
The Swiss leaks and Panama papers open a window on the tax-dodger’s world - JumpCrisscross
http://www.economist.com/news/finance-and-economics/21722897-swiss-leaks-and-panama-papers-open-window-tax-dodgers-world
======
leot
Globalization of wealth is a result of treaties between sovereign nations.

But if so much wealth is hidden and not tied to each nation's fate, those with
the most power and influence lose the connection to their compatriots.

This has led to the brittleness of the current international order. Since the
fall of the USSR, national treaties no longer bottom out at the self-interest
of each countries' residents. We are trusting a legal framework that has had
its foundation severely degraded over the past 30 years.

~~~
wyager
> Globalization of wealth is a result of treaties between sovereign nations.

I think this is a questionable causal relationship. Globalization of wealth
happened due to improved banking/monetary infrastructure; yes, governments
giving permission for this to happen was a practical prerequisite, but I
wouldn't say it's a "result" of international politics.

In fact, as we can tell from another article currently on the front page
(about Chinese bitcoin miners), globalization of wealth eventually happens
whether governments want it or not.

~~~
ethbro
Accessibility of global wealth seems more important.

In the age of sail, I'm sure one could have stashed gold in some backwater
city, which would have hidden it very effectively from any government. But
then you couldn't use it.

The international banking & legal systems now enable those with means to both
keep wealth away from governments while still maintaining access to it for
practical purposes.

------
ChuckMcM
It is an interesting data point. If it is consistent then increasing tax
compliance on the 1% would be sufficent to boost overall tax revenues by close
to 4%. (caveat they just decide to become Canadians :-)

~~~
pm90
I'm not even joking when I say: I really hope they do. These are the kinds of
people who buy into Koch's philosophy (as opposed to Gates' philosophy). Once
this country is rid of Dark money, the political system might finally start
serving its citizens, and not just its _wealthy_ citizens.

~~~
cookiecaper
Say "wealth tax" near Buffet and Gates and watch them have quite a different
reaction. Income tax rates have little effect on the already-wealthy because
most of their money is not distributed in the form of a wage or salary;
rather, it is stored in various types of financial vehicles that are already
tax privileged. To the extent that this wealth is not held in stock,
accountants set up other types of tax-privileged holdings.

Whenever a prominent wealthy person is talking, be aware of the PR necessity
to not appear as if they are hoarding their wealth, or as if they are
uninterested in sharing. Buffet and Gates are no doubt keenly aware of this
necessity.

From the perspective of a Buffet or Gates, it is wise to publicly advocate for
a tax increase that has little or no effect on your personal wealth,
potentially targets up-and-comers who are currently making good money through
their small-to-medium business ventures and may some day pose a threat to your
interests (weakening them by confiscating more money from them), and keeps the
public on your good side because they can point at you and say "There is
$FAMOUS_RICH_GUY, and he knows that being greedy is bad."

~~~
rsync
"Income tax rates have little effect on the already-wealthy because most of
their money is not distributed in the form of a wage or salary; rather, it is
stored in various types of financial vehicles that are already tax
privileged."

The problem with this line of thought _in it 's current implemenation_ is that
the top marginal income tax rates are very, very, very low in comparison to
the "truly wealthy" people that you are referring to.

You only have to make (roughly) $400k[1] in the US to hit the very top federal
bracket of 39%. That's hardly scrooge mcduck swimming in his bank vault. It's
more like middle sized contractors, and (lower echelon) doctors and dentists.

So if you are a proponent of substituting income taxes with wealth taxes I
would hope you are also a proponent of drastically raising the income brackets
for _very, very high_ tax rates to avoid hitting people that aren't "actually
wealthy" (your definition).

[1] [https://taxfoundation.org/2017-tax-
brackets/](https://taxfoundation.org/2017-tax-brackets/)

~~~
milcron
Income tax is the wrong way to tax the extremely wealthy. They make most of
their income from capital gains, which is taxed at a different, low rate.

~~~
refurb
Income tax includes capital gains. At least in the US it's included when you
file your "income taxes".

~~~
cookiecaper
Short-term capital gains are taxed as regular income. Long-term capital gains
are taxed at a significantly reduced rate (highest income tax bracket (39.6%)
pays 20% on long-term capital gains).

See [http://www.investopedia.com/articles/personal-
finance/101515...](http://www.investopedia.com/articles/personal-
finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp)

------
bpodgursky
It's worth pointing out that the US model of taxation (US citizens pay taxes
on income earned anywhere in the world), as much as people complain about it,
completely negates the value in offshore income a la Panama papers.

