Eight percent of the world's wealth might be hidden in tax havens

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We know how bad global wealth inequality has gotten in the 21st century.

One factor that is exacerbating the problem: tax havens.

A new estimate from Berkeley economist Gabriel Zucman says that as much as 8% of the world's wealth, totaling $7.6 trillion, might be "hidden" in places like Switzerland and the Cayman Islands, which are home to special corporate entities that allow funds to be shielded from tax regimes.


In his new book, The Hidden Wealth of Nations: The Scourge of Tax Havens, Zucman looks at discrepancies in international accounts, which are often classified as “errors and omissions," to come up with the figure.

As brothers Brad and Michael DeLong point out in a review of the book on website Project Syndicate, that is more wealth than is owned by the poorer half of the world’s 7.4 billion people.


Why does this matter? If that money is supposed to be held by the government, which acts as a wealth redistributor, whole swaths of the population are getting cheated out of funds they're owed. That has a ripple effect, they write:

If rich countries in Europe and North American cannot effectively tax the rich, they have little chance of preserving social democracy and offsetting the surge in inequality that has recently afflicted their economies. Similarly, emerging economies have little hope of putting in place progressive tax systems if they cannot find their plutocrats’ wealth.

One major problem is that not all offshoring is illegal, and is instead the result of loopholes in existing laws. The Delongs say that as a result of lax enforcement, the reach of U.S. corporate income taxes has declined by one-third since the late '90s.

To combat the problem, Zucman calls for a global public registry of offshoring that would reveal how close or how far off Zucman's estimate is. He also calls for a shift in how corporations are taxed in the first place.


Read their full review here »

Rob covers business, economics and the environment for Fusion. He previously worked at Business Insider. He grew up in Chicago.

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