£13tn hoard hidden from taxman by global elite

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£13tn hoard hidden from taxman by global elite

Postby Whimsical Eloquence » Sun Jul 22, 2012 1:17 pm UTC

The Guardian wrote:A global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary £13 trillion ($21tn) of wealth offshore – as much as the American and Japanese GDPs put together – according to research commissioned by the campaign group Tax Justice Network.

James Henry, former chief economist at consultancy McKinsey and an expert on tax havens, has compiled the most detailed estimates yet of the size of the offshore economy in a new report, The Price of Offshore Revisited, released exclusively to the Observer.

He shows that at least £13tn – perhaps up to £20tn – has leaked out of scores of countries into secretive jurisdictions such as Switzerland and the Cayman Islands with the help of private banks, which vie to attract the assets of so-called high net-worth individuals. Their wealth is, as Henry puts it, "protected by a highly paid, industrious bevy of professional enablers in the private banking, legal, accounting and investment industries taking advantage of the increasingly borderless, frictionless global economy". According to Henry's research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4tn in 2010, a sharp rise from £1.5tn five years earlier.

The detailed analysis in the report, compiled using data from a range of sources, including the Bank of International Settlements and the International Monetary Fund, suggests that for many developing countries the cumulative value of the capital that has flowed out of their economies since the 1970s would be more than enough to pay off their debts to the rest of the world.

Oil-rich states with an internationally mobile elite have been especially prone to watching their wealth disappear into offshore bank accounts instead of being invested at home, the research suggests. Once the returns on investing the hidden assets is included, almost £500bn has left Russia since the early 1990s when its economy was opened up. Saudi Arabia has seen £197bn flood out since the mid-1970s, and Nigeria £196bn.

"The problem here is that the assets of these countries are held by a small number of wealthy individuals while the debts are shouldered by the ordinary people of these countries through their governments," the report says.

The sheer size of the cash pile sitting out of reach of tax authorities is so great that it suggests standard measures of inequality radically underestimate the true gap between rich and poor. According to Henry's calculations, £6.3tn of assets is owned by only 92,000 people, or 0.001% of the world's population – a tiny class of the mega-rich who have more in common with each other than those at the bottom of the income scale in their own societies.

"These estimates reveal a staggering failure: inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people," said John Christensen of the Tax Justice Network. "People on the street have no illusions about how unfair the situation has become."



Absolutely stunning. Bear in mind that's just under a third of the entire world's GDP and that as these figures are just coming out now, it means that actual global inequality is much, much worse than was thought before.
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Re: £13tn hoard hidden from taxman by global elite

Postby Sizik » Sun Jul 22, 2012 4:37 pm UTC

We are the 99.999%?
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Re: £13tn hoard hidden from taxman by global elite

Postby Vaniver » Sun Jul 22, 2012 5:41 pm UTC

A global super-rich elite has exploited gaps in cross-border tax rules to hide an extraordinary £13 trillion ($21tn) of wealth offshore – as much as the American and Japanese GDPs put together
ARGH don't compare stocks and flows. A more relevant comparison would be to net worth, though since those values are from 2000 they won't be particularly helpful.

According to Henry's research, the top 10 private banks, which include UBS and Credit Suisse in Switzerland, as well as the US investment bank Goldman Sachs, managed more than £4tn in 2010, a sharp rise from £1.5tn five years earlier.
Hmmm, did anything interesting happen between 2005 and 2010? This couldn't be related to the consolidation of banks during the financial crisis, could it?

Oil-rich states with an internationally mobile elite have been especially prone to watching their wealth disappear into offshore bank accounts instead of being invested at home, the research suggests. Once the returns on investing the hidden assets is included, almost £500bn has left Russia since the early 1990s when its economy was opened up. Saudi Arabia has seen £197bn flood out since the mid-1970s, and Nigeria £196bn.
Perhaps the capital left those countries because there were superior investment opportunities elsewhere? Or is the sole reason Nigerians earn money to pay off the Nigerian government's foreign debt?
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Re: £13tn hoard hidden from taxman by global elite

Postby jseah » Sun Jul 22, 2012 6:15 pm UTC

Um, what in the world...? I can only assume that this 'wealth' cannot be in spendable money.
21 trillion USD is about 1/3 of the entire world GDP (source: world bank, world gdp is about 70 trillion USD). Exactly how do they spend that kind of money? It is simply impossible to spend it, there wouldn't be anything to spend it on!
In fact, 21 trillion USD would be a very significant portion of global money supply. Were they to return that money into circulation, whether by direct spending on stuff, or by giving governments a windfall, massive inflation is sure to follow.

