Review: The Hidden Wealth of Nations: The Scourge of Tax Havens, by Gabriel Zucman

In a slim book just a little over a hundred widely spaced pages long, French economist Zucman endeavors to offer a systematic account of the development of the tax haven system, the manner of its functioning, the scale of its activity, and possible remedies for the problem.

As Zucman explains, the post-World War I spike in taxation across war-depleted Europe sent the rich looking for havens for their wealth, and neutral Switzerland stepped forward to fill that role. Since then, the limited, essentially regional service has, along with the increasing volume, speed and convenience of financial flows, and the integration of the world economy at all levels, grown into a global system of tax havens across Europe, Asia and the Caribbean, each with their own specialties (Luxembourg for mutual funds, Ireland for monetary funds, the Cayman Islands for hedge funds), still largely Swiss-centered (via strategically located overseas branches of those Swiss banks at the key locations).

In endeavoring to compute the extent to which household wealth is offshored in that system, Zucman sets aside for the time being banknotes, insurance contracts and nonfinancial assets like paintings (admittedly, comprising a significant share of the world's wealth), and focuses solely on financial assets, which he assesses through a check of the global balance sheets. He totaled up the listed household liabilities as greater than assets ($96 trillion to $89 trillion), to the tune of $7.6 trillion, a guess he substantiates with another, more solid figure: Switzerland's admitted holdings of $2.3 trillion in foreign wealth, a one-third share of the total that he considers reasonable.

Altogether the total offshore wealth comes to some 8 percent of household wealth worldwide, with Zucman figuring that the proportion is higher for some nations than others--high-tax Europe than the United States, and commodity-producing developing nations rather than industrialized powers (in the case of Russia and Middle East oil producers, perhaps as much as fifty percent).

In an age of endless and steadily worsening inequality, deficits and austerity, this tax evasion would seem a significant problem, especially for those developing states most in need of the resources, while the current system adds to it by facilitating subtler forms of evasion. (Where assets do not "disappear," it enables corporations to shift assets and earnings to low-tax zones on paper, adding yet again to the losses.)

Naturally, there have been attempts at redress of the problem, but as he notes, they have been limited and full of holes--alas, like tax policies in general--leading him to propose a comprehensive package of reforms as an alternative. This would begin with the folding of the current system of multiple, regional registers for financial assets into a single, global register easily accessible to the world's tax authorities; a global wealth tax on undeclared wealth "at the source" (before any interest or dividend payouts) that would be reimbursable only when the owner declares themselves; and the taxation of corporations on overall income with taxes apportioned according to territory. Recalcitrant tax havens would be forced to comply through trading and other sanctions.

As Zucman describes it, the plan appears eminently logical in its mechanisms, in the sense that it would work if enacted; but its enactment is very difficult to picture in anything resembling the prevailing political climate. Even at the height of progressive taxation in the mid-twentieth century, it is arguable that such arrangements were tolerated only because the rich had their opportunities for evading the full weight of that taxation. It may well be that, in these times of crisis and backlash, such opportunities for evasion are looking more rather than less important than before (as demonstrated by the spectacle of the wealthier residents of traditionally capital-friendly Britain panicking over the mere prospect of a Labor government, and responding in, among other ways, a transfer of their assets offshore to precisely such locations).

They can be counted on to oppose any such measures. Especially given the need for a fairly high degree of international cooperation, this would seem to make any such move easier to frustrate. Moreover, even if such a program were implemented, the problem of major governments enforcing the program's dictates would remain--with the conduct of regulatory states in regard to the wealthy, again, doing little to inspire confidence in anything like today's political atmosphere. Still, if the evidences of popular protest around the world are anything to go by, things may be changing in that regard--and even if one is not yet to credit Zucman with devising a feasible plan, he can still be credited with providing considerable insight into this significant subject, while making it easily accessible to a general audience.

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