IT WOULD HAVE been infuriating at any time of the year to learn about the massive tax evasion by the global 0.01 percent revealed by the Panama Papers leak. But it’s especially maddening for regular American schlubs to hear about it in April, just as we’re doing our own taxes.
According to estimates by Berkeley economist Gabriel Zucman in his book The Hidden Wealth of Nations, rich individuals and big corporations use various machinations to pay at least a third of a trillion dollars less than they owe every year. For everyone else, this translates directly into higher taxes, more national debt, and less government spending.
Conservatives like to argue that it’s impossible to shut down the dizzyingly complex world of shell corporations and tax havens — a position that supports their argument that there’s no point in raising taxes on the wealthy. As George W. Bush proclaimed in 2004, “Real rich people figure out how to dodge taxes.”
However, Zucman makes a persuasive case that it wouldn’t be technically difficult to crush the tax haven industry. The enormous challenge would be mustering the political will — and not just in one country, but on a global level.
Tax havens serve two functions: tax evasion, which involves hiding assets and is illegal, and tax avoidance, which is done by multinational corporations in the open and is legal (since the same corporations have conveniently made sure the laws work that way). Eliminating them requires different strategies.
Tax Evasion
Let’s consider one example: Say you’re an American business owner and you want to hide $10 million from the Internal Revenue Service. As Zucman explains it, there are three steps.
First, you set up a shell corporation — say, Definitely Not an Illegal Tax Shelter LLC — in a location like the Cayman Islands with strict privacy laws about disclosure of company owners, so no one knows that DNAITS belongs to you.
Second, you create a bank account for DNAITS in Switzerland.
Third, you have your real, U.S. company buy $10 million in fictitious services — maybe “consulting” — from DNAITS, sending that $10 million to your Swiss bank account.
Now you can take that $10 million and invest it in whatever you want: real estate, stocks, bonds, mutual funds. In theory, you’re legally obligated to declare your interest, dividends, and capital gains each year and pay taxes on them. In reality, the IRS may never find out that the money belongs to an American, especially since your Swiss bank may itself not know who owns DNAITS.
Let’s say you’ve invested it all in a Vanguard mutual fund that provides a return this year of 5 percent, or $500,000, in taxable dividends. If you were to follow U.S. law and declare it, you’d have to pay taxes on that $500,000 dividend income at a rate of 20 percent, costing you $100,000. So you don’t, and your money continues compounding each year tax-free.
For Americans who aren’t super-rich, there’s no way to hide your income from the government. Employers and banks automatically report your wages, interest from savings accounts, and any meager dividends and capital gains to the IRS. (In fact, the government knows so much that there’s no need for most people to do their own taxes — the IRS could just send you a tax return already filled out for your approval, as is done in Sweden, Denmark, and Spain.)
The main service provided by tax havens is simply that — since they’re not bound by other countries’ laws — they don’t report the income of foreigners to the relevant tax authorities.
Based on the history of previous attempts to crack down on tax evasion, successful and not, Zucman argues that the U.S. and European Union could stop most of it with a two-pronged attack: concrete consequences for tax havens, and an international financial register.
The Foreign Account Tax Compliance Act, passed by Congress in 2010, imposed our national rules on all financial institutions worldwide. That is, under FATCA, banks in Switzerland, Luxembourg, the British Virgin Islands, and everywhere else must search their records for accounts held by U.S. citizens, and automatically report their income to the IRS.
While FATCA has flaws, it’s been successful in making it more difficult for Americans to evade taxes. What’s needed, says Zucman, is even stronger measures to force tax havens to automatically report the income of all foreigners, not just Americans, to the tax authorities in their countries.
The U.S. can force tax havens to comply because we’re so big and powerful. But smaller countries could also bring tax havens to heel if they act in coalition, especially since tax havens themselves are generally tiny and dependent on exports. Zucman calculates that if Germany, France, and Italy slapped a tariff of 30 percent on Swiss goods, this would cost Switzerland more than it makes as a tax haven — and such a tariff would be legal under World Trade Organization rules, since it would enable the three countries to recover approximately the amount in tax revenues that Switzerland is costing them.
Of course, as with the hypothetical Definitely Not an Illegal Tax Shelter LLC, bankers may be able to honestly say they don’t know who owns many assets. That’s where an international financial registry comes in.
Zucman contends that a global registry of who owns which assets is “in no way utopian.” Countries have long had national registries of who owns all their land and property. More recently, corporations have set up private, large-scale registries: the Depository Trust Company (which keeps track of the ownership of all stock issued by U.S. companies), Euroclear Belgium and Clearstream (bonds issued by U.S. companies but denominated in European currencies), Euroclear France (French corporate stock), and other national repositories.
Thus it’s not hard to imagine the databases being merged under the supervision of a public, international institution with financial expertise — and fortunately we already have one of those, the International Monetary Fund.
Of course, the registry would in many cases record that assets are owned by corporations or trusts whose owners are unknown. Tracing the financial chain through many layers of obfuscation back to the actual human beings who hold the assets would require an enormous, costly, and possibly ineffective IMF bureaucracy.
Zucman proposes a fiendishly clever solution: the global registry should impose a small, refundable wealth tax to make it in the financial interest of anyone with hidden wealth to disclose it.