At the economy distorting levels of wealth, the super-rich have to account for the fact that how they spend their wealth matters. How you store it (in a bank or in bonds) doesn't matter. 21 trillion has to go somewhere and eventually it must end up in the economy somehow, unless you fancy 0% return (aka. stuffing your mattress with 100 dollar bills, and doing that would generate deflation)


On the other hand, if this wealth measure includes investments in company stocks (essentially capital), holding of government bonds (again essentially public infrastructure or debt) or corporate bonds (also corporate debt or claims on future production) then what this 21 trillion really represents is a claim on a large portion of the world's capital and means of production.
Alot of which cannot be easily taxed. Indeed, the only real way such wealth can be "spent" is on capital goods (buying bonds or stock), which means endless re-investment. Even stopping re-investment and liquidating the lot would make entire economies grind to a halt. (and render the wealth worthless)
Essentially, the 21 trillion manifests itself as a large amount of "voting power" on how the world will allocate production. If one of those 21 trillion dollar owners told his funds to only invest in IT stocks, a massive expansion of the IT industry's capital will follow (or more likely, a massive bubble). After all, by doing that, he's "voting" that the world should invest in IT capital. And it also implies that those people underlie a significant portion of capital in the world economy.

There simply isn't any other way to use it.
If the UK solution to overseas tax avoidance is applied (as stated in one of the TJN articles, this is a one-off 27-48% payment) and we get 100% compliance, capital stocks around the world have to spontaneously liquidated and transferred to public infrastructure (government projects) or consumption (through salaries paid). How exactly is anyone to do that without destroying the industrial sectors those capital stocks reside in?
They control a significant portion of capital buying power. You can't just say "sell it on the stock market" because there will be no one to buy it. After all, anyone who could buy that amount would also be selling to the pay the taxman! The most you can do is allow the payment to be in the form of direct transfer of ownership of investment accounts. And governments face the same problem in trying to use it; namely, they cannot. Not without destroying their own economies (or other countries economies)
- And do you really want to give governments "voting power" on allocating capital investments? Really?

EDIT:
Basically, 21 trillion is so vast a sum that it cannot move quickly. Where quickly is any period less than about one generation. For most purposes outside of investment, this amount money doesn't really exist.
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Re: £13tn hoard hidden from taxman by global elite

Postby Zamfir » Sun Jul 22, 2012 6:41 pm UTC

jseah, if more of this is taxed, other taxes can be decreased. Which gives other people money, for example to invest.

Also, 'investments' represent real power, especially on a large scale. In a sense, these numbers are just a numerical number to estimate some forms of power. And the numbers say that many powerful people are even more powerful than they appear on the surface.

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Re: £13tn hoard hidden from taxman by global elite

Postby lutzj » Sun Jul 22, 2012 7:18 pm UTC

I would presume that the vast majority of this wealth was taxed during its creation.
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Re: £13tn hoard hidden from taxman by global elite

Postby jseah » Sun Jul 22, 2012 7:23 pm UTC

Zamfir wrote:jseah, if more of this is taxed, other taxes can be decreased. Which gives other people money, for example to invest.

Also, 'investments' represent real power, especially on a large scale. In a sense, these numbers are just a numerical number to estimate some forms of power. And the numbers say that many powerful people are even more powerful than they appear on the surface.

Yeah, of course, it represents real power. It is the power to say "I think making computers is a good thing we should do more of" and have the world production chains shift towards that. Not because you are buying more computers, but because you are buying more machines that make computers.
It is the power to decide what our future capital investments are. What I am saying is that it does not represent actual wealth in any form, even if it is denominated in wealth. And any attempt to convert it into wealth will, figuratively, make the sky fall down.

Of course, in the very long term, it is also the only form of power that matters. Whether you think governments should hold it or the people who invest should hold it is a matter of social policy. (I have my own opinions but that's rather tangential to the analysis)


I maintain though, that Taxing it in the standard "pay X dollars to the state" manner will only result in total collapse. Even if the overall tax rate is reduced by the exact amount of the windfall, and the people use the exact amount the tax is reduced by to invest (aka, buy up all the investments being sold by the rich to pay the taxman in the first place), which are two unrealistic assumptions, the chaos of a free market transfer of ownership will make the banking crisis look like a pond next to the ocean. Put on a more realistic modification of those two assumptions and the result is a crash in capital markets and massive spike in consumer activity that ends in high inflation. Also, due to the crashing market, the 21 trillion will very rapidly stop being 21 trillion since they're mostly in capital goods...

A much more workable scheme is for the rich to pay the one-off tax (and any future taxes on returns) in the form of the investment accounts themselves, or transfers to a national investment account without changing the underlying investments. This pooled investments will then be managed like any other investment company, except it has only one client, a National Reserve of sorts. Which has to play a very active role in economic investments all over the world. Stopping investment with a chunk of the 21 trillion will send similar (but smaller) shockwaves, just as liquidating it would.

