"In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread."
You've probably heard a lot about the Panama Papers. Here are some facts to keep in mind about why the revelations matter.
1) McKinsey's former chief economist estimated that the offshore economy comprised $32 trillion in assets. This is more than the combined GDP of Japan, the United States, and India. This has led to an estimated loss of $280 billion in income tax revenue per year across the world.
2) A rough analysis of this would be that the average American citizen has to pay an extra $1,259 a year in tax to make up for the shortfall due to offshoring of American assets.
3) This shortfall in tax revenue, as you can imagine, has disastrous global implications. A mentee of Thomas Piketty has estimated that if all income properly traced to Europe were taxed instead of hidden in offshore havens, Europe would be a creditor continent. In other words, the Eurozone debt crisis would disappear.
4) Offshore companies are often traced to hidden detrimental short-term decision-making, often done in secret to avoid moral or ethical guidelines. We know, thanks to the Panama Papers, that an offshore company provides funding for Syrian jets that deliver barrel bombs on the Syrian people. Good luck tracing an offshore that funds climate change research.
5) A lot of PR agencies are going to quibble over the difference between tax avoidance and tax evasion. Beyond the larger point of asking how the spirit of the law could be so mismatched with its intent so as to create this difference, Mossack Fonseca has leaked that 95% of their instruments are coincident with tax avoidance--and given the lack of transparency and the unsavory nature of the tax havens involved, you can be sure that people who parked their money with parked it for a very strong reason. Investigations have already begun into large-scale tax evasion across the world.
6) Global income inequality, already recognized as a massive problem, is actually probably much worse than the statistics reflect. Economic statistics do a poor job of catching the super poor with no addresses. They also do a poor job of catching the super rich with no transparent bank accounts.
7) Extreme income and tax inequality can kill. An Ugandan firm used Mossack Fonseca to change tax havens, depriving Uganda of $400 million in capital gains tax revenue after the sale of an oil rig. While the money was eventually recovered, it took more than 4 years of litigation. $400 million is more than Uganda’s entire healthcare budget. Uganda is one of the worse nations in the world for maternity and infant mortality rates, and the hospital within the oil rig complex had patients sleep on the floor, and bring their own medical supplies.
8) In the current economic and political climate, with multiple countries in tinderbox situations, an allegation of massive corruption can lead to revolution. The Arab Spring was partially set in motion by Wikileaks files on the abysmal wealth the previous Tunisian regime had garnered. A lot of people are going to wake up to a sneaking suspicion that their money has been stolen, and is going to hidden accounts around the world.
9) The revelation of hidden conflicts of interest and secret offshore accounts have already caused Iceland’s Prime Minister to resign, and politicians across the world from France, Britain, Ukraine, to Pakistan are feeling the heat.
10) This journalism was only made possible through the use of strong encryption methods. The source is still unknown, and it is entirely possible that there are many people who want to kill or harm them. Score a victory for encryption.
11) This is the tip of the iceberg. Mossack Fonseca, the only source of data, is only the fourth largest major offshoring firm. There are at least 800 others. The current revelations are currently a drip from that data leap, carefully curated by the media either for maximum impact, or maximum avoidance of libel laws/pissing off their owners. There are still American citizens to be revealed in these leaks. Former Clinton staffers have been implicated. What else lurks within these leaks, and what lurks outside of them?
As the tax filing system bears down upon us average mortals, be aware of the fact that there are different legal regimes for different incomes, and that this will have detrimental effects now--and in the future if we let it be so.