Sure, until recently you could hide your income in Switzerland, but it was a
clear crime -- there wasn't legal grey area.

And yes yes, there are other ways to try to avoid taxation (deductions etc)
but this is a really big one that the US doesn't have to worry about.

~~~
cr1895
>It's worth pointing out that the US model of taxation (US citizens pay taxes
on income earned anywhere in the world), as much as people complain about it,
completely negates the value in offshore income a la Panama papers

What's different about the US model is that worldwide income is taxed _while
not living in the US_. So if you are an American who permanently lives and
works in Germany, for example, the American government entitles itself to tax
the money you earn in Germany (*in principle, at least; due to exemptions
you've really got to be earning $$$$ to pay taxes twice).

Most countries as far as I'm aware would tax their residents based on income
earned abroad, provided they are actually residing in said country. The
difference is taxation by citizenship vs. taxation by residence.

~~~
DenisM
You will not get taxed twice, rather you will pay part of your taxes in one
country and the remaining part, if any, in the other country. You tax rate is
the maximum of the two.

[https://en.m.wikipedia.org/wiki/Double_taxation](https://en.m.wikipedia.org/wiki/Double_taxation)

~~~
cr1895
You're right, I wasn't particularly clear. My point was more that you'll
(potentially) pay taxes in two countries on money only earned while living and
working in one country.

~~~
r00fus
If you're living in an EU country like Germany, isn't it academic? - EU taxes
are well above US taxes so in effect you will pay nothing more.

------
MarkMc
Part of the problem is unbalanced incentives between tax inspectors and
crooked accountants.

If an accountant​ helps a billionaire dodge taxes he can earn millions of
dollars in fees. If a tax inspector exposes the scam he might get a salary
bonus worth a few thousand dollars.

I would like to see tax inspectors get paid by commission. If the tax
inspector exposes a scam and the government collects $50 million, the
inspector gets $2 million. (And to avoid overzealous inspectors, if a tax
audit finds no impropriety the inspector forfeits $20,000)

~~~
chii
This leads to the moral hazard where you might consider planting evidence for
personal gain.

~~~
rumcajz
Planting $50 million to get $2 million. Not a terribly good deal.

~~~
ptaipale
Implicating (wrongly) someone else's $50m to get $2m. A tempting deal for
some.

~~~
Brotkrumen
You can neither make 50 Million appear nor can you plant evidence in Bank data
that the victims lawyers couldnt tear to shreds. Accounting isn't dropping a
joint in someone's pocket

------
atemerev
Scandinavian countries have one of the most progressive (meaning, increasing
with total assets) tax scales in the world.

Astrid Lindgren, who you might now as the author of Karlsson-on-the-Roof and
Pippi Longstocking children books, once was unlucky enough that she had to pay
102% of her income in taxes (yes, paying more than she had earned this year).
Things got better since then, but I would totally understand the desire to
evade arbitrarily-imposed taxes.

~~~
gph
>arbitrarily-imposed taxes

Isn't a progressive tax system basically the opposite of an arbitrarily
defined system? Perhaps you can quibble over where each progressive quantile
is delineated, but a system defined by raising taxes on those who make the
most is not an arbitrary one. In fact it's a system based on determined
reason. Just because you disagree doesn't make it arbitrary.

~~~
sedeki
I think 102% in taxes is definitely not reasonable...

~~~
logfromblammo
That would be a marginal tax rate.

Such would establish an income level above which it becomes more desirable to
reduce one's taxable income rather than pursue additional income. Every
additional euro would go to the state, plus a 2% fee for having the audacity
to earn more money when you already earn too much.

Assuming there is a deduction for charitable contributions, that's when you
direct your accountant to dump any unexpected windfalls into your favorite
charity, so that you save that 2%. Or, more cynically, you might direct your
company to reduce its dividend and spend some extra money on an executive
retreat.

I can see how a 102% marginal rate might seem reasonable to an insane person.
But I think the highest marginal rate you can charge without causing
unexpected bizarre avoidance behaviors [that may spill over onto other people]
is probably 50%.

~~~
charlesdm
I'm a sane person, and 50% still seems pretty crazy to me. Make a million,
lose half. Then there's 10-20% sales tax on everything you buy. The only thing
that can be said in those cases: time to move.

~~~
1986
But with 50% as the highest _marginal_ rate, you don't lose half if you make a
million. You lose half of everything earned above $xxxK, as set by the tax
authority.

