Inside of ‘A Dark Day in American History’: An Eye-Witness Shares his Account of the Madness on Capitol Hill
by Benjamin Schiller
Tax Evasion and Tax Havens in the United States
The now infamous release of the Pandora Papers by the ICIJ has unraveled a carefully curated network of the world’s richest people trying to avoid paying taxes in a variety of ways. The 2.94 terabytes of information found in the Pandora Papers unveiled how the economically elite percentage of the world- who own more wealth than 4.6 billion people- were using the lax policies of tax havens to avoid taxation on their income. Unsurprisingly, the United States finds itself in the heart of the Pandora Paper affair. But what exactly did the affluent participants of this large-scale tax evasion scheme do?
From Jordan’s Abdullah II to singer Shakira, thousands of names of the world’s wealthiest people landed on the list of those involved in the Pandora Papers scheme. Through the use of tax havens and offshore companies and accounts, they were able to buy properties and keep income without paying significant taxes. Except for a few small countries and territories such as the U.S. Virgin Islands and Belize, most of the tax havens were in the United States. Carefully selected for the government’s habit of turning a blind eye, states such as South Dakota, Alaska, Nevada, and Delaware have been the dumping ground for international leaders, celebrities, and the like. While tax havens are usually frowned upon and viewed as unethical, the “technically legal” nature of the laws around these locations provides an ample smokescreen for the not-so-legal dealings to slide by.
The United States plays an alarming role by essentially allowing these tax evasion rings to thrive unchecked. The most prevalent way this happens is with the formations of trusts who use South Dakota- the largest tax haven- as office space. These trusts, known as grantor-retained annuity trusts, have been used by billionaires as far back as the early 1980s. This results in thousands of trusts and offshore companies having headquarters in a random building in South Dakota that couldn’t possibly fit even half of the size of just a few of the newly formed trusts.
Even more concerning is how the rampant tax evasion by the 1% creates a tax gap that disproportionately affects the rest of the world. Public services, from creation, maintenance, and improvement of public services like schools, roads, and general infrastructure take a huge blow. The public system is now dependent on the people with middle and lower-class incomes. According to Alex Cobham of the Tax Justice Network, about “half the world’s GDP is potentially hidden from us.” An estimate of $427 billion dollars a year and more than $10 trillion dollars worth of assets are being held in offshore accounts and tax havens. So while Jordan’s Abdullah II has a $100 million property empire, countries are unable to find enough revenue to invest in the aforementioned public services. The United States’ lax policies around tax havens are not only negatively impacting the livelihoods of U.S. residents, but also others worldwide. With the pandemic and its large hit on the economy, the importance of countries generating revenue has become even more imperative to maintaining the public services people rely on more than ever.
Ironically, despite the importance of taxes to the wellbeing of a country and its residents, a large portion of names found on the Pandora Papers list were former or current public officials. Over 300 names were public officials, with another 35 holding positions as heads of state. This is over twice the number of officials found in the Panama Papers of 2016. In fact, despite the long string of exposures in the past decade- from the Offshore Leaks, Paradise Papers, and aforementioned Panama Papers- there has just been a continued sneakier network of tax evasion. With more officials than ever before involved, new routes to the same easy solutions have become the name of the game. So what should the rest of the world do? Not many opportunities are afforded for everyday workers to sit and understand the impact of underground dealings like that of the Pandora Papers; to find time to think of a solution is a far-fetched notion. And yet, a small group of people is pulling the strings behind an unfathomable sum of money.
While deeper scrutiny of the wealthy’s payrolls is imperative to at least make it harder for tax evasion, aiming to break up the trusts and tax havens will go a long way in preventing large amounts of tax evasion. As the largest tax haven, the dismantling of South Dakota will be a blow in the underground community of the affluent tax evaders. By increasing awareness and scrutiny about why these current financial loopholes are in place, the world could become one step closer to knocking down the wall of protection against taxes for the wealthy. As we look at policies to mitigate these trust rings and break off tax havens, one vital question remains to be seen: will we be able to block their path to tax evasion before they find a new one?