As bad as you might think inequality is, the reality is it’s even worse for a very simple reason: Taxes really are only for the little people.
By which I mean anyone who doesn’t have a net worth solidly in the nine figures.
As the New York Times’s blockbuster report on how President Trump managed to inherit $413 million in inflation-adjusted dollars without paying much in the way of gift or estate taxes shows, the super-rich tend to be even more super and rich than the tax returns that economists use to estimate inequality say they are. That isn’t to say that the uber-wealthy are all bending the law to the point of potentially breaking it, like the Trumps are alleged to have done — disguising gifts as “loans,” inflating invoices to make other gifts look like business income, and assessing properties at wildly different values, sometimes within weeks of each other, to minimize their tax bill — but rather that there are plenty of other more and less legitimate ways for well-heeled individuals and companies to shield their money from Uncle Sam.
Like using tax havens.
Now, on the legal end of the spectrum, there’s the way that companies shift their profits to show up in low-tax jurisdictions such as Switzerland or the Cayman Islands. This, according to Berkeley economist Gabriel Zucman and his co-researchers, covers as much as 40 percent of all multinational profits and 50 percent of U.S. ones. To put that in perspective, U.S. companies report more profits in Ireland, the top tax-avoidance destination in the world, than they do in China, Japan, Germany, France and Mexico combined. All of this can be inferred from the fact that foreign firms tend — on paper — to be much more profitable than local ones within these tax havens. Not to mention that multinationals book five times as many profits in their haven subsidiaries as they do in their non-haven ones. This, as you might expect, increases inequality, but it doesn’t do it in a way that escapes the eyes of the authorities. Whenever these “overseas” profits are paid out to investors — a bit of a misnomer, because a lot of that money is often invested in things such as U.S. Treasury and corporate bonds despite being listed in other countries for accounting purposes — they still have to pay taxes on it here, so we can keep track of how much they have.
That isn’t the case, though, when it comes to the less scrupulous use of these havens: the outright evading of taxes. The problem is that, by its very nature, this isn’t the kind of thing we can begin to quantify. People, after all, don’t exactly fill out forms telling us how much of their taxes they’re not paying. But it turns out that we don’t need them to. That’s because the Bank for International Settlements has begun publishing statistics on the banking relationships between different countries that allow us to stitch together a picture of how much wealth is being held offshore. And it’s a lot. Zucman and his team estimate that around 10 percent of global GDP is being held inside all the different tax havens. It’s not as bad for the United States as it is for a lot of other countries — about half of Russia’s wealth, for example, has been moved out of the country — but it’s enough to increase the top 0.01 percent’s share of household wealth from about 7 percent to almost 8 percent. That’s over $1 trillion hiding overseas.
But rather than do anything about this, President Trump’s administration and the Republican Party as a whole have continued to starve the IRS of the money it would need to pursue these kinds of investigations. In the past eight years, tax fraud cases are down 25 percent.
In the meantime, then, the rich will be able to get richer the old-fashioned way: by finding ways not to pay taxes.