Here’s how it would work:
Imagine that the IMF registry imposed a wealth tax of 3 percent on everything in its records: stocks, bonds, mutual funds, land, property, etc.
Now think again of your $10 million held by Definitely Not an Illegal Tax Shelter LLC, and the $500,000 it’s earned this year in dividends from your Vanguard mutual fund. Your Swiss bank records that DNAITS has received this $500,000 in income, but doesn’t know you own DNAITS, and so can’t report it to the IRS as your income.
However, the global financial registry records that $10.5 million in the Vanguard mutual fund is held by DNAITS — and taxes it at a rate of 3 percent, or $315,000.
You now have two choices. First, you can keep silent about your ownership of DNAITS and let the IMF keep the wealth tax, leaving you with $10,185,000.
Or second, you can prove to the IRS that DNAITS belongs to you. And since there’s no wealth tax in the U.S., you’d get all of the $315,000 back. All you’d have to pay is the $100,000 in income taxes you owe on your $500,000 income, leaving you with $10,400,000.
Of course, with such a system in place there would be no point in trying to hide your $10 million in the first place. Instead, you and almost everyone else would simply pay what you lawfully owe — so you don’t have to pay more.
None of this is to say that setting up such a system would be politically simple. In particular, conservatives in all countries would suspect that such a global financial registry would make it easier for countries to impose taxes on wealth in addition to taxes on income — and they’d be right. On the other hand, this also makes a global registry an attractive goal for all political parties concerned about wealth inequality. A global financial registry would also be politically difficult to openly oppose, since it would not just hamper tax evasion but would also be a key tool in fighting money laundering and the financing of terrorism.
Tax Avoidance
The U.S. has, by world standards, a peculiar corporate tax system. Multinational companies headquartered in the U.S. must pay an ultimate tax rate of 35 percent on all their profits earned anywhere on earth.
That is, if a corporation makes money in a foreign country with a corporate tax rate of 10 percent, it must pay the IRS an additional 25 percent on its profits booked in that country. But to make things even more complicated, it only has to pay that additional tax when it brings the profits back to the U.S. If it keeps the profits overseas, it can postpone paying the tax bill indefinitely — which is why U.S. corporations are now holding over $2 trillion in profits in other countries.
This creates two obvious incentives for U.S.-based multinationals.
First, they’re continually tempted to engage in corporate “inversions,” in which they move their formal headquarters to a country with lower tax rates — even as their factories, workers, and customers stay in the same places. This is why Medtronic, founded in Minneapolis in 1949, is now formally Irish, even as its “operational headquarters” remain in Minnesota.
Second, they tend to engage in accounting chicanery to make it appear as if their profits were “earned” by foreign subsidiaries in countries with low corporate rates. This is a particularly attractive strategy for internet companies, whose value is largely non-material. For instance, Google licensed its highly profitable search and advertising technology to a subsidiary in Bermuda, where the corporate tax rate is zero percent. Google “pays” that highly profitable subsidiary billions in royalties each year.
Corporations keep these profits overseas in hopes of striking a deal with the U.S. government allowing them to bring the money home at a reduced tax rate. This already happened once before in 2004, when Congress let corporations pay just 5 percent on repatriated profits. New York Democratic Sen. Chuck Schumer is currently working with Republicans on a similar plan.
All of this is done in the open, and is totally legal. Regular Americans despise it, but the tax system is so complex that it seems impossible that the IRS could ever keep up with armies of highly paid corporate lawyers.
However, there’s a feasible solution suggested by Zucman (and many others): Completely throw out our current corporate tax system and begin using something far simpler called “formulary apportionment.”
Formulary apportionment starts by discarding the weird fiction that a multinational corporation’s subsidiaries are separate companies. Instead, it treats the corporation as what it is, one unitary company, with one unitary amount of profit. Next, a formula based on the location of three concrete factors — the corporation’s payroll, physical capital like factories, and sales — is used to apportion percentages of the multinational’s profits to the different countries in which it operates. The IRS would get 35 percent of the U.S. apportionment.
This isn’t a untested daydream. Individual American states have long used formulary apportionment to determine tax rates for multi-state corporations. The principle would be exactly the same for multinational companies.
There’s no “right” formula, though for decades most U.S. states placed an equal weight on each factor. For example, a manufacturing multinational might have 66.6 percent of its payroll, 33.3 percent of its physical capital, and 50 percent of its customers in the U.S. Added together and divided by three, that means that half of its profits should be apportioned to the U.S. and can be taxed here.
Thus a formulary apportionment system would make corporate inversions and the fictitious booking of profits in low-tax countries pointless — neither would change a corporation’s U.S. tax liability.
It’s true that moving to such a system would be, if anything, more politically difficult than creating a global wealth registry. It would be ferociously opposed by many big U.S. corporations. On the other hand, explained clearly it would be extremely popular with regular Americans. There might also be some unexpected corporate support from CEOs who are tired of terrible PR and spending huge amounts of money on those otherwise-useless armies of tax lawyers.
Moreover, the European Commission (the executive body of the European Union) is pushing for individual EU countries to use a formulary apportionment system. This means that both U.S. states and European countries may soon have analogous approaches to corporate taxes. And as Zucman points out, the proposed Trans-Atlantic Free Trade Area would create one free trade zone covering the U.S. and European Union. Groups fighting tax avoidance could push to make a fusion of the two corporate tax bases part of any TAFTA treaty, which would make it far easier to set up formulary apportionment at the level of the U.S. and EU.