~~~
charlesdm
Yes, I am aware how a progressive tax system works. In most countries the
threshold for the top rate is ridiculously low however, e.g. between €50-100k.

So to correct my statement: make a million, pay 35% (averaged out over
different tax rates) on the first €XX.000, and then lose half of the remaining
€XXX,000.

Is that supposed to make it better?

~~~
arethuza
Most people who make a few million probably do it as a capital gain rather
than income - so different tax rules will apply.

e.g. Higher rate income tax in the UK is 40% for income over £45K (to £150K).
However with capital gains tax with things like taper relief you can end up
paying 10%.

~~~
charlesdm
Yes, for people building / buying / selling assets (e.g. entrepreneurs and
investors) this generally applies. But your average doctor won't be booking
capital gains on his (earned) income any time soon.

Just pointing out that having income taxes that are too high is often
counterproductive for society, just because they can easily be avoided by the
wealthy. I guess the differentiation (and justification) is mostly a way to
make sure the masses who actually use the infrastructure pay more than the one
wealthy person who uses it, but don't need it as much.

~~~
arethuza
Well, wealthy people have have, by definition, more assets that need
protection by state provided legal, police and security services - so I would
say it is debatable that rich people need the state less.

~~~
charlesdm
Probably. Which is why they pay more (in money terms, but not always in
percentage points).

~~~
logfromblammo
The idea that rich people don't like to pay excessively high taxes, and will
avoid doing so if they are able, is not a particularly compelling argument
against progressive taxation.

I am not proposing that any nation institute a 50% marginal tax rate. I am
just saying that I believe that any nation that tries to go higher than that
is _guaranteed_ to have tax avoidance schemes that ensure no one ever actually
pays that much, whether those schemes are visible to the taxing authority or
not. Some people will jump through a maze of hoops just to avoid a 0.1% tax.

What I'm saying is that _nobody_ would rationally submit to a scheme wherein
they do all the work and someone else reaps the majority of the benefits from
it. It goes beyond the limits of the human sense of fairness. A 102% marginal
tax rate is so far beyond that, I cannot even imagine circumstances that might
lead to anyone actually paying it.

------
Animats
Get tough on crime! Put a few billionaires in prison and compliance will
improve sharply.

~~~
elevensies
China is willing to do it, as well as capital punishment for fraud. IMO this
just transfers more power to politicians. There are more laws than anyone
could ever read or count, anyone whose affairs are that complicated can be
jailed at any time so it becomes purely political -- would Trump chose to
arrest the same billionaires as you?

~~~
cookiecaper
Yes. Selective enforcement of law, especially esoteric or procedural laws that
often apply in white-collar crime, is widely used and under-recognized as a
potent political weapon.

~~~
rm_-rf_slash
Sometimes referred to as "rule __by __law " as opposed to "rule __of __law. "

~~~
seanp2k2
The headshot is my favorite: [http://davidsimon.com/kwame-brown-another-
federal-case-anoth...](http://davidsimon.com/kwame-brown-another-federal-case-
another-head-shot/)

TL;DR they can get you good for taking money from your parents to buy your
first house, which most people in the US do.

~~~
astebbin
Most people sounds like overstatement. Personally the idea, "to give your
child any money as a loan and then let the child claim those assets as his or
her own income or saving [...] in support of a loan application," strikes me
as obvious fraud. Without data, I would doubt that most homebuyers follow this
practice.

I think the author's argument wasn't that this practice is not or should not
be a crime, but that the potential criminal penalty - 30 years! - is far too
high.

------
gadders
In other news, Laffer Cuver still applies:
[https://en.wikipedia.org/wiki/Laffer_curve](https://en.wikipedia.org/wiki/Laffer_curve)

------
vixen99
This is about tax-evasion. While it's often difficult to disentangle the two
activities, continually referring to tax dodging (or tax avoidance) is
unhelpful and simply wrong. Every single sensible law-abiding taxpayer seeks
to avoid and dodges taxes such that they arrange their affairs to minimize
their tax bill. Revenue authorities work within the appropriate legal
framework to maximize the tax they extract from individuals and organizations.

------
Fifer82
Why can't every payment being sent to someone, simply be digitally taxed?

Why do I get paid and automatically get taxed during this process, but a
footballer doesn't?

It is bullshit

~~~
B1FF_PSUVM
The problem there is advertising, and jurisdiction for taxing "image rights".

E.g. Cristiano Ronaldo pays taxes in Spain for his salary. His income from
advertisers using his mug all over the world is another story - the Spanish
state wants dibs on it, his accountants say that is not "work" performed
there.

We still do not have a handle on the Mickey Mouse and superstar system.

