Conspiracy of the Plutocrats: Secrets of the Wealth-Inequality Explosion Revealed{interview}

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http://www.alternet.org/conspiracy-plutocrats-secrets-wealth-inequality-explosion-revealed

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I talked with one of the most luminous young economists on wealth inequality and how to fight it.

Starting on the more wonky side, there was a bit of a discussion in your research involving the distinction between tax evasion and tax avoidance. I believe the former being illegal and the latter being legal but sketchy. Could you talk a little bit about how you dealt with that in your research?

Absolutely. Several things to distinguish. On the one hand, there’s tax evasion by wealthy individuals, which is just having bank accounts in foreign countries and earning investment income on these accounts and failing to report that income to the IRS. That’s pure tax evasion. That’s completely illegal. Another thing is corporate tax avoidance, usually [by] multinational corporations [that] try to operate within the letter, if not the spirit of the law. You can say, “Well, it’s legal.” But it depends with the definition of legal. Usually some of them conduct illegal activities, but most multinational corporations at least try to stay within the letter of the law. I guess that’s the key distinction.

Then there’s another distinction, which is regarding households, regarding individuals. Some of them have bank accounts in tax havens in Switzerland and other countries and declare their holdings and their income to the IRS, to their home country tax authorities. Having foreign accounts is not illegal, per se. What is illegal is failing to declare the accounts and the income generated by these accounts. I’ve tried to take that into account in my computations: What’s the fraction of overall bank accounts of individuals which are declared to tax authorities? The existing evidence is limited, but what we have suggests that at least globally about 80 percent of the bank accounts in tax havens are not declared to tax authorities. The bulk of the private wealth held offshore evades taxes.

And is therefore illegal?

Yes, that’s completely illegal.

Now, $7.6 trillion I believe was the number that you came up with stashed in these offshore accounts. What is the impact of that with regard to the distribution of wealth?

That’s an interesting question. What I can say is that I think that today it’s increasingly difficult to measure wealth and to estimate the distribution of wealth. There are many reasons to believe that the estimates that we have — based on survey data, on tax data, or even the likes of Forbes Magazine, all these data sources — if anything understate the true level of wealth concentration. The reason is that there is a growing fraction of total world wealth held offshore. As I said, the bulk of it evades taxes so it’s not reported on tax returns. It’s unlikely that it’s reported in surveys and so on.