The point is that you cannot actually derive consumption benefits, like using all the returns to lower effective tax rates or allow the government to issue less bonds. It doesn't matter who owns it, whether it is the rich guys or the government. Because then you are making all that "voting power" suddenly point to the government, the shift causing problems just as much as if all those guys with the 21 trillion deciding that government bonds are a fantastic investment. (which they might very well NOT be)

All transferring ownership of this power to the governments will do, is transfer the power to make capital investment decisions to the government. You can't use it for anything else due to sheer scale. Although you probably can siphon a tiny bit off or begin a very slow and long term conversion, the feasibility of which I wouldn't dare to comment on only that my hunch is that it is possible. Even running the balance down over the period of a generation, slowly enough that it won't destroy the economy, will depress capital investment for basically the forseeable future.
I can get behind that plan, and it probably won't cause the sky to fall down if done in the right way. Although I oppose it on principle (namely that I think we DO need that capital investment, and slowly converting 27% of the 21 trillion to government expenditure or consumer spending via lower taxes is going to be a very bad thing)
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Re: £13tn hoard hidden from taxman by global elite

Postby Ghostbear » Sun Jul 22, 2012 8:07 pm UTC

lutzj wrote:I would presume that the vast majority of this wealth was taxed during its creation.

Sure, but money isn't something that gets taxed just once ever per person. People get taxed on their income, on their property, on their spending (state/item specific), on their income from that spending (capital gains), and so on. Just because they got taxed once doesn't mean that it's less wrong of them to avoid all future taxes on their usage of that money.

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Re: £13tn hoard hidden from taxman by global elite

Postby Adacore » Mon Jul 23, 2012 12:28 am UTC

A lot of people on the BBC website seemed to be up in arms about the tax-evasion side of this in the UK. Which is understandable, I suppose, and certainly expected on BBC Have Your Say. But reading the article, it seems to at least imply that the vast majority of this wealth is money embezzled by unscrupulous businessmen and politicians in more corrupt countries in Africa and Asia. The focus on the UK is just because the group that sponsored the research - the Tax Justice Network - has put their spin on the press release to make it sound as if these vast sums are hidden because of tax evasion in Europe/America.

Tax evasion is still a major problem, but nowhere near as big as wholesale corruption, on a global scale, I suspect.

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Re: £13tn hoard hidden from taxman by global elite

Postby Iulus Cofield » Mon Jul 23, 2012 12:50 am UTC

lutzj wrote:I would presume that the vast majority of this wealth was taxed during its creation.


At 15% of course, the highest any civilized person could ever be obliged to pay. Why, if anyone payed more than that, how could they have any left to spend! We need low taxes so the wealth creators can in turn use that money to create more wealth. The system works especially well when income sits in hidden overseas bank accounts.

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Re: £13tn hoard hidden from taxman by global elite

Postby stevey_frac » Mon Jul 23, 2012 1:55 am UTC

Ghostbear wrote:
lutzj wrote:I would presume that the vast majority of this wealth was taxed during its creation.

Sure, but money isn't something that gets taxed just once ever per person. People get taxed on their income, on their property, on their spending (state/item specific), on their income from that spending (capital gains), and so on. Just because they got taxed once doesn't mean that it's less wrong of them to avoid all future taxes on their usage of that money.


But there is no tax on money that you simply have. So if I take $1000 and put it in a swiss bank, no government can do anything about that. That's the same if you have $1000 or $100 million.

The one tax that is the possible exception is the estate tax, or death tax.


The problem in the article is that this money was created through corrupt means, and not taxed. Not that there exists wealth.

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Re: £13tn hoard hidden from taxman by global elite

Postby Ghostbear » Mon Jul 23, 2012 3:32 am UTC

stevey_frac wrote:But there is no tax on money that you simply have. So if I take $1000 and put it in a swiss bank, no government can do anything about that. That's the same if you have $1000 or $100 million.

Only if you do and make absolutely nothing with that money. If you earn interest or make investments with it, then you legally should be taxed for the profits made on such. If it's $1,000 in your bank account, the interest is probably going to be so minimal that no one will notice when you file your taxes. Not so much if it's $100 million... unless you have it stashed away somewhere that keeps the existence of the money secret and doesn't report your interest gained to the authorities.

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Re: £13tn hoard hidden from taxman by global elite

Postby Garm » Mon Jul 23, 2012 1:36 pm UTC

Iulus Cofield wrote:
lutzj wrote:I would presume that the vast majority of this wealth was taxed during its creation.


At 15% of course, the highest any civilized person could ever be obliged to pay. Why, if anyone payed more than that, how could they have any left to spend! We need low taxes so the wealth creators can in turn use that money to create more wealth. The system works especially well when income sits in hidden overseas bank accounts.


