Panama Papers Reveal How Wealthy Americans Hid Millions Overseas
nytimes.com
nytimes.com
It is insane the amount of work that I put into my taxes each year, only because we have a small business and doing things right versus doing things wrong is a difference in the tens of thousands of dollars. The extraordinary amount of loopholes and special interests means you need experts. And as I've said before here, the current tax system exist in the interest and benefit of large companies, not small companies or individuals.
If we instituted an overnight 9%, 9%, 9% "Simcity Tax" system and eliminated the massive tax loopholes that exist in all levels of the tax code, then I guarantee that money would come pouring back into the United States.
Your 'institute my idea and it will fix everything I promise' idea has basically been why many Presidents have been elected and yet nothing has really improved.
The problem is not simple but the root is; while the wealthy can influence the process of how much they pay in taxes, the system will continue to be in their favor. How do we fix that? Damned if I know.
1. All tax complications, special exceptions, special deductions, etc. usually meant to benefit some behaviors and/or punish some other behaviors. One can't wonder then that some people use these regulations to reduce their tax load - that's exactly how they are supposed to work! If you put into the law, say, deduction for making a movie, because you want more movies to be made, and then somebody makes a movie with the purpose of lowering the taxes, you got exactly what you wanted. It may be a crappy movie because its sole purpose was to avoid taxes, but that's still how it supposed to work. More you have special regulations, more you have ways to play them to reduce your taxes.
2. Tax scheming is not free. It takes a lot of inconveniences, highly paid specialists and paperwork to achieve. If the cost of compliance is high, it makes sense to scheme, but if compliance is very cheap but scheming is expensive, not a lot of people would bother with scheming. Some, of course, still will, but there is still a reverse proportion between cost of compliance and incentive to scheme.
> The problem is not simple but the root is; while the wealthy can influence the process of how much they pay in taxes, the system will continue to be in their favor.
How is it in their favor exactly? Top quintile has about half of total income in US and pays about 2/3 of overall taxes. That's some unusual definition of favorable treatment.
Not really. Some, perhaps you, will say 1/2 of overall taxes is more fair, while others will say 3/4 is more fair. It all depends on a combination of one's value system (what's fair) and one's interpretation of how the economic system does or doesn't work.
[EDIT: It's funny getting down-votes for saying something logically valid and consistent. I didn't even take a side.]
They also make it more of a pain to deal with financial institutions since the institution needs to ensure you are not a US citizen.
its not overly complicated as long as you know and understand the rules in each stop along the way and its perfectly legal.
do you honestly think, not even big corporations but your mom and pop businesses, will put morality over profit if they know they can squeeze more profit?
Trump just shed a tear ...
Is the backdoor Roth IRA contribution a loophole? The mortgage deduction? Tax-loss harvesting that carries for 20+ years?
How do we fix that? Damned if I know.
there are plenty of rich people on all parts of the political spectrum always trying to unseat the current government. That's probably a good thing. The idea that taking away private citizen's influence in order to swing the pendulum in any direction except more deeply entrenching the political incumbents is naive at best.
Of course, they have to be accountable millions, which means you want to try to respect Dunbar's Number in relation to how many individuals any one representative actually represents.
This is wildly reductive. Your post in general seems to suggest that "rich people" (ill-advised usage, IMO) have equal sway in every corner of politics that could possibly matter to large swaths of voting US citizens. To sit there and defend "private citizen's influence" while shouting down the idea of public funding is _truly_ naive. Even a fool's review of The American Legislative Exchange Council's (ALEC) effect on elections and public policy show that there is disproportionate private influence that needs tending to.
I'd suggest you give http://www.theatlantic.com/politics/archive/2015/02/if-corpo... a read.
Yes, it's difficult, but the hope is that if we make it so the government we elect is closer to the will of the people, then at least when the government is corrupt, we can vote them out. Sorry, but as far as I can tell, I don't see "plenty of rich people" trying to unseat anyone other than installing their cronies which will do their bidding.
"public financing" is snake oil that a particular group of people are selling because it suits them. It will not lead to more democracy.
Its really quite simple: Stop taxing income. Start taxing spending.
Income Tax is a heinous enslavement mechanism. Spending-Tax is far, far more fair and just.
People very rarely negotiate down their amount of work in exchange for more leisure. Especially in America, land of 2-weeks-a-year holidays. Very few people have the realistic option of working more for more income but are put off by the tax system.
