How do companies work in tax havens?
Editor's Note:
Chuck Collins is the Director of the Inequality Program at the Institute for Political Studies, where he co-publishes Inequality.org.
He is the author of the new book "The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions."
The opinions expressed in this comment belong solely to its author.
(CNN) -
The Pandora Papers revelations have rocked the world.
They showed that wealthy celebrities, political figures, billionaires and heads of state around the world are sheltering assets in tax havens, including here in the United States.
Like the Panama Papers that were published five years ago, not many Americans got caught up in the Pandora Papers.
The data on the papers came from 14 wealth service providers in tax havens in countries where wealthy Americans rarely seek services, such as Cyprus and Seychelles.
Some of those mentioned in Pandora's Papers and their answers
But there is no question that ultra-rich Americans use the same tools outlined in the papers to avoid paying taxes: shell companies, complex trusts, and bank accounts in tax havens. They just don't have to go abroad.
Our nation's wealth defense industry - the army of tax attorneys, accountants, and wealth managers who help the super-rich - has doubled the transfer of billions to dynasty trusts, which are designed to accumulate wealth over the years. centuries without the wealth transfer tax, and the deployment of special trusts such as grantor-retained annuity (GRAT) trusts, where the appreciation passes to your heirs without the payment of gift taxes. A recent revelation from ProPublica documented that more than half of the 100 richest Americans use GRATs to evade their tax obligations.
The mechanisms are complicated. But most Americans understand that billionaires' tax evasion hurts ordinary US taxpayers by shifting the obligations onto everyone else. When the rich pay lower effective interest rates, the cost of public services such as education, infrastructure, defense, and environmental protection, for example, falls on the non-rich. A Pew Research Center survey shows that roughly 80% of Americans are upset that the wealthy and some businesses don't pay "what would be fair."
In the immediate term, not ending the hidden wealth system will undermine President Biden's "Build Back Better" program for infrastructure and other public investments.
Democrats want to pay for the plan, in part, by raising taxes on the rich.
But when the wealthy hide much of their income and assets in trusts and shell companies, those progressive taxes won't raise as much.
That's why Biden's plan to invest in rebuilding the Internal Revenue Service (IRS) ability to oversee the tax-hiding schemes of the wealthy is so important.
The Democratic plan to pay for the budget package 1:08
In the long run, the creeping cancer of the hidden wealth system has fueled extreme wealth inequality in America and worsened the racial economic gap. Since the Panama Papers were published in 2016, the total wealth of American billionaires has doubled, from $ 2.4 trillion, according to Forbes, to nearly $ 5 trillion today.
Even during the pandemic, the rich have made huge financial gains.
America's billionaires have seen their wealth grow by nearly $ 2 trillion since March 2020, as the rest of the country faced massive casualties and unemployment.
Meanwhile, the percentage of households with zero financial reserves has risen, especially along racial lines.
An estimated 28% of black households and 26% of Latino households have zero or negative financial wealth, compared to 14% of white households.
Biden to Announce New Actions to Reduce the Racial Wealth Gap, 100 Years After the Tulsa Massacre
The first step in solving this is for the United States to clean up its own internal tax havens. Several members of Congress have proposed the ENABLERS Act, which would establish due diligence information laws for "intermediary" entities involved in the flow of wealth, such as lawyers, art dealers and wealth managers. Like bankers, they would be required to report suspicious activity under a modified Bank Secrecy Act.
Federal laws should also override state trust laws that create dynasty trusts forever, imposing a limited duration on trusts of, say, 80 years, at which point the trust ends and assets are taxed. Legislators should prohibit certain forms of trusts and loopholes such as GRATs, which serve no purpose other than to evade taxes. And Congress should fund President Biden's plan to help the IRS monitor the tax affairs of the super-rich, ensuring they pay their fair share.
The fact that the United States is recognized as a world paradise undermines the credibility of the United States in the fight to eradicate global corruption.
But the real harms nationwide are unbuilt hospitals, unfilled potholes, unattended veterans and children, and the persistent racial wealth gap in home ownership and economic opportunity.
A fairer tax system, and a fairer society, begins by revealing this hidden wealth.
Tax havens