Here's what Joe Stiglitz has to say about the tax rate and how it contributes to the problem of inequality. Very interesting article: http://www.latimes.com/news/opinion/commentary/la-oe-stiglitz-inequality-20120722,0,4061042.story
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Re: £13tn hoard hidden from taxman by global elite

Postby Carnildo » Tue Jul 24, 2012 6:42 am UTC

Ghostbear wrote:
stevey_frac wrote:But there is no tax on money that you simply have. So if I take $1000 and put it in a swiss bank, no government can do anything about that. That's the same if you have $1000 or $100 million.

Only if you do and make absolutely nothing with that money. If you earn interest or make investments with it, then you legally should be taxed for the profits made on such. If it's $1,000 in your bank account, the interest is probably going to be so minimal that no one will notice when you file your taxes. Not so much if it's $100 million... unless you have it stashed away somewhere that keeps the existence of the money secret and doesn't report your interest gained to the authorities.

Yes, and you are being taxed on the interest. You're not being taxed on the money itself. If you've got $100 million in a Swiss bank earning 5% per year, your 15% tax rate works out to $750,000 in taxes, not $15,000,000.

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Re: £13tn hoard hidden from taxman by global elite

Postby johnny_7713 » Tue Jul 24, 2012 8:30 am UTC

Carnildo wrote:
Ghostbear wrote:
stevey_frac wrote:But there is no tax on money that you simply have. So if I take $1000 and put it in a swiss bank, no government can do anything about that. That's the same if you have $1000 or $100 million.

Only if you do and make absolutely nothing with that money. If you earn interest or make investments with it, then you legally should be taxed for the profits made on such. If it's $1,000 in your bank account, the interest is probably going to be so minimal that no one will notice when you file your taxes. Not so much if it's $100 million... unless you have it stashed away somewhere that keeps the existence of the money secret and doesn't report your interest gained to the authorities.

Yes, and you are being taxed on the interest. You're not being taxed on the money itself. If you've got $100 million in a Swiss bank earning 5% per year, your 15% tax rate works out to $750,000 in taxes, not $15,000,000.


In the Netherlands the taxman just assumes you're earning 4% on your money, regardless of your actual interest rate / return on investment. He then taxes you 30% of that, which works out to a 1.2% tax on your capital (the first 20,000 or so being tax free, since you're allowed to deduct that amount from your capital). Since you are taxed on an assumed return, rather than on the actual return, it is to all intents and purposes a tax on the money itself.

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Re: £13tn hoard hidden from taxman by global elite

Postby Ghostbear » Tue Jul 24, 2012 9:19 am UTC

Carnildo wrote:Yes, and you are being taxed on the interest. You're not being taxed on the money itself. If you've got $100 million in a Swiss bank earning 5% per year, your 15% tax rate works out to $750,000 in taxes, not $15,000,000.

I know. The problem is that if the money and subsequent returns on that money is kept hidden, then they aren't even going to be taxed on that interest at all. Where did I argue for or assume a tax on wealth? I was very pointedly noting that they are avoiding those taxes on interest!

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Re: £13tn hoard hidden from taxman by global elite

Postby CorruptUser » Tue Jul 24, 2012 1:24 pm UTC

Ghostbear wrote:
stevey_frac wrote:But there is no tax on money that you simply have. So if I take $1000 and put it in a swiss bank, no government can do anything about that. That's the same if you have $1000 or $100 million.

Only if you do and make absolutely nothing with that money. If you earn interest or make investments with it, then you legally should be taxed for the profits made on such. If it's $1,000 in your bank account, the interest is probably going to be so minimal that no one will notice when you file your taxes. Not so much if it's $100 million... unless you have it stashed away somewhere that keeps the existence of the money secret and doesn't report your interest gained to the authorities.


If you do nothing with the money, you get hit by the inflation tax. If you have money at the beginning of the year, there is 5% inflation each year, and you only get 3% interest, at the end of the year you have less money than you did at the start, even though you have '5% more monies'. It's part of why the US government loves issuing so much debt; so long as inflation is higher than the interest rate, even quasi-infinite debt is meaningless. Sure, if you are making returns greater than the inflation rate you are gaining money (and it should count as income for tax purposes), but that hasn't been the case for quite some time (for cash anyway).

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Re: £13tn hoard hidden from taxman by global elite

Postby KnightExemplar » Tue Jul 24, 2012 1:38 pm UTC

CorruptUser wrote:
Ghostbear wrote:
stevey_frac wrote:But there is no tax on money that you simply have. So if I take $1000 and put it in a swiss bank, no government can do anything about that. That's the same if you have $1000 or $100 million.

Only if you do and make absolutely nothing with that money. If you earn interest or make investments with it, then you legally should be taxed for the profits made on such. If it's $1,000 in your bank account, the interest is probably going to be so minimal that no one will notice when you file your taxes. Not so much if it's $100 million... unless you have it stashed away somewhere that keeps the existence of the money secret and doesn't report your interest gained to the authorities.


