Sunlight on Tax Havens

BERKELEY – Tax havens are by design secretive and opaque. The entire point of their existence is to conceal the wealth hidden within them. And a new book by Gabriel Zucman, The Hidden Wealth of Nations: The Scourge of Tax Havens, reveals, as never before, the extent of their role in the global economy.

Zucman examines discrepancies in international accounts to provide the most precise and reliable figures we are likely to obtain about the amount of money stored in tax havens. He estimates that 8% of the world’s financial wealth – some $7.6 trillion – is hidden in places like Switzerland, Bermuda, the Cayman Islands, Singapore, and Luxembourg. That is more wealth than is owned by the poorer half of the world’s 7.4 billion people.

This figure has important consequences, as it represents money that should be in the tax base. 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.

To be sure, Zucman’s relies on the unproven assumption that there are important data to be found in what is usually classified as “errors and omissions.” But there is good reason to believe his figures are in the ballpark. Switzerland’s central bank reports that foreigners hold $2.4 trillion in Swiss banks alone. And while Switzerland may be the world’s oldest tax haven, it is not the most advantageous place to park one’s money.