not to forget your prince of truth named rush Limbaugh, and the bringer of peace,name of dick ww3 Chaney, all of whom are lying money hungry folks who prey on your stupidity. This is the crowd you hang with,so many great deceivers

Jo An Gaines
Jo An Gaines

If Romney becomes the president of the USA...the middle class can observe the end of it's road...the 1% will become stronger and we will look very much like a 'banana republic'...with lots of peons and a few plantations...is that what we want...I don't.

johndeconquer
johndeconquer

Oh grow up!! Even under the worst president in the history

of our nation (until Obama) - Bush, we did not experience a "banana

republic". The two parties are not that different. They just cater to

different special interests. If your are in a group supported by one side or

the other then you will vote that way. It will not result in the end of the

world either way.

Demovsemperor
Demovsemperor

And we are doing ssssoooooo well under Emperor Obama and can hardly contain my joy.

armchrexpert
armchrexpert

For those of you who see Romney as a tax avoidance hero - you should know the tax laws in the United States are very broadly stated as they apply to offshore business ownership.  You can't just open a Cayman bank account and stop paying taxes.  Any direct foreign business ownership, bank accounts, trusts, money transfers, etc must be reported to the IRS.

Demovsemperor
Demovsemperor

And so we work for the GOVERNMENT NOW? What we need is the IRS disbanded except for a few people with calculators tallying the sales tax receipts. Cut out all the tax rules and provisions and we would have more after tax money and the government would get its due without intruding into everyones house and health insurance policy.

Dan Berry
Dan Berry

That must be why he will not release Tax Returns.

thefixitman6
thefixitman6

Majic underware man.

Demovsemperor
Demovsemperor

Rather have magic underware than walk around showing it in public like Obamabots in the po' neighborhoods.

foffe1
foffe1

You should have respect for other people's religious symbols, whether they are Mormon, Jewish, Catholic, Muslim, Buddhist, etc.

Your parents must have taught you better than that.

erniepf
erniepf

I'm not sure I see any posts here that support off-shore banking and (legally) hiding millions or billions from taxation.  It's simply time to rewrite the tax code, and get rid of all of these absurd tax breaks, for rich, middle class, and poor alike.

Alastes
Alastes

Oh come on guys it will all trickle down any time now...really! It will!

tony3055
tony3055

As much Romney is dodging and saving the US taxes by using the tax loopholes with his money in the offshore bank accounts just on the yearly basis, it would actually pay a years income for all the clowns running in his party in the primary.

phillypro
phillypro

A President shouldnt have OFFSHORE ACCOUNTS

end of discussion....  i dont care who you name

OBAMA HAS NO OFFSHORE ACCOUNTS

ROMNEY HAS PLENTY....

romney cannot be president 

Demovsemperor
Demovsemperor

How do we know George Soros may be holding a lot of Obama money?

Tunde Babawale
Tunde Babawale

Like father,like sons. How come Mitt kids are not serving in the military.

johndeconquer
johndeconquer

And you think Obama's kids will serve??  ROTFL.

Demovsemperor
Demovsemperor

It's Voluntary, what rank was Obama or Michele? National Guard? No they were too busy hanging with the Pentagon bombers so get your head on straight and realize who the real dodgers are.

johndeconquer
johndeconquer

The real choice in November is do you want to accept personal responsibility for your life or do you want to sit around and complain about what everyone else has?

Obama want's you to believe that you can have everything if you just allow him to take it from everyone else and redistribute it.

If you think Romney is stealing from you, then you are smoking crack. If you ever strive to succeed at anything just know that once you succeed Obamatrons will vilify you for your success.

Your choice, or Obama's choice.

SixSixSix
SixSixSix

 I think everybody should have a daddy like Mitt and get $10 million dollars to dabble in your own business. That's really proving you did it yourself, huh? You want something (a LOT of something) for nothing, try the hereditary economic ruling class - can not fail. Or just be like Paris Hilton, fail and live large anyway.

johndeconquer
johndeconquer

So for every example that you can come up with like Paris Hilton, there are millions of small business people that really did biuld it themselves.

I came from abject poverty and built a business without any government handouts at all. I sold it for $30M and paid an enormous amount of tax on that. So now Obama wants more??? He wants me to feel bad about building a company that still employs over 50 people?? Sure he does. He is OK partying with George Cloony and Michael Vick but wants to steal money from guys like me.