If you do nothing with the money, you get hit by the inflation tax. If you have money at the beginning of the year, there is 5% inflation each year, and you only get 3% interest, at the end of the year you have less money than you did at the start, even though you have '5% more monies'. It's part of why the US government loves issuing so much debt; so long as inflation is higher than the interest rate, even quasi-infinite debt is meaningless. Sure, if you are making returns greater than the inflation rate you are gaining money (and it should count as income for tax purposes), but that hasn't been the case for quite some time (for cash anyway).


As far as I know, the government is more worried about keeping inflation constant as opposed to controlling it. There are pros and cons to inflation (ie: anyone who has a mortgage should probably prefer inflation actually). Too little inflation can cause a deflationary cycle (more and more people hoard money instead of investing it... because speculators think that hoarding money is a better investment. As that happens, more deflation occurs). Too much inflation can cause hyperinflation where the price of bread suddenly costs a million bucks (also a problem). So my understanding is... keeping inflation *constant* is the best policy.

Historically, inflation was aimed at the 3% / 4% level even through the 90s, when interest rates were significantly higher and it was possible to make money off of interest alone.

And its not so much that the "Government" loves issuing debt... its that *Congress* controls our money. And Congress is built out of Republicans who refuse to raise taxes and Democrats who refuse to cut spending. So that is more of a different problem.
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Re: £13tn hoard hidden from taxman by global elite

Postby Jave D » Tue Jul 24, 2012 2:47 pm UTC

Elite shmalite. They're just hard-working honest joes who've earned the right to do with their rightful gains as they please. The taxman should really focus on those pennies the lazy peasants have taken to burying under their barns.

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Re: £13tn hoard hidden from taxman by global elite

Postby jseah » Tue Jul 24, 2012 3:30 pm UTC

At the reported amount of wealth, we can't be talking about whether we should tax it or not. We can't do it. (I make the case above)

IMO, the problem here is that people (in general) and the government object to the very very rich having a significant amount of power to decide what capital investments should be made.
That level of wealth is beyond the market. They ARE the market, in the same way that a large supermarket or furniture store is the cornerstone of a shopping complex.

You pull a chunk of it out and the whole economy will come down.
EDIT:
The "You" doesn't have to be the government. If they collectively decided to pay tax, the same thing would result.
Or decided to draw down a trillion dollars to buy a space elevator, whatever.
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Re: £13tn hoard hidden from taxman by global elite

Postby Ghostbear » Tue Jul 24, 2012 4:13 pm UTC

CorruptUser wrote:If you do nothing with the money, you get hit by the inflation tax. If you have money at the beginning of the year, there is 5% inflation each year, and you only get 3% interest, at the end of the year you have less money than you did at the start, even though you have '5% more monies'. It's part of why the US government loves issuing so much debt; so long as inflation is higher than the interest rate, even quasi-infinite debt is meaningless. Sure, if you are making returns greater than the inflation rate you are gaining money (and it should count as income for tax purposes), but that hasn't been the case for quite some time (for cash anyway).

Except, as far as I can tell, everybody pays taxes on their interest regardless of inflation. So when Timmy McDoesn'tUseTaxHavens gets a 3% interest rate with 2% inflation, he's taxed for all of that interest and also loses value through inflation. When Jenny HasAllHerMoneyInTheCaymanIslands earns 3% interest with 2% inflation, she's still dodging taxes when she doesn't pay any taxes on that interest even if she still gets hit with inflation. Why should we support being rich as a good enough reason to not pay all of your taxes?

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Re: £13tn hoard hidden from taxman by global elite

Postby Garm » Tue Jul 24, 2012 4:44 pm UTC

Ghostbear wrote:
CorruptUser wrote:If you do nothing with the money, you get hit by the inflation tax. If you have money at the beginning of the year, there is 5% inflation each year, and you only get 3% interest, at the end of the year you have less money than you did at the start, even though you have '5% more monies'. It's part of why the US government loves issuing so much debt; so long as inflation is higher than the interest rate, even quasi-infinite debt is meaningless. Sure, if you are making returns greater than the inflation rate you are gaining money (and it should count as income for tax purposes), but that hasn't been the case for quite some time (for cash anyway).

Except, as far as I can tell, everybody pays taxes on their interest regardless of inflation. So when Timmy McDoesn'tUseTaxHavens gets a 3% interest rate with 2% inflation, he's taxed for all of that interest and also loses value through inflation. When Jenny HasAllHerMoneyInTheCaymanIslands earns 3% interest with 2% inflation, she's still dodging taxes when she doesn't pay any taxes on that interest even if she still gets hit with inflation. Why should we support being rich as a good enough reason to not pay all of your taxes?