So, as Zucman writes at the end of The Hidden Wealth of Nations, this is “above all a battle of citizens against the false inevitability of tax evasion and the impotence of nations.” Money launderers, crooked politicians, and huge corporations want the system to be so complicated that only their shady bankers and lawyers can comprehend it. But if regular people worldwide can educate ourselves about the costs the current system imposes on all of us, and mobilize to agitate for possible solutions, there’s a path in front of us to a tax system for everyone that’s far simpler, fairer, and more transparent.
Tax havens is a hot topic of conversation in Australia as well – not among our politicians, though, but among commenters on pages like this one. When our own prime minister has a reported wealth of some $AUD200 million and by his own admission, has an account or accounts in the Cayman Islands, why is he so reticent on the subject? Why have your money in an overseas tax haven, unless you’re deliberately hiding it? Yes, it may be legal, but it sure ain’t ethical – especially when you tell voters “We must live within our means.”
I also note the media reporting a second raid on a Mossack Fonseca premises on Friday 22 April and finding bags of shredded documents that Mossack Fonseca allegedly claimed they didn’t have. The amount of paper “recycling” going on in some island paradises must be astronomical.
On a serious note, with all the money that’s been taken out of economies around the world, something needs to be done before there’s riots in the streets. We can all put up with some austerity if necessary, but everyone has to participate.
Jon, FATCA doesn’t have flaws- it is entirely flawed. It sounds great but in reality it is an intrusive and one of the most nefarious power grabs on the part of the US. The US has strong-armed foreign governments into complying if they want to trade US Dollars with a promise of reciprocity. (btw not all countries or banks have signed onto the agreement…) At the same time the US doesn’t fully share its own financial data on foreigners that may hold funds in say, Miami or New York.
As someone who lives abroad I can tell you that FATCA has been a nightmare. Most banks outright refuse to service American customers and close the accounts on the ones they discover. But it’s even worse. Foreign spouses, and even US children of US citizens are also subject to comply even if they’ve never set foot in the US. Foreign firms often now don’t want to hire US executives or invest in businesses with US citizens because of the complexity of complying. Not to speak of the philosophical problem of imposing US law on foreign jurisdictions…
Furthermore, wealthy individuals aren’t stupid enough to put accounts in their names. They do exactly what you mention above. With no reporting requirements. Hmm. One set of rules for the plebs and another for the aristocracy? It’s a vile piece of legislation that needs to be repealed. I’m very surprised the Intercept would take an even remotely positive view of FATCA.
You don’t address why US is the only country in the world that has global taxation except for some dictator control Caribbean country. Also why US will never go to a flat tax. I.e. Job lost for IRS staffs, tax and legal consultants, lobbyists, politicians will lose their biggest source of campaign funds, etc.
You beat me to it! None of these “tax havens” would exist if fed.gov wasn’t so insanely greedy for every dime they can squeeze from every citizen, no matter where they actually live. Only the USSA and Eritrea have “citizenship-based” taxation, as opposed to “residency-based”. This is why you can still have millionaires in socialist paradises like the Scandinavian countries. The wealthy are not taxed on their offshore earnings.
Exactly the same thought. I live abroad and the amount of cost and hassle it adds to file returns in two countries is ludicrous. And this year’s draconian ruling which allows the US govt the ability to revoke passports if taxes are overdue (and penalties accrue–) is awful. Unfortunately most of Washington likes to perpetuate the fallacy and fantasy that Americans who live abroad are loaded. Some may be but the rest of us work for a living.
This country was founde d on people not wanting to pay taxes to the Crown. Then some idiot decided everyone should be fleeced to pay for World War I and World War II and so we have an IRS and taxes again.
It is real simple: All Taxation is theft. We are not in a club. It does not matter if I did not build the road I take to go to work. In a truly free market, traveling over the road nationally would be like paying for internet access.
If you are so mad that people are getting away with not paying taxes, why not learn to do it the way they do it, and stop paying yours.
Maybe you would eventually discover that fascist corporations that supply military arms and equipment to all world governments (on all sides of all wars) use taxation to make all of us pay for their costs, while they keep all the profits. Every single dollar of government handout for welfare is paid for in the blood of warfare.
So maybe not paying taxes is a great Anti-war platform.
If you want to contribute to widows and orphans, use some of the money you stop giving to uncle sam. There are many charities. You don’t need a tax deduction, when you have stopped paying taxes in the first place.
This is so stupid. Society would collapse without taxes. Your having anything at all to tax depends on prior public spending supported by taxes. Your pre-tax money is not yours. Only your post-tax money is.
Read these articles please:
https://www.jacobinmag.com/2016/04/tax-the-rich-capitalism-marx-socialism/
http://dollarsandsense.org/archives/2010/0310alperovitzdaly.html
“The MAIN service provided by tax havens is simply that …”
The MAIN service. Very different, from the absolute dichotomy that Jon started with “Tax havens serve TWO functions…”.
Why is nobody questioning this? There’s no question that these offshore shelters are being abused, and we should be seeking ways to correct it.
But isn’t it possible that some people are using them legitimately to protect their assets from the predators? Do we have proof that ALL offshore account owners are not reporting profits, are not paying taxes on interest?
