The Tax Haven Scam

Tax havens are by design secretive. The entire point of their existence is to conceal the wealth hidden within them. The economist Gabriel Zucman’s book, “The Hidden Wealth of Nations,” documents money hiding out 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.

To estimate the amount of hidden money, Mr. Zucman begins with a simple trick. If you add up all the financial liabilities and all the assets in the world, they ought to balance. One person’s liability ought to be another’s asset. (Or one company’s, one country’s, etc.) But if you add up all the world’s reported liabilities, the figure is about $6 trillion higher than the reported assets—a sum that’s been growing. The likeliest explanation: around $6 trillion in assets are being hidden. Zucman finds a rapidly growing share of U.S. equities are being managed offshore. Zucman also finds that the international profits of U.S. corporations are increasingly showing up in tax havens.

There is good reason to believe his figures are a near enough estimate. 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 deposit one’s money.