I also don't see how holding at 2% inflation (ECB) helps the economy. Setting an low number helps the rich but not everyone else.
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Re: £13tn hoard hidden from taxman by global elite

Postby CorruptUser » Tue Jul 24, 2012 4:47 pm UTC

Ghostbear wrote:
CorruptUser wrote:If you do nothing with the money, you get hit by the inflation tax. If you have money at the beginning of the year, there is 5% inflation each year, and you only get 3% interest, at the end of the year you have less money than you did at the start, even though you have '5% more monies'. It's part of why the US government loves issuing so much debt; so long as inflation is higher than the interest rate, even quasi-infinite debt is meaningless. Sure, if you are making returns greater than the inflation rate you are gaining money (and it should count as income for tax purposes), but that hasn't been the case for quite some time (for cash anyway).

Except, as far as I can tell, everybody pays taxes on their interest regardless of inflation. So when Timmy McDoesn'tUseTaxHavens gets a 3% interest rate with 2% inflation, he's taxed for all of that interest and also loses value through inflation. When Jenny HasAllHerMoneyInTheCaymanIslands earns 3% interest with 2% inflation, she's still dodging taxes when she doesn't pay any taxes on that interest even if she still gets hit with inflation. Why should we support being rich as a good enough reason to not pay all of your taxes?


...I assumed everyone was aware of that, which is why I was responding to someone complaining about the capital gains tax.

Garm wrote:I also don't see how holding at 2% inflation (ECB) helps the economy. Setting an low number helps the rich but not everyone else.


The rich don't benefit more or less from inflation, as they tend to only have a small fraction of their assets in 0-interest loans (aka money). Commodities and durable goods are effectively immune to inflation, as are most stocks. Constant inflation has minimal effect on debt, which is what I believe you were referring to, as the inflation will be built into the debt. Rising inflation rates will eliminate debt, helping borrowers and harming lenders. But once the rate of rising inflation becomes constant, people build that into the debt, so the rate of rising will have to increase, until the rate of the rate of rising increases, and turtles all the way down to Zimbabwe.

Even constant inflation has deadweight losses from things like menu costs and so forth. Preferably there is no inflation, but low inflation exists so that there is wiggle room for responding to the economy; nominal interest rates can't be cut below negative without people simply holding on to their money.
Last edited by CorruptUser on Tue Jul 24, 2012 4:59 pm UTC, edited 1 time in total.

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Re: £13tn hoard hidden from taxman by global elite

Postby Ghostbear » Tue Jul 24, 2012 4:50 pm UTC

CorruptUser wrote:...I assumed everyone was aware of that, which is why I was responding to someone complaining about the capital gains tax.

But.. you were responding to me, and I only tangentially alluded to capital gains ("investments" in this case). I'm confused -- did you mean to quote somebody else?

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Re: £13tn hoard hidden from taxman by global elite

Postby CorruptUser » Tue Jul 24, 2012 5:05 pm UTC

Ok this is getting a bit confusing. I assumed you were complaining that people with hidden money weren't being taxed on the profits of interest, so I assumed you understood (which you do) that only the interest above inflation is profit. You post was about how hidden money doesn't pay capital gains. But Swiss Bank accounts aren't known for respectable interest rates, so most with hidden money are paying the inflation tax on said hidden money. It's hidden so that it can avoid paying taxes when it's earned (or stolen) rather than on the interest itself.

Meh, I'll just say I made a mistake somewhere.

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Re: £13tn hoard hidden from taxman by global elite

Postby Ghostbear » Tue Jul 24, 2012 5:24 pm UTC

CorruptUser wrote:Ok this is getting a bit confusing. I assumed you were complaining that people with hidden money weren't being taxed on the profits of interest, so I assumed you understood (which you do) that only the interest above inflation is profit. You post was about how hidden money doesn't pay capital gains. But Swiss Bank accounts aren't known for respectable interest rates, so most with hidden money are paying the inflation tax on said hidden money. It's hidden so that it can avoid paying taxes when it's earned (or stolen) rather than on the interest itself.

Meh, I'll just say I made a mistake somewhere.

My general point was that they are avoiding taxes with money in those accounts. The money earned, the interest on it, any proceeds from investments with it, and so on, will be hidden so as to avoid taxes associated with it. Others were pointing out that there's no generic wealth tax (at least not in most countries as far as I know, though there are often property taxes on things like homes) and using that to mean that people weren't dodging taxes this way. My post was about how that hidden money isn't going to pay taxes on any proceeds from that hidden money -- whether it be capital gains, interest, or something else that I haven't thought of -- it wasn't about just capital gains. It was more responding to the idea that money just sits there and does absolutely nothing at all. So I guess you just missed what my post was directed at -- I don't think we're in much disagreement.