Saving isn't really the route to wealth in a land of near-zero interest rates, either. It's just deferred consumption. Leveraged property speculation is the great route to wealth.
The one exception is the decision of whether one parent should stay at home or the labour of childcare should be outsourced, which is quite dependent on the tax levels involved.
Yes, they do. Oh, wait:
>Especially in America
Right, this is a strictly American discussion.
This is not the case in Europe! People do quite frequently negotiate for less work hours, so that they don't enter that 'sour spot' where their monthly income is too high, and they end up working more for less reward, so they scale back. 20-30 hr/weeks are quite common - because the value of working longer isn't as high (40-hour work weeks means you're working half the time for the state..)
Again, we have to distinguish why people are working part time: is it because full time work isn't available, or full time childcare isn't available, or two partners working parttime to split childcare, or is it genuinely a free choice in no other circumstances? And is it part-time low-wage work in the first place? Salaried employees find it a lot harder to negotiate the short week, although it's not impossible.
How many people are doing <37.5 hour weeks that would actually be in the top tax bracket if they worked the full week? It can't be a large group because there aren't that many people in the top bracket to start with.
I think in the UK a part-time worker on minimum wage might pay no income tax at all.
That is contradicted by the huge number of middle-class tax loopholes out there for, e.g. mortgage interest, small business credits, etc. Several middle-class tax expenditures cost $100 billion or more: http://taxfoundation.org/blog/12-largest-individual-tax-expe.... Health insurance deduction: $212 billion; retirement savings deduction $176 billion; mortgage interest deduction: $101 billion.
Tax evasion using overseas havens is estimated to cost $100 billion per year: http://freebeacon.com/issues/report-tax-evasion-avoidance-co.... Legal corporate tax avoidance costs about the same: http://www.theatlantic.com/business/archive/2016/04/corporat....
> If we instituted an overnight 9%, 9%, 9% "Simcity Tax" system
Sophisticated tax evasion has little to do with claiming various deductions and credits. It is a mechanical and straightforward process to run through those. The real complexity is intrinsic: what's an appropriate depreciation schedule for this asset? Does appreciation of this options contract result in ordinary income or capital gains? Is this payment between related companies legitimate, or a way to shift profits? You can't get rid of these basic distinctions, but at the same time those are the bread-and-butter of sophisticated tax planning.
There is a way to limit tax evasion from companies: stop taxing corporations.
Flat taxes sure woud put a lot of tax planners out in the street. Hat wouldn't necessarily be a bad thing overall.
Forming a corporation allows me to gain benefits that would be difficult or impossible to obtain as an ordinary person. (e.g. limited liability, special tax treatment) It's not unreasonable that a corporation's owners pay additional taxes.
Also, corporate taxation isn't "double taxation" any more than it's double taxation for me to pay my nanny with post-tax income, which is then taxed again.
- When you purchase child care, you pay sales tax
- The childcare company pays payroll tax on salary paid to its employees.
- The childcare employees pay income tax on their salary
- The corporation also pays corporate tax
- Company owner pays income tax on any income they take, and/or capital gains tax
Every dollar you spend purchasing childcare from others is taxed multiple times before it reaches actual stakeholders who deliver the service. Since each of the actors involved seeks a certain after-tax benefit (e.g. company owner needs profit for the venture to be worthwhile; childcare worker needs sufficient salary), this means that all of the taxes must be part of the price for childcare that's charged to customers. Thus childcare is expensive relative to staying home and providing it yourself, in large part due to the multiple layers of taxation.
Someone who is familiar with the details better than I could estimate what percentage of each dollar spent on childcare goes to the government as tax - when I was reading about this, I think the number I saw was around 60-75%. When you think of it in these terms, feels extreme how much of the economic value of these transactions is taxed and captured by the government, and therefore driving up the costs for everyone.
The ideal childcare arrangement is bartered, such as an agreement between two families to cover childcare with each other. This takes into consideration attachment of the child to the caregivers.
However, it is more efficient economically to have as many children under a single caregiver, as that frees other adults to create value for society (work with me and imagine every job adds value).
Taxation on that arrangement is just the government capturing some of the value created by it becoming more efficient. I don't necessarily have a problem with that, but the childcare company paying tax, paying payroll tax and then the individual employees paying income tax and the owners paying income tax is taxing the activity too many times.
Let's see them hide that!
