Comment by jasode | Hacker News Reader

Comment by jasode | Hacker News Reader

I don't think this article actually explains how the rich are avoiding taxes using these layered schemes of trustees and powers of attorney.

First, let's set aside corporations like Apple earning foreign income and not repatriating it or claiming Ireland tax jurisdiction or special treatment EU doesn't like. For this story, I'm specifically interested in the mechanisms citizens use to evade taxes.

To me, the journalists are conflating 2 situations:

1) hiding money & assets (rich people like to hide money from spouses and their divorce lawyers, or hide them from lawsuits)

2) not declaring money to evade taxes

A lot of the money that the rich store at the islands has already been seen by the IRS and taxes were paid on it. Therefore, I'm not getting a clear picture of which situation dominates...is it hiding money or evading taxes? If its evading taxes, I'd prefer the author explain that in more detail. Outlining the opaque layers of ownership doesn't really explain the tax evasion part.

I ask this question because I read a book about "protecting your assets" and the techniques that author Jan D. Weir talks about overlap with hiding legally obtained money that all lawful taxes have been paid on.

1. These journalists don't understand the half of it. All of these structures, mechanics etc serve a purpose, and while most journalists do a decent job of describing what the rich use (i.e. trusts, companies, foundations, PoA, etc) they don't actually describe why they do it.

2. Avoidance is not evasion. These really shouldn't be lumped all together because there is a massive difference.

3. Even if they get rid of all pure (Cayman Islands style) tax havens tomorrow, the rich won't be paying more in tax. They would then go to more respectable jurisdictions, such as Luxembourg, Switzerland, (for non Americans) the US, Singapore, etc.

I think your 3rd point is way off base, this is the whole point about avoidance. The rich are using the disparities between the laws systems to avoid tax and that's what needs fixing. You shouldn't be able to make a billion $$$ in the UK, for example, and then claim you actually earnt it in Luxembourg.

If we, the UK tax payers, gave you the eduction, the opportunities, the law systems, the safety provided by our armies, foreign office, judicial systems, social safety nets and care from our health system, as well as all the other tangibles and intangibles that I could probably list for a couple of pages, you should pay back your share into the society. And yes, that's a percentage, not a fixed amount.

The social contract of societies is being broken by these avoidance schemes. You luck out in the business lottery, then you pay up to help the rest of us. You'll still be stinking rich.

And in the eyes of most people there's not much difference between avoidance and evasion, just the law.

I think that's where a lot of the problem stems from, as long as the politicians keep saying "it's ok, but we need to tweak this and that" and giving sweetheart deals out to the rich not available to the rest of us, the public think "this is really not ok, it's totally unacceptable", we're going to keep getting Trumps, Farages, Le Pens and Brexits happening in western democracies.

I think the general feeling is that the rich "got away" unpunished with the 2008 crash and now the scale of their tax avoidance is emerging, on top of the income gap widening, it's only going to get worse and politicians seem unwilling to change course and if they don't we'll all be in for some really nasty surprises in the next 10/20 years.

Where do you draw the line between legitimate avoidance and illegitimate avoidance? My wife and I bought a house in order to lower our tax bill. I think it's wrong to have a huge tax deduction primarily benefiting people who already are well off. But is that illegitimate avoidance? What about estate planning, which encourages individuals to divest assets to their kids on a certain schedule so as to maximize how much of their nursing home care is paid for by Medicare/Medicaid instead of their own assets. Is that illegitimate avoidance? How about deferring capital gains tax on the sale of equities by instead taking a loan using the equities as collateral. What differentiates these things?

Well it's obvious - when it's done by someone in my income class and I expect to do it at some point in the future, it's fine and I'm already paying enough in taxes; but when it's done by someone who has more money than I do, they're thieving capitalists who should be thrown in jail.

You can't draw a line, which is part of the problem. In addition, the moral compass of various people can and will be different. What I think is fine, someone else will think is excessive.

As long as there are smart people, you will have avoidance. The capital gains deferral is a simple example of something that is hard to fix. And there are a ton of situations like that.

If this was an easy problem to solve, it would have been solved. In fact, I'd go as far as saying that it can't actually be solved. You can get rid of tax havens, but tax avoidance has existed for 2000+ years. In fact, in most cases, you don't even need to go "offshore" to secure great tax benefits.

There used to be a window tax: https://en.wikipedia.org/wiki/Window_tax. Guess what? People avoided it by bricking up their windows.

Why does the cap gains deferral need to be fixed? The gov't will get its money one day. Who cares if exactly when gets moved around a few years one way or the other?

I honestly don't. But then again I don't care about tax avoidance either, and the Panama and Paradise papers weren't exactly ground breaking and shocking to me.

> I think the general feeling is that the rich "got away" unpunished with the 2008 crash..

However, the rich did not cause the crash of 2008. The banks did. The rich took a hit in 2008; just like anyone. I know plenty of (previously) rich people who were wiped out because they were overleveraged at the time.

Their net worth did come back, because the government essentially gave a ton of free money away via QE, leading to massive asset price increases since 2008.

If we, the UK tax payers, gave you the eduction, ...