If I suddenly won the lottery or had a hugely successful business, I’d want to avoid the consequences of high visibility, of frivilous lawsuits and the like.
I’m sorry, but Jon and Sanders and many others are engaging in Guilt before Innocence judgments. And in the process, trying to deprive people of a convenience that isn’t an evil in itself.
I’m a big fan of Sanders, and truly believe that Jon’s heart is in the right place. But they are sacrificing very important values like financial privacy for some innocents, in order to catch some others are really are guilty.
100% forfeiture of all assets found… Make it pay and make it one no-one wants to play with. 100% forfeiture and a 100% fine
1/ TAX EVASION = DRUG TRAFFICKING ==> SEIZE ALL ASSETS.
2/ tax avoidance : what about Las Vegas and Delaware ? Thanks TTIP, but no thanks…
Who are the governments’ main creditors ? Where does the latter’s money come from ? Do the governements themselves know it ? Do they want to know ?…
As long as there is the corrupting influence of money in politics any changes in the tax code will only pay off for the contributors. If those contributors do give something up in what appears to be a compromise they will quickly get back what they gave up and far more. And the public will never know as it will be buried in a bill subject to an up and down vote, which has so many thousands of pages a pallet will be needed to carry it in for a quick review immediately before Christmas break just like what happened with NAFTA.
I give us well under a century. The greedy, corrupt sociopaths will be living in the dystopia their greed combined with technology have wrought on Mother Earth. There is still a chance of Nuclear war or some horror coming out of a capitalist lab doing us in sooner but climate change will get us or rather our kids/grandkids. WE are the super predators Hillary called the black kids constantly seeking growth on a finite planet….it ain’t rocket science to see the end and the fat cats will be last but they may wind up envying those of us who died first.
As said below – and with all due respect to a will written article – how many times is tax policy going to be applied only to be bribed away in the blink of an eye it NEVER works. Yet everyone even Piketty after showing for the 1001st time that capitalism ALWAYS leads to inequity pathetically calls for changes in the tax law its absurd.
What about the great fortunes? They will still exist, no? They will get/buy their way again, no?
Until the power of the great fortunes in neutralized nothing will change.
Your “fix” won’t do anything, because it will be un-fixed in a few years, probably without our knowledge. As long as the income tax exists, it will be the politicians’ favorite method of covertly granting special privileges to the politically well-connected. How many voters are even going to be aware that some politician slipped a special tax break into a multi-thousand page tax code? The permanent fix is to scrap the personal and corporate income taxes entirely in favor of the “Fair Tax”(fairtaxdotorg).
Not only is the income tax absurdly complicated, the whole idea of taxing income is rather idiotic. Taxes clearly create a disincentive.
Q: Why do we tax tobacco?
A: So people will smoke less.
Q: Why do we tax income?
A: So people will … uhhhhh
The Fair Tax will incentivize production and savings and put the disincentive on consumption. It will eliminate the needless complexity in the income tax code. It will also make USA products more competitive with foreign products because all tax would be collected at the point of sale. It could be implemented in a revenue-neutral manner and in such a way that the poor don’t face an additional burden.
> Q: Why do we tax tobacco?
> A: So people will smoke less.
>
> Q: Why do we tax income?
> A: So people will … uhhhhh
Tobacco taxes are part of a class of taxes known as sin taxes, but they weren’t originally brought about as a way to stop people from sinning. Rather, they were taxes on things people were going to use anyway. (The very first domestic excise tax ever levied in the United States was on whiskey at 7 cents per gallon, leading to the Whiskey Rebellion, which was put down quickly but in court cases established federal legal supremacy.)
Beyond a certain point, sin taxes *may* reduce smoking (the decline in smoking is more complex than just being taxed out of existence), but there will always be a hardened few that will smoke no matter what. Taxes on alcohol can be steep: even in Texas, the combined federal and state taxes are around $16 per gallon ($3.20 per 750mL), yet the liquor industry is very strong throughout the state.
The Fair Tax might be a better solution. On the surface, it’s interesting enough to consider. But to spread awareness using false logic, fallacies, or disinformation undermines your argument before you even get started.
This deserves some more attention:
“April 16 2016 Inside Panama Papers: Multiple Clinton connections”
http://www.mcclatchydc.com/news/politics-government/election/article72215012.html
“Some donors to Clinton foundation used the Panamanian law firm for offshores”
“Connections come from the more than 40 years Bill and Hillary Clinton have spent in public life “
All taxation is theft and everyone has the natural right to evade and oppose criminal acts against them.
All property ownership is theft and everyone has the natural right to take back whatever portion is rightfully theirs.
Does that mean that I can come over and size your house and your car? Thanks.
I know that there are legitimate reasons to have an offshore company that banks in Switzerland. That said, it is also, as the article describes, possible to use such an arrangement for tax avoidance. The world is a complicated place. Recall that citizens who don’t want their resources used by the US government to create war and associated mayhem around the world may also find offshore arrangements a way to bring sanity into their lives.
So you’d like to be able to live in a country, enjoy its culture and infrastructure, and all the protections that come with citizenship, yet not commit to its mistakes?
I think a reasonable solution to these tax havens would be the prosecution and imprisonment of those who use them. And seizure of property equal in value to owed taxes.