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Re: £13tn hoard hidden from taxman by global elite

Postby Iulus Cofield » Tue Jul 24, 2012 6:27 pm UTC

CorruptUser wrote:Ok this is getting a bit confusing. I assumed you were complaining that people with hidden money weren't being taxed on the profits of interest, so I assumed you understood (which you do) that only the interest above inflation is profit. You post was about how hidden money doesn't pay capital gains. But Swiss Bank accounts aren't known for respectable interest rates, so most with hidden money are paying the inflation tax on said hidden money. It's hidden so that it can avoid paying taxes when it's earned (or stolen) rather than on the interest itself.

Meh, I'll just say I made a mistake somewhere.


Why do you keep calling inflation a tax?

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Re: £13tn hoard hidden from taxman by global elite

Postby lutzj » Tue Jul 24, 2012 6:31 pm UTC

Iulus Cofield wrote:
CorruptUser wrote:Ok this is getting a bit confusing. I assumed you were complaining that people with hidden money weren't being taxed on the profits of interest, so I assumed you understood (which you do) that only the interest above inflation is profit. You post was about how hidden money doesn't pay capital gains. But Swiss Bank accounts aren't known for respectable interest rates, so most with hidden money are paying the inflation tax on said hidden money. It's hidden so that it can avoid paying taxes when it's earned (or stolen) rather than on the interest itself.

Meh, I'll just say I made a mistake somewhere.


Why do you keep calling inflation a tax?


Because it transfers wealth from people-who-are-not-the-government to the government.
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Re: £13tn hoard hidden from taxman by global elite

Postby Ghostbear » Tue Jul 24, 2012 6:44 pm UTC

lutzj wrote:Because it transfers wealth from people-who-are-not-the-government to the government.

No tax I've ever heard of also transfers wealth to people (completely unaffiliated with the government) who hold debt. Or was selective only to people that hold wealth in the national currency. More accurate is to say it has some tax-like qualities. It's a bit presumptive to call it an actual tax though, as far as I'm concerned.

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Re: £13tn hoard hidden from taxman by global elite

Postby lutzj » Tue Jul 24, 2012 6:54 pm UTC

Ghostbear wrote:
lutzj wrote:Because it transfers wealth from people-who-are-not-the-government to the government.

No tax I've ever heard of also transfers wealth to people (completely unaffiliated with the government) who hold debt. Or was selective only to people that hold wealth in the national currency. More accurate is to say it has some tax-like qualities. It's a bit presumptive to call it an actual tax though, as far as I'm concerned.


You're right that it's not precisely a tax, but I'd say that people with net negative cash positions are getting a tax refund. Inflation is practically the same as a tax on currency, with the interesting effect of being a subsidy to people with <0 currency.
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Re: £13tn hoard hidden from taxman by global elite

Postby Zamfir » Tue Jul 24, 2012 7:50 pm UTC

But to call it a tax, the money should end up at the government, right? That only happens in the specific case of government debt, and even then only when the inflation exceeds the expectations at the time that the coupons for the bonds were set.

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Re: £13tn hoard hidden from taxman by global elite

Postby Bubbles McCoy » Tue Jul 24, 2012 8:06 pm UTC

lutzj wrote:Because it transfers wealth from people-who-are-not-the-government to the government.

Actual wealth (i.e. investment) isn't badly affected by inflation. I suppose since capital gains taxes don't count inflation taxes are somewhat higher*, but I don't think that's quite what you're getting at here.

And as Zamfir said, inflation does not directly improve the government's finances - changes in the inflation rate can, but a steady high inflation rate has little effect on government finances.


*In America, at least, the Dutch system johnny_7713 described wouldn't have this

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Re: £13tn hoard hidden from taxman by global elite

Postby Iceman » Tue Jul 24, 2012 8:28 pm UTC

This sort of reporting is moronic and irresponsible.

1) It compares Assets to GDP, which is non-sensical. The assts in the world are in the Quadrillions, GDP represents annual production and is a horrible comparison to use.

It would be like saying 'That bucket has 2 litres of water in it! That's as much as that huge water tower (With 50,000 litres in it) leaks in a year!'

2) It implies that it's cash sitting there or something, it's referring to assets held, not currency sitting in accounts.

3) It gives no indication of the types of assets or how it would be taxed. If the majority of this was say, US Treasury securities, the income in terms of taxes could be like 10 billion/year. Would countries want this tax income? certainly...but is it actually a big deal in a $3.6 Trillion budget? Not really...it'd help, but no, its not that big.
Even if these assets were in businesses earning much more, You're looking at like 50 Billion world wide? But assuming the money is well-invested means you're harming the global economy by restricting it at the same time.