Of course, its theoretical, and only works so long as the economy of good actors and voluntary participants is sufficiently larger than the economy of violent aggressors to prevent them from rising to power. If the violent aggressors can accumulate enough capital and power, they influence the rest of the economy and can rapidly usurp it because they aren't working by the same ethics as everyone else.
It seems you've essentially described "laws" being interpreted by "courts" and enforced by "police." You're just calling the laws contracts, the courts contract courts and the police... hired mercenaries? Who is it forcing people to pay fines, or to exile themselves from society?
At scale it seems as if a marketplace of violence and a monopoly on violence look like the same thing to most particpants.
We've also seen lots of simplifying proposals from Republican politicians. In particular there is fairly strong support for eliminating the deductibility of state & local taxes (one of the more complex aspects of the individual income tax code).
In addition, many people take advantage of a nice loophole with TX property taxes, in that you get to choose when to pay them. TX allows tax year 2016 property taxes to be paid in any month between January 2016 and January 2017, inclusive. So what many people do is pay their property tax every other year, two years at a time. For example, you pay no property taxes in calendar year 2016, and pay both your 2016 and 2017 taxes in January 2017 (the last month in which to pay the 2016 taxes, and the first month in which to pay the 2017 taxes). Then on your federal taxes, take the standard deduction in 2016, and report two years' worth of state property tax deductions for tax year 2017. Works out as a pretty big win.
So, despite all of your points, Texans on average are getting 0.86% off of their federal tax basis from state and local tax deductions, while New Yorkers are getting 6.16% and Californians get 5.14% off. While the New Yorkers and Californians may be paying more total tax, Texans are paying more for the Federal Income tax.
This rhetoric is disingenuous, because flattening taxation isn't really about simplifying it, it's about shifting the burden further towards the poor.
So i mostly avoid to pay taxes, my next step is to setup a offshore company to legally avoid them. I see why that is bad, but i am lazy and hell no will i create myself additional work when it is avoidable.
No. Most wealthy people don't evade, they avoid. Loopholes are great for wealthy people, and they want things to be as complex as possible because they can afford lawyers and accountants that cost a fraction of the value they deliver. "Normal" people can't, so they'll pay the higher rate, which often leads to even more tax breaks / loopholes for the wealthy.
To be technically correct, it really is evasion when the purpose is to violate the spirit of the law. Which is, very very simple: wealthier people paying more taxes is supposed to have the net effect of benefiting more people. This makes sense and is a good idea because in a business's quest to "maximize shareholder value" it tends to use more than its share of resources at the expense of many who are not shareholders.
Think: more WalMart 18-wheeler delivery trucks driving on roads wears down roads more quickly, and creates more pollution for everybody to breathe, regardless of whether they are a WalMart shareholder.
The original tax code was designed tax business only -- individuals didn't have to pay anything for income under $4K (adjusted for inflation this is about $100K today). source: http://books.google.com/books?id=ogUNAAAAYAAJ&printsec=front...
Instead, the evolving nature of the business loopholes (driven primarily by what boils down to real estate exploitation) means that wealthy people still pay a "tax" (that is, they don't technically "avoid" it), but it gets distributed to fewer people -- the lawyers and accountants that cost a fraction of the value they deliver you cited being the first in line.
Now their incentives are to maximize the theft from the people, because in doing so they get a cut of the wealthy client's wealth. That's probably a crude way of putting it, but it's the basic idea. A few people catch a glimpse of this right out of school (me, ~11 years ago) and make a conscious choice to not sign off or embrace the ethics of those kinds of people or companies (and to be fair, most of them didn't want me either). There were quite a few really rough years.
Anyway. Digression aside, the IRS is pretty much the only entity that has the explicit purpose of discovering, investigating, and recovering that theft from the people. The tax system is not bad and the IRS isn't either.. it's the matter of how to best spend the recovered funds that probably needs re-hauled.
But cheaters are going to cheat, thieves are going to thieve. If it was truly a "postcard" taxation system (your entire tax forms could fit on a postcard), people will still feel the need to hide money from Uncle Sam, business partners, spouses, etc. For example, look at every other law on the books. They're broken all of the time. (See: the US Financial Industry)
One factor that makes the tax code so complicated is that incentives are often placed in the tax code instead of passing legislation.
Say you want to promote the cultivation of industrial hemp (yeah right) you could pass a law incentivizing it or put some tax credit into the tax code.