Mike,
I am sorely aggrieved that the country I live in has a political system that allows my taxes to be used to kill multitudes of innocent people for this or that stupid political argument; and i am powerless to prevent this. My family lives here and I could not leave them but I have been tempted.
Reread my first sentence above. I do know.
No matter where you choose to live, it will always be in a country where your taxes pay for something with which you don’t agree. Even using tax avoidance mechanisms ultimately funds other nations’ activities with which you may disagree through taxation of the companies and their employees involved in the activity.
“there are legitimate reasons to have an offshore company that banks in Switzerland”
name some.
Jo:
To enable a US company to domicile in an offshore location that accesses the EU common market without onerous import duties with Swiss banking to facilitate money transactions within the EU.
Yes, and it’s also legitimate to keep records of profits in an offshore account, pay taxes, and use it to protect oneself from predatory, unscrupulous individuals.
You don’t need to set up the DNAITS in the Caribbean or Switzerland: Delaware, Wyoming, or Nevada will do just fine……
Formulary apportionment could be associated with a progressive tax on a corporation’s income. That is, the tax rate would increase with the total size of the company, calculated as the sum of all the company’s income in all countries. This would put pressure companies to split themselves up into separate and unrelated companies; but they could choose how to do it.
See https://stallman.org/articles/progressive-tax-on-business-gross-income.html.
Thanks Richard. For everything you do.
FATCA attempts to tax non-residents of the USA. In doing so, it joins only one other country in the world that does the same: Iran. It should be possible to tax only economic activity within the borders of the nation that needs the revenue. It can be done fairly, and without attempting to police the world. Something like the “Fair Tax” initiative might help (look it up). Be careful of this wave of indignation about the wealthy, mostly using perfectly legal loopholes, that it will merely lead to more spying on the citizenry, without any of the real and straightforward reforms that are needed. Sure, close stupid loopholes, but don’t encourage the surveillance state. And don’t forget the tyranny of paperwork wherein the largest sector of the real economy is just spinning it’s wheels non-productively. Lawyers, accountants and endless layers of financial manipulators are mostly just parasites on the people who do the real work. Fix what is broken, but don’t make it worse.
There’s something a bit odd about the Panama Papers leak:
1) There is a prior report that appears to use material from Mossack Fonesca, but apparently delivered via the U.S. Treasury to reporter Ken Silverstein, and the article focuses heavily on Assad’s Syrian government-related clients:
“The Law Firm That Works with Oligarchs, Money Launderers, and Dictators”, Vice, Ken Silverstein December 3, 2014
2) The initial absence of any links to American politicians were suspicious (but see below) However, claims that this was a deliberate NSA leak targeting
Syria and Russia don’t account for the mass collateral damage to U.S. allies like Britain’s Cameron.
So: let’s say it was the NSA who broke into Mossack Fonesca and spirited away their files. A certain degree of ‘minimization’ to exclude American names might (or might not) have taken place at this stage. Then, let’s assume the material was given to people in various federal government departments (State and Treasury) to analyze for use in a public relations war against Syria, Russia, China, etc.
Now, let’s say the source got his/her hands on the entire NSA collection from Mossack Fonesca and covertly leaked it to Süddeutsche Zeitung. Note also that some fraction of the material was previously delivered – sold? – to the German government. So a fair number of people with U.S. government security clearances might have had access to what NSA collected.
Anyway, that’s my guess – would make for a decent John Le Carre plot line, wouldn’t it?
P.S. Look at this:
Inside Panama Papers: Multiple Clinton connections
McClatchy Newspapers
http://www.mcclatchydc.com/news/politics-government/election/article72215012.html
“. . .Among them are Gabrielle Fialkoff, finance director for Hillary Clinton’s first campaign for the U.S. Senate; Frank Giustra, a Canadian mining magnate who has traveled the globe with Bill Clinton; the Chagoury family, which pledged $1 billion in projects to the Clinton Global Initiative; and Chinese billionaire Ng Lap Seng, who was at the center of a Democratic fund-raising scandal when Bill Clinton was president. Also using the Panamanian law firm was the company founded by the late billionaire investor Marc Rich, an international fugitive when Bill Clinton pardoned him in the final hours of his presidency.”
ok. That there are deminimus americans named in the mcclatchy, and that there is a strong emphasis on typical amereuro adversaries tells me that americans have a different offshore tax dodger firm, perhaps in the Caymans. Let’s ask Mitt Romney for a recommendation for offshore entification.
I think it’s all onshore these days, Delaware, Nevada, Wyoming. I mean, when you think about it, why have people go to the trouble of sneaking dirty $100 bills out of the United States to Mexico in order to feed them into a foreign offshore account that cycles them back to the US for investment in real estate and Treasury bonds? Just set up the account in Delaware or Nevada instead.
What’s it called when a company makes a profit, but rather than paying employees or re-investing in capital assets or production, the CEO receives a large stock option bonus?
Most recently I was reading about the McDonald’s CEO, Steve Easterbrook. He earned $7.9 million in total compensation, but his base salary is $1.025 million. His stock awards were worth ~$3 million and executive option award $2.1 million.
Anyway, my question is, if those profits were to be invested in employees (i.e., the community) and real, tangible capital assets, I am assuming these would be taxed? Whereas if said profits are given as stock options to the CEO, are they taxed differently?