WRONG. Will this meme ever die ? Rich have always been paying extreme majority of the tax revenue. For example according to this recently released official report [1] in regards to the tax reform, In 2019 people earning >=$100k will make up 23.4% of number of tax _returns filed_ and contribute to 78.6% of all individual income tax revenue.

So if top 23.4% is ok with tax avoidence then the others really dont have much say. If the bottom 76.6% want more whatever they need to figure out a payment plan on their own.

[1] https://www.jct.gov/publications.html?func=startdown&id=5036

Meme?

Say you're rich today.

You had the opportunity when you were 18 and an adult to move country and live somewhere with a regressive tax regime. You didn't, because those countries suck, don't start moaning about it now you're earning good money.

Now you're rich and you're cheating the system because you don't like paying your fair share. Your fair share is a percentage. Without the percentage based tax system we can't afford to be a great country for businesses. You want to move to a regressive tax regime because you've got all the benefits already, but can't because the electorate don't agree so you're now "avoiding" tax. Or maybe even Daddy/Mummy made all the money and you want a free ride.

That's simply you trying to have your cake and eat it. You've already benefited from a progressive tax regime where the rich pay more because they can afford to. Previous generations paid for your opportunity to make it big. Paid for gangsters not to turn up and take over your business. Paid for no corrupt politician throwing you in jail and stealing your business. Paid for the roads and postal system and educating your employees and giving you the courts to pursue late payers. It paid for the opportunity you or your Daddy/Mummy had.

But somehow we should change the rules for you?

But, on average, within 2 or 3 generations your family will be middle class again. They won't agree with your temporary stance. Your own descendants will, in all probability, be against your stance.

It's not that it's "WRONG", it's that you want the best of both worlds, a fantastic country protecting you and nurturing you to do business in, and paying a small amount of taxes.

Sorry, but this is bullshit. You're only cheating the system if you don't pay what the law says you own. If you find a loophole, you will pay less, fine (and congrats) -- there are plenty. Now fix it so the next guy can't use it. Blame the politicians for making low quality laws. Seriously, the legislative work of so many politicians is shoddy at best, it is ridiculous.

Tax avoidance requires nothing more than creative thinking and an understanding of the law. Any decent engineer here on HN could easily understand and find ways to avoid the law legally, and pay less taxes (for themselves or for clients), if that is what what they want to do with their lives. Tax law is surprisingly similar to software engineering.

It might make me an asshole, but I would happily move to a low tax country and not pay any tax when I have the opportunity to book a massive gain. Hello Monaco? And that is how many people feel, because once you're past a certain point, you just don't get sufficient value back from the system.

As an example: if I make €1m, I would happily give back 100-200k to society. What I am unwilling to do however, is part with €400 or 500k. So one will try to find a way to bring down that tax bill. Life would be much better if all taxes would be reasonable -- as someone with wealthy friends, tax avoidance is a waste of effort and time, but necessary.

You act as if it's a divine right to be able to live in country X. It's not. Wealthy people will frequently and happily move if it makes sense to do so. And many developed countries will give them tax incentives to move! Find other ways to incentivize them to stay in a specific country. Taxes aren't everything, but push someone past a certain point, and they will look for alternatives.

Will this meme ever die? Your data only looks at federal income tax. The is the most significant tax for high earners and it is indeed highly progressive (i.e. high earners pay a disproportionately higher percentage of their income). However lower income people get hit harder by virtually all other taxes. For instance, FICA is regressive because it is flat up to roughly a 95th percentile income and the caps out so anyone making above a 95th percentile income will be paying a lower rate than anyone who makes less than that. State and local taxes also tend to be highly regressive as well because they rely heavily on sales, property and excise taxes.

When you take all taxes into account, it is actually shocking close to a flat tax of 29.5% for the top 40% of earners. The top 1% pays about 0.5% percentage points less, the rest of the top 10% pays about 1 percentage points more, and the 60-80 percenters pay about 1 percentage point less. Even for the bottom 60 percent, it's not drastically lower they pay from 17.4%-25.3% [1].

[1] https://www.washingtonpost.com/news/wonk/wp/2012/09/19/heres...

> Avoidance is not evasion.

This is an important point. There is nothing wrong with not paying taxes that you are not obligated to pay.

Stories like this are just clickbait for "hate the rich" readers.

> Stories like this are just clickbait for "hate the rich" readers.

And it seems there are many. :)

people from country A can only hide money in country B if the number of people from B hiding money in A is not significant to the government or society of B and vice versa. otherwise A and B would sooner or later have an agreement to avoid this because both will make more money then through taxes. that's what happend with Switzerland and the EU.

Articles like these simply want readers to feel a vague sense of outrage at vaguely defined conduct. They don't explain what's actually happening because, like all magic, explaining it would ruin the intended effect.

I presume they want the readers to draw the inference that if someone is going to the effort of creating multiple layers of trusts and corporations in different secrecy jurisdictions then something illegitimate is going on.

To be honest, I think that's quite a reasonable inference.

It's not reasonable to count on readers to draw that inference because it depends on the readers' ignorance about the legitimate reasons for such accounts. A lot of it is just for asset protection--from creditors, lawsuits, disgruntled family members, etc.

You may argue that having assets offshore so they can't be reached in say a civil suit is also "something illegitimate." But I strongly suspect you'd organize your startup as an LLC or corporation, for precisely the same reason.

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