It's as if the tax code has 70 years of technical debt in it from all these little tweaks and fixes that have been added to it.
Your taxes and burdens are high because leeches on society pay nothing. Why do you defend them?
To top it all off, you promise something that you can't possibly promise. Well done.
I realize that this statement may be controversial, but I hope it's at least not very surprising.
Doctors hiding assets to insulate themselves from largely-meritorious malpractice lawsuits,[1] would be pretty interesting.
[1] http://archive.sph.harvard.edu/press-releases/2006-releases/...
If you tax assets like land, shares, buildings, mines, vehicles, bank accounts, gold, etc, then evasion is not possible and the useless wealthy that inherited (rather than created) the assets will start paying tax.
I suspect much of that's going to be in intermediate or structured classes, to wit: corporate structures. Not merely land / building / plant / stock, but corporate entities themselves.
But seeing that spelled out might suggest the feasibility of your suggestion. It is interesting.
Don’t quote me on this, but as far as I am aware the major asset class in the USA is land and improvements. Rather hard to hide either of these :)
Taxing assets more (and taxing production less) will result in few people holding onto assets that could be more productively used by others people. We want to get our limited resources into the hands of the people that can make the most of the assets.
My suggestion is tax the assets directly. Don’t tax their owner, just have the asset itself owe the tax. For example, if you have a building and land then $x dollars in tax are due each year by the land and building. You don’t then have to worry about who owns the asset or if the ultimate owner is on or offshore.
Of course proposing such a suggestion is a great way to have the shortest career in politics possible. The mega wealthy are fully aware that if this idea ever gained traction they would be history - good thing I never plan to run for office :)
https://en.wikipedia.org/wiki/Solidarity_tax_on_wealth
A purported merit is that it should desensitize to sit on real-estate assets. It also comes with the twist that you can get a rebate by investing in privately owned SMBs. Methinks that if you deploy that large scale you'd end up fueling tech-bubbles.
- any GST/HST credit or Canada Child Tax Benefit payments, as well as those from related provincial and territorial programs.
- child assistance payments and the supplement for handicapped children paid by the province of Quebec.
- most amounts received from a Tax Free Savings Account (TFSA)
- compensation received from a province or territory if you were a victim of a criminal act or a motor vehicle accident.
- lottery winnings.
- most gifts and inheritances.
- amounts paid by Canada or an ally (if the amount is not taxable in that country) for disability or death due to war service.
- most amounts received from a life insurance policy following someone’s death.
- most payments of the type commonly referred to as “strike pay” you received from your union, even if you perform picketing duties as a requirement of membership.
Barring those items, anything else you acquire including necessities like food, medicine, clothing, and shelter all have taxes on them. Some will argue that this is not a direct tax on assets, but whether it's indirect or direct it's still the government taking more.
Should the capital gains tax rate be higher, i.e. 50%, I dare bet the numbers would be a lot higher. Higher rates act as an incentive to avoid.
1. https://en.wikipedia.org/wiki/Economic_Growth_and_Tax_Relief...
2. https://en.wikipedia.org/wiki/Tax_Relief,_Unemployment_Insur...
Tell me this. If you hired your kids for a year and paid them 100 million dollars to do the job of being your kids how much would they pay in taxes? The answer is about $40 million. In the US transfer of wealth is taxed whether its salary or just for the sake of little Johnny. Loopholes should be closed (if they were even legal loopholes to begin with).
Recently NPR Planet Money also covered a related topic which was very entertaining. http://www.npr.org/sections/money/2016/05/27/479717380/episo...
AFAIK no other country got that deal so far, for anyone else in the world Switzerland still provides private banking accounts.
There's nothing more principled than offshoring daddy's money to escape the socialist claws of the IRS.
Apparently it's "hard work" being born rich beyond belief.
If we had a computer program with 1 million pages' worth of code (with no source control and a highly fragmented Q/A process) then your chance of your program being buggy is extremely high.
It's baffling that governments thought that it would be better to write up n^2 unique treaties between each other instead of having a single treaty (or limited set of treaties) that applies to all (a la Kyoto Protocol or Geneva Conventions)! This is such an obviously bad idea, one has to think that it was done intentionally... Probably the result of heavy corporate lobbying.