This is a question I am asking of informed readers. I am trying to understand why large stock options continue to go to CEOs, but yet wages and benefits continue to be suppressed for employees and impacting communities.
Income taxation on stock options depends on when they are exercised & sold.
Same-day stock sales are taxed at normal income tax rates & stock options exercised & held for more than 1year receive capitals gains treatment on a portion of the process while another portion is still taxed at normal rates.
Thanks, Galactus.
The $7 million above his base salary would average out to less than $17 per McDonald’s employee, barely more than an extra dollar a month before taxes. While I agree that many CEO compensation packages are outrageous, I think it’s harder to come down on someone making $8 million while overseeing 420,000 employees across dozens of countries.
You are right that expenditures are taxed differently depending on how they’re spent. It’s one of the reasons it’s easy to get companies to buy things (capital expenditures with depreciation over several years) but not invest in training for their employees (no depreciation).
Zucman appears extremely naive. Here’s a much better plan: Let’s get rid of governments!
A hundred years ago US government spent 8% of GDP. Now it’s 25%. In Europe average is close to 40%, with countries like Denmark spending more than 50%. Just imagine, government owns more than half the economy. Such levels of government spending are unprecedented in human history and create enormous incentives to avoid taxes. Tax heavens are only a logical consequence. You shut down tax heavens — people will come up with a new creative solution. Digital currencies are on their way. This cat and mouse game will continue indefinitely unless we start to address the real problem — government spendings.
Government spending does include for a fire department, good water, good roads, healthcare, decent basic education and more, plus other things that provide a decent healthy and long life– maybe you should go live in a 3rdworld country, where taxes are zip? Building the Hoover dam best road system back then, winning two wws,sending a man to the moon, accomplishing incredible health and life-extending advances did not happen with private monies!
Yes, fix government spending. I hope you mean the real government spending relating to: Corporate Welfare, the dark budgets that fund what we do not know about, the Congressional-Military-Industrial complex, and maybe we could finally find out where the $2.3 trillion is, which on September 10, 2001 Rumsfeld announced could not be accounted for in the Pentagon budget.
That too. But governments spend the most on entitlements, we should start with those. Governments have no business in redistributing other people’s money.
I think you are ignorant of one of the huge negative effects of FATCA… Americans working abroad struggle to get bank accounts now at all in some countries.
This lead to an increase in Americans abandoning their citizenship, which the state department responded to by making that process extremely expensive.
“This lead to an increase in Americans abandoning their citizenship, which the state department responded to by making that process extremely expensive.”
Huh? As far as I’m aware, all it takes to renounce your citizenship is to become a naturalized citizen of another country. There are other ways too, but this seems sure fire, and only depends on the laws of your adopted country.
What’s the US going to do to stop you or make it expensive?
A hundred years ago US government spent 8% of GDP. Now it’s 25%. In Europe average is close to 40%, with countries like Denmark spending more than 50%. Just imagine, government owns more than half the economy. Such levels of government spending are unprecedented in human history and create enormous incentives to avoid taxes. Tax heavens are only a logical consequence. You shut down tax heavens — people will come up with a new creative solution. Digital currencies are on their way. This cat and mouse will continue indefinitely unless we start to address the real problem — government spendings.
In the wake of the so-called Panama Papers, there has been, of course, a huge populist outcry against tax avoidance & tax evasion by the rich1% and large corporations. But, so it seems to me, the populist rage fails to confront & address all sorts of information in the public domain attesting to the fact that any number of rock stars and the like have for by now almost half a century been routinely stashing their foreign earnings in off-shore accounts — the Rolling Stones, for example, in both Liechtenstein and the Cayman Islands (and yet other such locations?), as I have long understood (to an extent, from the inside) to be so. Is it cool for such rock icons as, say, the Stones, Bowie, and U2 to stash their vast purchase power (viz., hundreds of millions of bucks) in treasure islands, but not for the establishment-rich and large corporations to do so? I would so much appreciate a comprehensive article on all this @ The Intercept; but perhaps such a job would be better left to Matt Taibi @ The Racket — sorry, Rolling Stone I mean.
From the USA imposing FATCA on the whole world onwards, the floodgates of universal financial information and reporting are progressively being opened. There is no slight irony that The Intercept, which started because of the demented invasion of privacy which the USA felt entitled to impose on the rest of the world and its own citizens, should be so enthusiastic about the destruction of financial privacy. Does this journal really believe that this destruction of privacy will not be abused?
One thing is certain, now that the tools are being built for politicians to grab money wherever it is, they will.
So just one question: politicians around the world have proved totally incapable of managing their countries within their means. Will making more booze available to the drunks make them better and more scrupulous managers?
You don’t see a difference between the privacy of your phone calls, Internet news browsing, and bedroom – versus the incorporation of an economic entity meant to conduct business….. that’s amazing. Libertarian?
“It is no slight irony”
There is no irony because corporations are not people and you do not have a constitutional right to avoid paying taxes. Period.
Not to be a spoilsport, Mr Zucman seems so well informed.
E.g. Germany does not any import duties, that’s the EU that does.
Switzerland while not an EU member , Switzerland is effectively a member without voting rights, as long it follows EU legislation.
So import duties are a non starter for formal and practical reasons (any change would need to be ratified by all 28 members).
