On April third a leak of financial information took place surrounding the Panamanian law and corporate finance firm Mossack Fonseca. The leak was of a scale that put the original WikiLeaks to shame. It contained hundreds of thousands of documents showing the organized efforts of this company to hide the wealth and assets of corporations, politicians, aristocracy, the rich and famous, and personalities worldwide from their respective governments and they public at large.
In the following weeks we heard of lawyers, political parties, business representatives, you
name it, all singing the same song: yes, but it’s legal. Sigmundur Gunnlaugsson, Prime Minister of Iceland, a country that just recently –and very proudly, I would say- emerged from a disastrous government bankruptcy through a series and astringent and unusual budgetary restrictions, resigned after it became public that he hand his wife had millions in offshore accounts. The Minister of Industry, Energy and Tourism of Spain also resigned. There are several other heads of state and government politicians scrambling to show how they are not rally involved, involved “just in name” or finding ways to justify themselves.
But why would they, if it is, after all legal?
The answer lies in explaining what offshore accounts are.
Everyone pays taxes. Decades ago it used to be that the more money people made, the more tax they paid. This is still the case in many countries with well-oiled tax systems. In exchange for these taxes they usually provide higher levels of public goods and assistance.
It wasn’t long before (wealthy) people realized that if they hid their money and possessions
from the government, they wouldn’t have to pay taxes on it. And there were financial institutions and companies, in countries with more lax tax laws (and even no tax on foreign money and assets) willing to take those deposits and titles to assets for a fee. Switzerland is known historically as the first tax haven, though other countries do the same around the world. Panama is one of them.
This is not a rare occurrence, even inside the United States there are states that do the same thing, like Delaware with 0% corporate tax and 0% sales tax.
Then why are people so angry?
It comes down to honesty, cooperation and sharing of burdens. Because we the laypeople of the tax system file our tax forms –albeit grudgingly- every year, pay our dues from the money we make from honest work. And our tax money goes to our roads, our streets, our
cities and public goods such as street lighting and it pays for medical services in countries that have a social medical service, it pays for our unemployment and our retirement benefits. It helps us educate our children, by providing us schools, the sports facilities where they grow healthy and the parks where they play. Our tax money pays for these services, and the services of the people who provide and maintain them: from the doctor to the street cleaner.
Yet in recent years governments worldwide have been having troubles making ends meet. Granted, some had and have very bad management styles that need an overhaul. Yet others run well and are still experiencing shortages, forced to make cutbacks and adopt austerity measures that result in the general worsening of the return on our tax payments. And to add to it, our taxes keep going up.
Because of those offshore accounts
Any money that a wealthy person doesn’t declare to his or her own country is money that is not taxed. Money that could, and should, help his or her country provide services for all. Yet by the use of legal loopholes only available to you (very ironic) if you have the money to pay for them.
And what is worse, because those taxes are not paid, the need for money has to be covered by other means: cutbacks (people fired, services made more difficult to obtained or stopped altogether) and more taxes on those who pay them dutifully.
That’s what makes people angry. Because it’s selfish and dishonest towards fellow citizens.
Additional economic repercussions
In the following weeks we heard of lawyers, political parties, business representatives, you
But why would they, if it is, after all legal?
The answer lies in explaining what offshore accounts are.
Everyone pays taxes. Decades ago it used to be that the more money people made, the more tax they paid. This is still the case in many countries with well-oiled tax systems. In exchange for these taxes they usually provide higher levels of public goods and assistance.
It wasn’t long before (wealthy) people realized that if they hid their money and possessions
This is not a rare occurrence, even inside the United States there are states that do the same thing, like Delaware with 0% corporate tax and 0% sales tax.
Then why are people so angry?
It comes down to honesty, cooperation and sharing of burdens. Because we the laypeople of the tax system file our tax forms –albeit grudgingly- every year, pay our dues from the money we make from honest work. And our tax money goes to our roads, our streets, our
Yet in recent years governments worldwide have been having troubles making ends meet. Granted, some had and have very bad management styles that need an overhaul. Yet others run well and are still experiencing shortages, forced to make cutbacks and adopt austerity measures that result in the general worsening of the return on our tax payments. And to add to it, our taxes keep going up.
Because of those offshore accounts
Any money that a wealthy person doesn’t declare to his or her own country is money that is not taxed. Money that could, and should, help his or her country provide services for all. Yet by the use of legal loopholes only available to you (very ironic) if you have the money to pay for them.
And what is worse, because those taxes are not paid, the need for money has to be covered by other means: cutbacks (people fired, services made more difficult to obtained or stopped altogether) and more taxes on those who pay them dutifully.
That’s what makes people angry. Because it’s selfish and dishonest towards fellow citizens.
Additional economic repercussions
Offshore holdings are bad for the economy twofold.
In very generic terms, a country works like this: money in circulation (salaries, payments) is
deposited to banks, credit unions, and savings and loans. For it, the financial institutions give you interest, and they use your and everyone’s deposits to purchase investments, bonds, financial papers of large amounts of money. Those investments might be mortgages, or bonds, or investments in specific things such as industries, products, raw materials or even startups, all through mutual funds. At the end of this buying chain are jobs; people who work at all those things/places that financial institutions invest in; workers that are making money, paying taxes, having families that need education, medical care, clean streets and future work prospects. And the money from their taxes will provide those things.
People hoarding money in accounts and assets offshore, sitting there doing nothing and on which they pay no taxes are directly responsible for a large part of the world’s economic stagnation, because they have the money but they are holding it, vast amounts of economic hidden away in Panama and other tax havens: not providing jobs, not buying anything, nothing. Funds that could be helping the economies of their respective countries, but aren’t.
But it’s legal. They keep saying that.
In very generic terms, a country works like this: money in circulation (salaries, payments) is
People hoarding money in accounts and assets offshore, sitting there doing nothing and on which they pay no taxes are directly responsible for a large part of the world’s economic stagnation, because they have the money but they are holding it, vast amounts of economic hidden away in Panama and other tax havens: not providing jobs, not buying anything, nothing. Funds that could be helping the economies of their respective countries, but aren’t.
But it’s legal. They keep saying that.
The question is: what
are we going to do about it?
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