SixSixSix
SixSixSix

Ok, now we getting somewhere. Suppose I cut a deal with this Obama guy and convince him you are too big to fail, California property taxes are nothing (ask Warren Buffet), we hire Mitt's tax squad so the taxes will never be seen, and maybe I find a guy for the ex(s). Where there is a will, there is a way, maybe a little crocked (the path I mean, of course)...

johndeconquer
johndeconquer

LOL - I might consider sharing but I am married and between California divorce laws, property taxes (no-one escapes those) and Obama's tax policies I am afraid I would be too exposed :)

SixSixSix
SixSixSix

Assuming your position is in good faith and even if you don't want to share that useless surplus as I so nobly offered to assist, I want to ask you what you make of a company that earns its revenues from sales to the public sector? I am serious this time. If I sell to government am I ruining my status as a member of the private sector. Does taking the King's coin ruin my standing? It will of course make me somewhat beholding to the King. Or can good money come from evil sources? Considering that government is by far the biggest customer in the economy is its role purely "waste" like the current Repub economic dogma suggests (Pataki was on MSNBC talking up such nonsense). A lot more than public servants depend on public sector spending for their revenue including most major corporations that have entire divisions or subsidiaries dedicated to public sector customers.

SixSixSix
SixSixSix

 Time for truth in advertising. I largely care about my own money. And I don't care if the  government gives it to me from somebody else. We seem to have the same bottom line and sense of social responsibility. BTW, you want to share some of that surplus retirement money that seems destined to go to waste. I will find an excellent use for it. Honest, I will enjoy it greatly! Cheers :-)

SixSixSix
SixSixSix

 No not actually. The vast majority of wealth in this country is in the hands of those born with a golden spoon in their mouths. Why is something for nothing SOOO bad for welfare kids, but just fine for the elite who run the place? Warren Buffet will not leave it for his kids. Even Bill Gates thinks there should be limits.

Why no concern about the trillions drained by a corrupt banking system. Just divert attention to the moral inferiority of those who did not make it big which by the nature of finite wealth is a relative few folks.

johndeconquer
johndeconquer

In the top 5%? Absolutely. According to Google I am in the top .003%. I did not inherit it, I built it. Despite what Obama claims. The people that worked for me also enjoyed the fruits of my success although of course not to the extent that I did. However, no-one forced them to work for me, they were/are free to start their own business just as I did.

johndeconquer
johndeconquer

It is interesting that you chose to be an independent IT consultant. Why not an employee? I will telll you why. It is because you wanted the choice to define your own future and the price you charge for your services. I never put a gun to anyone's head to make them work for me and I also used the services of independent consultants.

I paid market rate for both, if I had not done so, the people involved would

have taken their skills elsewhere.

I am not concerned about how Hilton or Romney created or inherited their wealth. I am only concerned about  my own.

That is the whole point. Some people want the government to run their lives. I do not.

Take the example of unhealthy choices: fast food, alcohol, drugs, smoking. I choose not to indulge in these things because I care about my health. I don't need the government to restrict my access to these things to prevent me from making bad choices.

The vast majority of Americans will indulge in these things because they do not

care about their health. However, after they become ill, they expect me to pay

for their healthcare.

In addition they will support the government hiring thousands of civil servants to forcibly restrain companies from making these products just because they are not being responsible for their own lives.

The problem is they want me to pay for those civil servants out of my taxes because they made bad choices and now don't pay tax.

I made enough money to live comfortably in retirement for longer than my expected lifetime but not if I have to exist in an Orwellian society where people make bad choices and then expect me to pay for them.

SixSixSix
SixSixSix

 Totally missed the point. Paris Hilton is a hereditary parasite. The top and bottom quartile  are locked in place in this country that now has the least social mobility of any advanced country. Exceptionalism of the worst sort. The mushy middle slides around with vast majority staying where they started.

The top 5% have more than 90% of the wealth - do you honestly think you are part of that? It would take extremely ego, you just don't have the right genes. You are not a member of the true economic aristocracy. Never will be. But Paris and the Romney boys are. Not matter how little they do usefully they will be well cared for by tax payer subsidized privilege because their lot sure doesn't pay much in taxes.

You are a fighter over scraps. Let ask you something worse. What is the probability that someone not born into the upper class will ever own any amount of appreciable equity so they can live off the work of others? 4%? So the other 96% will have to make do with labor conditions. A nation of individual workers employing other individual workers is impossible. So let's admit even for common folk you are a bit privileged. The other 96% will have to build whatever they can by selling their work to others. Did you think you built your enterprise with no help from others? So are the 96% supposed to hand every thing on a silver platter to you or do think may be they had better see things from their perspective. Maybe that government is balancing the public (96%) interest - at least sometimes and sadly many times not?

I was an independent IT consultant for decades before outsourcing, of which Mitt was such a pioneer, and HB-1 visas came in as a gross manipulation of government power by the economically powerful. I understand just how badly corporations hate truly self-employed people and the tax penalties that we face. Don't tell me big money doesn't rig the game using government. Have you checked out the Government Mortgage Backed Security game recently - the big criminal banks screw home owners and investors alike to squeeze fees ultimately subsidized by the tax payer. Never a lender or a borrower be, but Servicer is insanely profitable! 

Socialized risk, privatized rewards. Why aren't you complaining about that worst of all worlds? Worse than robber baron capitalism or nationalized socialism - the effective combination of both. That game is paralyzing the house market, dragging down the economy and piling up destructive government debt. All to give something for nothing to those who have nearly all of it in the first place.