Now additionally for example Germany is higher on the tax heaven index (nr. 8) than than say Panama (nr. 13). Many EU members have their own specialized tax shelter niches, as does the US.
So the plan is very practical, I expect the implementation not more than 5 minutes after hell freezes over.
In the words of Forrest Gump, “Simple is as simple does”.
IMF? Involving banker thieves is not a help, it’s a harm.
All profits require a transaction within a country where a product or service origin lives. At the end of the year, there is a balance of transactions and expenses of a unit within a country. It should NOT matter where the HQ is nor what any convoluted nonsense creates. A nation has the power to TAX THE BALANCE OF ACTIVITY WITHIN IT’S BORDERS. PERIOD.
This is not rocket science. But lawyers help their paymasters to rob the public of resources – that’s their job. Been going on for at least 2016 years.
Understand – there are eanings margins on sales and services that are computable and known. Greedy ceo’s need more profit to raise the stock price to enrich certain shareholders and make their millions. In order to do that, the single largest target for gain is the tax amount. High tax rates will always be a target, especially sales tax because it occurs for every transaction.
It is easy and simple to solve. Introducing lawyers or bankers to do this is bricking yourself upside your head. The law can be written on a single page. It is so simple, it scares them.
Bravo!!!…..Indeed it is that “Simple” but Yet, not to be….So we, Identify the problem……provide a remedy…. what is lacking is a means for implementation…Any more ideas?……
Perhaps other perspectives acknowledge the fact that this issue is complicated, to be sure….To achieve any meaningful change,You are going to need more than One sheet of paper :-)
Just saying….
I don’t understand why innocent local children need to be denied innocent local financial services so that the foreign US government can make it more difficult for tax cheats who live in America to evade American taxes. Can’t the US government somehow figure out how to apply its laws without wrongly harming innocent children? A government which is criminal against the innocent is not in a position where it can comply with the law.
This is all presuming that lawmakers hold more power than the billionaires they answer to.
Military and law enforcement? Hopefully just standing at attention with arms would be enough to persuade the wealthy and the corporations what everyone knows is right. I think the nearly powerless Black Panthers scared the shit out of established power with that same posturing.
If that were true, then what’s prevented it from happening thus far?
“Power concedes nothing without a demand. It never did and it never will.” – Frederick Douglass
kent state massacre
The wealthy and their gofer electeds and their enforcer police and military have no problem killing citizens who protest since they can easily justify this in their own media (who sold u.s. the invasion of iraq on complete fraud) .
The police are getting plenty of practice already. Harlem real-estate is worth a few mints. NYC police are trained in telaviv how to handle wallstreet protesters like Palestinians. The repubs wanted mitt and martial law (imo). Now they are beside themselves as their window of opportunity to overthrow the u.s. government (prescott bush, smedley butler usmc) with the help of Cruz and the Bush crime family, is slipping away (thats why they dont want Trump).
EVIL HAS NO BOUNDARIES.
Regarding this idea to combat tax avoidance:
“Next, a formula based on the location of three concrete factors — the corporation’s payroll, physical capital like factories, and sales — is used to apportion percentages of the multinational’s profits to the different countries in which it operates. The IRS would get 35 percent of the U.S. apportionment.”
This would only serve to further encourage the loss of jobs in the U.S. Not a good idea at all.
You could say that about anything that increases a corporation’s US tax burden. I interpret your argument as tantamount to giving up, which I personally don’t agree with.
That is your error then. It is revealing though. Discussion and pointing out flaws is unwelcome. Nevermind that more of it would have avoided the tax system mess we find ourselves in today….
It is comical that asking the people who created the problem to solve the problem is somehow a good idea. I would change the currency and in a re-apportionment and simply wipe out wealth – that is what it has come to now. Greed at these proportions in intolerable.
US expats (8.5 million people) who live and work overseas must pay US taxes on their local salaries as well as any income accumulated local savings and investments. The is the only country, along with tiny Eritrea, that taxes the overseas income of expat.
On the other hand, corporations are subject to the US taxes only when funds are repatriated.
Some companies, not all I’ll admit, also have tax equalization programs for expats and even will pay for tax preparation services and makeup the additional tax burden to the employee. Most companies I’ve worked for have such programs because expats demand it.
Many expats like me are local hires or have their own local businesses and do not have that benefit.
My experience here in Brazil is that most do not have tax equalization benefits.
Moreover, the cost of tax equalization for US citizens has increased to the point where it has caused companies to avoid US citizens.
In addition to formularies, there’s also the value-added tax, which reduces the emphasis on income taxes.
This whole thing has my head spinning Jon.
I guess, one has to be REAL INTELLIGENT to indulge in the “evasion” schemes!! Not for simple folks……
Why most of the Panama Papers have been kept in the dark?
http://bit.ly/1oWYfDU
Mostly garbage. In the first place, the linked article contends that most of the documents will not be published, as justification I suppose for the assertion that the SZ and the widespread coalition of journalists working on the story are engaged in a cover up. With 2.6 Terabytes of data and 214,000 companies, who would expect all the documents to be released?
Second, as indicated at the very beginning (on Anne Will’s show on ARD on the 4th) it was announced that releases of stories would be timed, and take place over months, to maximize impact. So just because something has not been released yet does not mean it won’t.
