Got Wealth? I can help you hide it!
Updated: Jul 20
That’s because Gabriel Zucman, an Economist from the Paris School of Economics and a disciple of Thomas Pikkety (author of the book “Capital”), noticed something unusual as he pursued his professional studies of Economics: a significant amount of wealth was missing in the world. Zucman took the time to pursue the answer to the question: where did the wealth go?
Good news: he found it!
Wealthy investors know that a certain group of investments do not require the reporting of wealth, because there is no income. Therefore, it can be hidden from the Government. And it’s all legal. Readers are familiar with a number of these investments, such as:
· Real estate
· Valuable artwork
· Tax free Municipal Bonds
· Life insurance
· Non-dividend paying stock
· Defined Contribution Pension Plans
What makes these investments different to the wealthy is the characteristic that no interest or capital gains taxes must be paid on their earnings for a very long time, or, not at all. This is because, for this group of investors, wealth becomes “invisible” to the Government. Taxes on “invisible” earnings cannot be calculated or levied. A real estate mogul with a billion-dollar portfolio and billions more stashed in an overseas account can still report a tiny income.
Which brings us to the second way to hide wealth: the use of overseas accounts.
It turns out that the use of overseas accounts by individuals or their encompassing legal entities is small change as compared to the wealth shift by international companies. Zucman states that U.S. multinationals shift almost half of their overseas profits (about $600B) to five havens: Ireland, the Netherlands, Singapore, Switzerland, and the Greater Caribbean, including Bermuda. Zucman states that this produces a “race to the bottom” by these havens to establish low corporate rates, in the fear that companies will shift their profits elsewhere.
Has anyone noticed?
At least one person has. Elizabeth Warren has proposed a wealth tax which would levy 2% on fortunes greater than $50M, and 3% on those higher than $1b. But according to Columbia’s Wojciech Kopczuk, such proposals work very poorly in practice. Eleven of fifteen countries have repealed their wealth tax policies. He suggests that countries use other ideas to tax wealthy corporations.
Also, I guess that one must find the wealth first before it is taxed.
Oh, getting back to my offer. Let’s take a rain check. I’d like to acquire a little more wealth to practice.
I’ll get back to you.
(Based upon the article “The Wealth Detective, B. Steverman, Bloomberg Business Week, 5/27/19, pp. 44 - 51)
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