~~~
AnAfrican
And at least Cristiano Ronaldo is a EU-citizen...

When you're Neymar and you get paid for a toothpaste add in Japan, you get 3
countries possibly arguing about that revenue. Hence Panama, at least until
you figure it out.

------
blazespin
Demonetize, tax on consumption, provide rebates to the impoverished. so many
problems will be solved. Consumption based economy will go away (destroying
the planet, so that's good) and industry will focus on basic necessities that
aren't taxed as much - food, shelter, clothing, medicine.

------
cgb223
> Globalisation has disproportionately benefited the rich in part by rewarding
> capital more handsomely than labour

How would one define "Capital" in this case? What does this mean?

~~~
jrochkind1
Roughly, "capital" is the class of people who make most of their money by
investing money they already had, and "labor" is people who feed themselves by
selling their time working to others. I'm guessing you knew that but want to
challenge the categorization?

------
someSven
Let's not forget that a lot of the tax fueled gouvernmental spending goes back
to the middle and low income classes. And we are voting for it.

------
lacampbell
People need to read this and get it through their head - progressive tax rates
don't work because the truly wealthy can afford to hire accountants to avoid
tax to a huge degree. It disproportionately effects the middle class.

~~~
dragonwriter
> People need to read this and get it through their head - progressive tax
> rates don't work because the truly wealthy can afford to hire accountants to
> avoid tax to a huge degree. It disproportionately effects the middle class.

Progressive tax rates on non-capital income, with additional flat taxes on
specifically labor income, and lower (but still progressive) rates on capital
income hit both low-income workers (because of payroll tax, which bites them
hardest due to declining marginal utility) and high-income workers (the part
of the middle class that isn't "small business owners") hardest even before
considering tax avoidance.

A progressive tax on all income without special tax favor for capital and
special tax penalty for labor would go a long way toward making things better,
even with the possibility of the rich spending some of their money on less
rich accountants to avoid some of their tax burden.

Avoidance is a much smaller problem than the system being designed to favor
the way the ultra-rich earn income from square one.

~~~
lacampbell
Why not scrap income tax altogether and tax land value?

It seems insane to me to punish people getting better jobs. But by owning
expensive land you are in effect depriving others of using it. If you want to
argue a moral basis for taxation, that is surely one.

Taxing career advancement instead of property investment and absentee land
owners sitting on property seems completely backward. But I never considered
that tax laws were probably designed from day 1 to benefit the rich, since the
wealthy are so much more influential in any government (including
democracies).

------
oldandtired
In the last 20 years or so, I have come across a couple of ideas that are not
politically palatable.

The first was a universal transaction tax. Every transaction that passes
through the banking system has an associated transaction tax rated at 1 cent
per 100 dollars collected by the banks, remitted directly to the government
and taken out of the transaction. All monies transferred out of a country
would have the originating country collect and retain the tax.

The interesting aspect of this is that all funds that end up in the banking
system, irrespective of legality of source would participate in the
transaction tax. And based on the figures of over 20 years ago of only 1 in
every 1000 dollars passing through the banking system was from legal
enterprises, that's a lot of additional taxed wealth.

The other aspect of that discussion was that all other taxes, government
charges (duties etc) would be dispensed with. It was unpalatable because it
treated all as equal and various interest groups don't like that.

The second one was charging a flat tax (income) on every entity with the only
allowable deduction being salaries and wages. This is based on gross income
not net income. One aspect would be to force companies to run much more
efficiently than they would otherwise do so. Again treating every entity
equally would not be politically palatable.

Of course, there will those who would still try to game the system, them you
cannot get rid of.

~~~
mistermann
> This is based on gross income not net income.

Largely varying margins in different industries makes this seem unfair to me,
unless I'm misunderstanding it. Basing it on net income avoids this, but then
you get funny bookkeeping to game the system.

~~~
oldandtired
Precisely, Net income leads to funny bookkeeping to game the system. The goal
of gross income forces companies to be efficient and with only wages and
salaries as deductions, not at the expense of employees.

Trade tariffs can be applied in a similar manner. In the usual case, tariffs
are based on the worst performing internal supplier, not on the best
performing (most efficient) internal supplier. As efficiencies are gained by
all, the tariffs themselves can come down. If the most efficient internal
supplier gets less efficient, the tariffs do not increase to offset this
decrease in efficiency. hence, they are forced to maintain or increase
efficiency.

