Tax cheats should pay their share

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July 28, 2012

Tax cheats should pay their share

Anonymous Daily Star The Daily Star Sat Jul 28, 2012, 03:25 AM EDT

Some staggering figures on tax evasion were revealed this week by British economist James Henry in a report titled "The Price of Offshore Revisited."

Henry, a former chief economist for the consulting firm McKinsey & Co., determined that at least $21 trillion worldwide is being stashed in tax havens such as Switzerland, the Cayman Islands, Luxembourg, Hong Kong and Singapore. The study _ which compiled data from the World Bank, the International Monetary Fund, the United States and central banks _ said $21 trillion is a conservative estimate, and the actual figure could be as high as $32 trillion. By comparison, the entire annual U.S. economy totals roughly $15 trillion.

Equally frustrating is the relatively small number of tax cheats responsible for this "huge black hole in the world economy," as Henry described it. These offshore assets are held by fewer than 10 million people worldwide, and $9.8 trillion is held by the wealthiest 100,000 _ or 0.001 percent of the world's population.

The banks that handle much of this activity have been hiding in plain sight _ and could be held responsible, if doing so became a political priority. The three biggest offenders _ UBS, Credit Suisse and Goldman Sachs _ are "headquartered in First World capitals like London, New York and Geneva," Henry wrote. "Our detailed analysis of these banks shows that the leaders are the very same ones that have figured so prominently in government bailouts and other recent chicanery."

In an era when many governments worldwide are resorting to painful tax hikes and budget cuts to balance their budgets, it's unconscionable that a small segment of the population can game the system using methods to which the average citizen doesn't have access.

If all this unreported offshore wealth were taxed, it would yield between $190 and $280 billion in revenue _ or "roughly twice the amount OECD countries spend on all overseas development assistance around the world," according to Henry's research.

An optimist would argue that this trickery could be dealt without much difficulty.

The G-20 nations in recent years have vowed to hold banks responsible and require them to turn over clients' names. The small, import-reliant countries that serve as tax havens are vulnerable to trade sanctions and would have little choice but to comply if such measures were threatened.

But given the complexity of offshore tax-dodging schemes and the complicity of global leaders who have the power to ban them, individual nations can do little about this problem on their own. Even if Congress chose to tackle the issue in a bipartisan manner _ as dubious as that may sound _ such efforts would succeed only in conjunction with a cooperative worldwide crackdown on such practices.