At least now some middle-class workers are able to benefit from this mess (before remote work was possible, pretty much only corporations and wealthy people could leverage this). I've heard about regular working-class people who live in Malta and work remotely for US companies and pay almost no tax - This is because of loopholes in that specific treaty. There must be loopholes all over the place.
Right now the system is biased towards helping accountants make big bucks.
It's also true that the US tax code makes it pretty easy fodr the rich to legally avoid taxes. A good example of this is the carried interest tax credit, staunchly defended by the senior Senator rom Wall STreet (Chuch Schumer, "Democrat"). Only when making a bid for the presidency did Clinton jump on the bandwagon of repealing it.
But I have to give the US some credit here. The US is really the only one who is pursuing tax evaders. A notable example of this is pursuing Swiss banks. If you read some of the details of what these banks did, it goes way beyond avoidance and was clearly criminal behaviour that includes vague language to avoid culpability in discovery of communications, hand delivering debit cards full of cash without names and so on [1].
Some people like to criticize the US government for going after corporations for foreign income (the US being an exception in this regard). But really what's happening is companies are (ab)using transfer (mis)pricing, which in many jurisdictions is illegal.
What really bothers me is it seems like this idea has set in amongst wealthy individuals that their supposed philanthropic efforts cover their debt to society and that they don't need to pay any taxes at all. This is rationalized in various ways. The government is wasteful (true; can we cancel the JSF already?). Private philanthropy is more effective than public welfare. Also true but the rich aren't being philanthropic to pay more taxes or even the same amount of tax.
Honestly I think much of this "philanthropy" is thinly veiled social exclusion (you're not rubbing elbows with the unwashed masses at a dinner that's $30,000 a plate) and bragging, essentially.
Taxes pay for public infrastructure. That infrastructure and the political stability its tied to is an essential element in wealth creation. Most of these wealthy people owe their wealth to the very country they now seek to short-change.
As much as people like the criticize the robber barons (etc) of the 19th century (and into the 20th). The Astors, Rockefellers, Vanderbilts, Carnegies and so on. These people had their failings for sure but they also contributed, not to mention the legacy they left behind (turning the US from an agrarian backwater to an industrial superpower in the span of a century).
There's so much wealth now that's simply inherited, providing next to no value to society.
People usually say you become more (politically) conservative as you get older. Honestly I think I'm becoming more socialist.
Here's an example: owners of apartments in NYC pay a disproportionate amount of property tax. Single family home dwellers pay a much lower rate as these are the bulk of the voters. It's not quite as bad as Prop 13 in CA but it's not far off.
At the other end of the spectrum we have these super-luxury condos where a $100m condo (of which there are now several) pay taxes as if they were worth $15m. This heralds from the days of Bloomberg who argued that you can improve NYC by attracting the billionaires [2].
But honestly what does undertaxing billionaires who come here a few days a year do for the city really?
Historically war and revolution have been the ultimate redistributors of wealth. There's a reason Caesar's descendants don't own half the world. I think we can all agree that we don't want that but the current trend towards hiding wealth offshores and the bankers as willing criminal accomplices has to eventually give. The roads, bridges, police forces, military and so on don't pay for themselves.
[1]: http://www.ft.com/cms/s/0/2acaa1cc-d6fd-11e4-97c3-00144feab7...
[2]: http://www.nytimes.com/2015/02/08/nyregion/stream-of-foreign...
> officials estimate that the government loses between $40 billion and $70 billion a year in unpaid taxes on offshore holdings.
I wonder how much the government loses out on per year in evasion. Not legal avoidance (Apple, Google, Microsft, etc) but illegal evasion.
From the article:
Mossack Fonseca also had at least 2,400
United States-based clients over the past
decade, and set up at least 2,800 companies
on their behalf in the British Virgin Islands,
Panama, the Seychelles and other jurisdictions
that specialize in helping hide wealth.
http://www.nytimes.com/2016/04/06/opinion/the-panama-papers-...
> With more than 14,000 clients around the
world and more than 214,000 offshore
entities involved, Mossack Fonseca, the
Panama-based law firm whose internal documents
were exposed, piously insists it violated
no laws or ethics.That sounds really silly, but there are a number of cases of overseas tax cheats who get caught then have the opportunity to flee before the tax man gets them, but they admit their guilt and pay the fines. A lot of them simply don't want to flee the United States and go live somewhere else.
For some reason the quote "The chamber (of secrets) has been opened. Enemies of the heir ... beware" fro Harry Potter just came up to me.