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The Lebowski Blog: Rich People are hiding $32 Trillion dollars in Tax Havens

Blog posts reflect the views of their authors.

Where's the f'ing money, Lebowski?

In July, the Uk-based 'pressure-group' the Tax Justice Network (TJN) revealed the results of their research - that between $21 and $32 Trillion dollars was being hidden in offshore tax havens by rich people.  

The research also outlines that this would represent about $280 Billion in lost tax revenue, which sadly, if you do the math, assumes a tax rate for the uber-rich of 3% if they're only making a 30% return on this wealth.  This course doesn't assume taking a 30% chunk out of the $32 trillion right off the bat.

Most scary is that this wealth doesn't even include everything.  Many of the world's rich have a significant amount of their wealth in assets rather than cash:  real estate, means of production (factories), gold and yachts.  This isn't included in the amounts discussed.

Just how much is $32 Trillion?  What kind of money are we talking about here? While it's been reported that this amount is the same as the US and Japanese GDP's combined, many people might not have a good understanding of what that means.  

I prefer to use a different metric - global savings.  Global savings became well known thanks to our friends at This American Life, who brought attention to the causes of the financial crisis in their show devoted to it called The Giant Pool of Money, widely credited as one of the best descriptors of the causes of the economic crises.

In it, they explain that global savings, which include "insurance companies saving for a catastrophe, pension funds saving money for retirement, the central bank of England saving for whatever central banks save for" and all the money we keep in our bank accounts, makes up about $70 Trillion dollars.  In an 2009 update the show claims that global savings now top $100 Trillion.

In other words, the super-rich are hiding approximately 30% of all global savings from taxation.

Knowing that this is happening is one thing.  Knowing how it happens is another.  

First, you have to have lax tax controls in countries like Canada which make it easy for the rich to move money out tax-free while tax collectors focus on easier targets: the poor.  The controls are even more lax in developing countries like China, Russia, Brazil, Korea, and Kuwait.  According to the report, $9.4 Trillion has been pulled out of 139 developing countries between 2005-2010.  These countries officially have $4 Trillion listed in debt while the few wealthy people from these countries control the $9 Trillion in cash offshore.

"Indeed, once we take these hidden offshore assets and the earnings they produce into account, many erstwhile "debtor countries" are in fact revealed to be wealthy.  But the problem is, their wealth is now offshore, in the hands of their own elites and their private bankers."

Second, you need private banks vying for the wealth of the rich and tucking it away from governments.  UBS and Credit Swiss (Swiss Banks) are the two biggest banks in terms of hiding money globally.  The rest of the top ten is denominated by US, UK, French and German banks.  TD Canada is number 16 on the list.

Third, you need countries to hide the money in, like the Cayman Islands and Switzerland.

The capital flight has only gotten worse in the past few years, with an escalating amount of money leaving countries, from $5 Trillion in 2005 to $12 Trillion in 2010.

Recent attempts to crack down on tax evaders have been a disaster when looking at the amounts of money involved.

Who are the people stealing this money away?  They have names and addresses.  They make up a small group of approximately 100,000 people - 0.001% of the population controlling approximately $10 Trillion in offshore wealth.   The rest of the trillions offshore are owned by another 10 Million people.

Trying to tax these folks would be difficult.  Globalized banking would have to be reined in in order to prevent individuals from ripping a country off and avoiding the tax collector.  It would be tantamount to a declaration of war on the uber-rich who, even in the midst of a financial crisis, have managed to privatize more, reduce government spending, gets trillions in bailouts from the public and amass more wealth.

But as the TJN states, although the money hidden in tax havens is a travesty, it's also an opportunity.  After all, we know the location of the cash, how much is there and roughly who owns it.  All we need to do is take it back.

The Liebowski blog tracks big piles of money.  It appears regularily on the Toronto Media Co-op.


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