Demovsemperor
Demovsemperor

So you are supposed to get someone elses' money? How did you earn it? How much does the government demand? I say if you got it, use as you like, envy will eat you up and I hope it does do that for Obamabots who believe they are OWED something from someone else.

SixSixSix
SixSixSix

 What do you call wealth by genetics? Paris Hilton and the Romney Drones - unearned wealth wasted.

J
J

Romney has been stealing his whole life. From Americans AND America herself.

I agree, personal responsibility is key. Like being responsible for paying your own health care costs - instead of using the ER for your health provider, forcing every other American to pay your medical bills. I agree totally.

Demovsemperor
Demovsemperor

Why don't you just take care of your ER bill and let the hospital sue for others who don't pay.

johndeconquer
johndeconquer

There are many

investments that are totally tax free and legal. If you buy US treasuries or

municipal bonds they are double tax free. These essential vehicles to attract

money into our federal and State governments are structured this way to keep

interest rates low and attract investment.

So you poor

pathetic liberal crybabies, do you want to vilify those of us that invest in

bonds and make it possible for states to fund public sector programs and

pension funds?

No I didn't

think so.

I currently

have $11M invested in just these types of bonds yielding approximately $500K

per year in tax free income. That's right $1/2M income and  ZERO tax. Go ahead and complain about it and

then ask where your next handout will come from. BTW, I paid 39% fed and 10.1%

state tax on the income I mad in order to be able to invest the $11M.

Tax laws are

designed to sway investment strategies. If you raise the taxes on a particular

segment of people they will move their investment - yes maybe overseas.

Grow up, this

is a real world not an OWS rally.

Kile
Kile

The article is written from the perspective that ALL money is the property of government and individuals are only allowed to keep what governments allow them to.  That turns reality on its head.  Money belongs to the person who earns it.  It is that persons right to do whatever is legal to lower his or her tax bill as much as possible.  It would be stupid to willingly hand over money to a corrupt, socialist, inefficient and wasteful government.  Keeping what you've earned and what is rightfully your own is the most fundamental human right.

fishiee
fishiee

Yes, until the basic and fundamental rules and laws governing the rights of citizens is changed to exploit those same rules and laws by self servitude disguised as representing the population.

Rocketman007
Rocketman007

This article presumes the best use for money is to expend it as rapidly as possible on government obligations that already exceed their revenues, despite being overwhelming in size and inefficiency of delivery.

The whole point of private wealth trusts and schemes is PRESERVATION of capital.  They will even settle for 0-3% interest just to keep the principal from being invaded.

If they hold the funds in a "less fiat" (money overprinting or electronically creating) such as the Swiss franc, Australian Dollar, Canadian Dollar and others, they do not decline in value as compared to gold or oil either.

If we did that one simple thing in the USA the practical price of gasoline would drop every year and the practical spending power of your paycheck or welfare check would go up every year.

Good for people, bad for banks?  Nope.  Ironically if you pay back a bank in slowly depreciating dollars they get more than they deserve.  it is the current system of intentional and institutional inflation that hurts everyone all at once.  It doesn't matter the inflation rate is "only" 2% because that means you have 10% less money every 5 years!

Total stroke of the pen solution on this one.  Just like President Kennedy did.

JJ

blessedgeek
blessedgeek

You are writing from the presumption that people off-shoring all that wealth are not the corrupt officials themselves rather than using those govt funds to build roads and schools.

Demovsemperor
Demovsemperor

If it is theirs, it is not the government's money. Hey, I work for myself with a private company. I DO NOT work for the government, why do people want everyone to work for the government?

Rocketman007
Rocketman007

 Nope.  I am writing from the presumption that possession is the defining characteristic of property.  If a jurisdiction has a claim or even an inclinaton to make a claim, there are plenty of national and international means for collecting legal judgments.  Anon accounts are all but dead now, so the new method is a web of companies to hold and manage assets.  But companies get sued all the time.

I do presume that money is NOT the property of the government, but of the citizen, or person, natural or corporate.

Furthermore I keep hearing we need more infrastructure.  That >USD$30T being held in a variety of currencies would RUSH to fund our infrastructure with bond if only they could be held in any country under any currency, or as gold backed bonds, so they were not subject to arbitrary confiscation by the FEDGOV as they did in actuality with GM and Chrysler bonds.

Yet another stroke of the pen rule that would have a huge and immediate impact on the very thing "your President" claims is a high priority.  But not quite high enough to do what I just said so 10 minutes later problem solved.

JJ

To quote H.L. Mencken, 'The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.' (or as we now see in our lives, intentionally created by the government itself)

Claude Albertario
Claude Albertario

Let me get your statement straight:

"If they hold the funds in a "less fiat" (money overprinting or electronically creating) such as the Swiss franc, Australian Dollar, Canadian Dollar and others, they do not decline in value as compared to gold or oil either.

Gold and oil are DEPRECIATING in your view?