Third, the story falsely asserts that the US and Germany are receiving no attention. Perhaps that assertion reflects the timing of releases, but for instance the cover story on the SZ on April 8th led with the line “Panama Papers – Wis ist mit Amerika?”, with a story on page 2 devoted entirely to the US situation. Also, a number of German banks have been implicated and are named in SZ pieces.
You might be better informed were you to read material from the consortium, which appears regularly on the SZ and Guardian web sites, to name just two. And, if you are a typical Amerikaner who speaks only englisch, the SZ even provides a page in your language.
Before they were saying they’d be timed over 14 days, weren’t they? Now it’s months? My guess is that after the first few articles, some people *paid*, and that was the end of that. Nothing to see here, move along.
A leak is NOT a leak unless it is leaked to the public. Everyone else is looking for a payday.
that’s what i see.
i happen to have an insider’s pov on that sort of thing as a professional.
i don’t think most Americans are privvy to a wealthy and powerful decision maker’s process but it is pretty much like one sees in movies and tv.
been a while but i think today it goes something like this…
Wealther: i need to make this deal, if i dont im losing money.
Fin advisor: sure. i can arrange for the transaction principles to make it work out. we can check with the attorney for legality.
Wealther: forget the legal thing. everything is illegal in some way some where. just do it. we can always fight it later, if we have to.
Lawyers have screwed everything up – and lawyers are the worst business people. Real business people wont ask lawyers for permission for anything – it’s a boss thing and no good business person wants to work ‘for’ a lawyer. But lawyers, as greedy and power hungry as they are, want the world to work for them. That is what it has come to, TPP.
@Barabbas-Wow, I felt I was the only person who understands that lawyers create problems. A big problem with the state of our country, in my assessment, is the BAR. It’s the only group of people who occupy all 3 branches of government and at all levels. Laws are structured to benefit lawyers because lawyers make the laws, lawyers interpret the laws, lawyers enforce the laws and lawyers argue the laws. This is a monopoly that nobody sees or understands and that fact should scare people. Legal advisors are responsible for all national, state and local policies. Our country will not move out of our fucked up state until lawyers are removed from politics. Lawyers make things complicated because simplicity doesn’t promote litigation…
I made a simple and short explanation or example of how the BAR, in my opinion, has/is screwing us in a response to rrheard a commenter on this site. Apparently, he is a lawyer and believes human interaction is complicated enough to require lawyers in everything. He is a smart guy, well spoken and can put forth a good argument. He failed to respond to my comment even though he asked me to? I have no faith in the BAR or most of its members!
yep. Lawyers make things complicated because simplicity doesn’t promote litigation…”
Very same problem 2016 years ago. A protester back then was killed for his resistance. He was from Nazereth. Now, they’re baaaaaaaaaack. So the Pope summons Bernie.
The current currency scheme is the root cause and separates owners from do’ers. Then the do’ers are separated using complexity and confusion into the mess we have today. The current support for this system is the attraction to power positions and the wish to work less for more money.
A better system is in design at this time. There will still be paper shuffling and labor but there won’t be the hierarchy, won’t have most of the court nonsense, will have much more free time for people, and will not have the insastiable demand for growth – a fraud that wallstreet clings to for dear life.
repacking loans and defrauding investors? yep, that’s legal.
creating and passing fraudulent investment ratings? yep, that’s legal.
manufacturing false evidence to precipitate a war? yep, that’s legal.
invading a sovereign country under false pretenses? yep, that’s legal.
torturing people? yep, that’s legal.
signing a bill allowing rendition of u.s. citizens? yep, that’s legal.
allowing a foreign country to seize american property? yep, that’s legal.
debtor’s prison? yep, that’s legal.
bankruptcy? nope, not legal much any more.
taking american homes without title or instrument? yep, that’s legal.
letting bridges fall and kill folks? aint negligence so it’s legal.
causing default of the u.s. government? legal as can be.
holding americans hostage with the default weapon? legal extortion.
shipping american jobs overseas and leaving americans homeless? yep, legal.
preparing to render american sovereignty to a committee of lawyers who can take money from any and all citizens because they were insulted and it hurt their world wide profits? well hell, let’s make that legal too.
maybe we should just change the name of America to Thunder Dome.
Since everything is legal, passing the bar cant be that hard.
The BAR, the litigators regulator, has not disciplined any legal advisor(s) for their legal justification of those above facts you listed, especially torture. The federal government provides local and state governments with money to violate our inalienable rights.
I learned in the last few days that here in California the Stae BAR Complaint board is or is considering completely separating from the state BAR and becoming its own thing. Appearently, a board member, not a lawyer, is pushing this because he/she knows how lawyers are getting away with the unthinkable.
I believe a lawyer that isn’t securing his/her clients rights is violating them.
Clearly you are mistaken because the first publication was on the 4th of April, and there has been an article in the SZ pretty much every day since then, with no indication that an end is in sight.
So according to you Snowden did not leak because of the tens of thousands of documents he took, only a few dozen have been published?
As far as a payoff is concerned, I understand your cynicism, but it would be difficult, practically speaking, since over 400 journalists, in more than a dozen countries, are involved.
If you are really interested in following this story, might I suggest you go to the source, instead of relying on second hand information that is often erroneous?
Sorry! Forgot to post the link:
http://panamapapers.sueddeutsche.de/