4) It plays some sneaky math games to hide how not that big of a deal it is.
"6.3trillion held by only 92,000 people!"
Ok, so, that's....68 Million per person? That's someone with a decent chain of restaurants in the widwest, or a well paid actress, or one of the 20 Best hockey players, or Walt from Breaking Bad after 5 years of cooking.
In some sense this really difuses the 'Elite' part a lot. It means hundreds of thousands if not millions use these shelters.
By Elite do they really mean 'People who are aware some countries have lower taxes?' because almost everyone with over $1 million is aware of that.

5) They give some hints that the money isn't even Actually IN the hidden accounts.

"Once the returns on investing the hidden assets is included, almost £500bn has left Russia since the early 1990s when its economy was opened up."

They're counting money that left the countries over a long period of time, 20+ years, half a trillion 'left' Russia and is being included in this total. But it may have 'Left' Russia and its invested in Germany, or the US, or Sweden.
It doesn't actually say its money held in hidden accounts...only money not held in Domestic accounts.

6) There's not even any implication this is an illegal practice. They present this as if its a problem, with no regard to if it's soemthing being done illegally, if there are rules in place, restrictions in place, any accounting for it etc...

Whole thing lacks context so much that it looks deliberately written to be intentionally misleading and avoid placing anything in context.

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Re: £13tn hoard hidden from taxman by global elite

Postby Zamfir » Tue Jul 24, 2012 8:40 pm UTC

Iceman wrote:Ok, so, that's....68 Million per person? That's someone with a decent chain of restaurants in the widwest, or a well paid actress, or one of the 20 Best hockey players, or Walt from Breaking Bad after 5 years of cooking.

So, respectively the unsupervised boss of easily hundreds of people, and people with audiences in the millions?

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Re: £13tn hoard hidden from taxman by global elite

Postby Iceman » Tue Jul 24, 2012 8:53 pm UTC

Zamfir wrote:
Iceman wrote:Ok, so, that's....68 Million per person? That's someone with a decent chain of restaurants in the widwest, or a well paid actress, or one of the 20 Best hockey players, or Walt from Breaking Bad after 5 years of cooking.

So, respectively the unsupervised boss of easily hundreds of people, and people with audiences in the millions?


Yes?

Do those seem like the 'Global Elite' to you?
There's over 10 Million Millionaires in the world, if we start getting worried about those guys, you're seriously diluting the world 'Elite'

If Carlos Slim is systematically moving capital from Mexico to Kuwait in some illegal way, let me know... If Taylor Swift has some T-bills in Switzerland and its completely legal, Im not exactly panicked.

The Forbes top 500 people have as much wealth as this top 100,000 they mentioned.

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Re: £13tn hoard hidden from taxman by global elite

Postby Ghostbear » Tue Jul 24, 2012 8:55 pm UTC

Iceman wrote:There's over 10 Million Millionaires in the world, if we start getting worried about those guys, you're seriously diluting the world 'Elite'

I don't think it's a dilution of the word elite to apply it to wealthiest ~0.14% of the world population.

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Re: £13tn hoard hidden from taxman by global elite

Postby Crius » Tue Jul 24, 2012 9:02 pm UTC

Zamfir wrote:But to call it a tax, the money should end up at the government, right? That only happens in the specific case of government debt, and even then only when the inflation exceeds the expectations at the time that the coupons for the bonds were set.


Money fresh off the printing press (or electronic equivalent) typically does end up at the government.

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Re: £13tn hoard hidden from taxman by global elite

Postby Negated » Tue Jul 24, 2012 9:29 pm UTC

In case anyone missed the related graph on the guardian website:

http://static.guim.co.uk/sys-images/Observer/Pix/pictures/2012/07/22/gu_wealth-offshore-02.jpg

It colors countries by the ratio between amount going out of that country and its foreign debt. It can be quite misleading since some countries have very low debt to GDP ratio. I also find South Korea's number surprisingly high when compared with the size of its economy.

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Re: £13tn hoard hidden from taxman by global elite

Postby Iceman » Wed Jul 25, 2012 1:47 am UTC

Ghostbear wrote:
Iceman wrote:There's over 10 Million Millionaires in the world, if we start getting worried about those guys, you're seriously diluting the world 'Elite'

I don't think it's a dilution of the word elite to apply it to wealthiest ~0.14% of the world population.


I guess I do, especially with the way they mention it, you'd kind of get the impression the 'Elite' they're talking about are like running things, influencing things, doing clandestine sneaky things...

That just doesn't make a lot of sense if we're just talking about millionaires, it just reads as a bit silly.

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Re: £13tn hoard hidden from taxman by global elite

Postby Iulus Cofield » Wed Jul 25, 2012 2:00 am UTC

I don't think the millionaires next door (TM) have Swiss bank accounts. I don't think most multimillionaires got to be multimillionaires without ever being in management at a decently large company. I don't think multimillionaires ever lack the ability to influence except by disinclination.


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