The Paradise Papers Are Just a Glimpse at the Unreal Wealth Gap
A new report on spiraling inequality in America is even more concerning given what the Paradise Papers showed us about how good rich people are at hiding money.
Photo via Shutterstock/Image by Lia Kantrowitz
Six years after Occupy Wall Street got many of us talking, however briefly, about the yawning gap between rich and poor, economic inequality still propels American life. Donald Trump became president in part because he spoke to the large number of white Americans who felt economically and culturally adrift—and believed an out-of-touch elite was screwing them over. Of course, even though the president talked the talk on populism, he's currently pushing a tax reform bill that would make life easier for rich people. The inequality that brought out protesters to Zuccotti Park is not going away. The 1 percent is still very much in charge.
A new report released Wednesday by the left-leaning Institute for Policy Studies (IPS) is designed in part to make sure the country at large doesn't forget that. Using the latest Forbes 400 data on the richest Americans and Federal Reserve numbers on household wealth, authors Chuck Collins and Josh Hoxie concluded that the three richest people in the country—Bill Gates, Jeff Bezos, and Warren Buffett—have a higher net worth than the bottom half of the population put together. The 400 billionaires on the list, meanwhile, have more in assets than nearly two-thirds of the population combined. Race is a big part of the story here: While "only" about a fifth of all households are underwater (meaning they have more in debt than in assets), over a quarter of Hispanic ones and nearly a third of black ones are.
As shown by the Paradise Papers, the latest leaked documents revealing the web of schemes hiding money for the world's wealthiest people, rich households not only have more capital to play with, but more ways to shield it from taxation. A lot of inequality is invisible because it's impossible to know how much wealth is being masked by layers of lawyers, trusts, and LLCs.
For some perspective on how we arrived at this moment and what we can do about it, I called up Chuck Collins, co-author of the IPS report, for a chat.
VICE: Why did you use the Forbes 400 as a measuring stick for the super rich?
Chuck Collins: There is some value in the fact that it's been a benchmark since 1982. And they actually have a pretty good methodology—we've met them at different points and taken a look at their methodology, and obviously Bloomberg does theirs and there's a British equivalent of this list. But [Forbes] do the most to calibrate private business holdings—who owns what shares of stock. There's obviously people missing and people who've been able to maybe keep themselves off the list.
Why do you think we don't talk more directly and openly about economic inequality?
We have a fairly high tolerance for inequality as a society if we believe the rules of the economy are relatively fair. I think what did shift in the economic meltdown is people came away from that thinking the rules of the economy were rigged to benefit the people at the top, and it aligned with the period where social mobility declined. And then you had Occupy, [and] the Bernie Sanders phenomenon.
You suggest in the report that you're probably underestimating how unequal society is, if anything, and the Paradise Papers this week showed why: Rich people are really good at hiding their money. But the observable scale of inequality is already so massive. How much worse could it be?
There's a couple of things I've observed and one is the explosion in private wealth management and family offices, which are kind of the vehicle through which wealthy families do their planning. In London alone now, there are a thousand family offices for extremely high-net-worth families. [Economist] Gabriel Zucman has said 10 percent of the world's wealth is hidden. Most of that is very high-net-worth families, $45 million and up—he thinks that 30 percent of that wealth is hidden [belonging to] those individuals. That's based on looking at missing gaps between reported income or shareholder earnings and actual taxes paid, as well as some leaks where the window opens slightly, and we get a little glimpse. Based on that we can start to begin to extrapolate how much wealth is hidden or missing.
But to be honest none of us really know. I can conjecture, though, that as wealth is concentrated, more and more people are deploying planners and using a combination of trusts and the offshore system, and that the wealth defense industry has become more sophisticated in creating mechanisms to hide wealth. As you and I sit here and talk, somebody's sitting in an office in Des Moines or any major metropolitan area and setting up trusts that will put wealth outside of accountability and taxation and measurement for generations.
Is it most sensible to simply begin the debate on economic policy from the perspective of: We don't and can't know how unequal our society is? Or is that simplifying too much?
I think it's absolutely possible to require the disclosure of beneficial ownership of a lot of these entities—to say who really owns and controls it, to pass laws to require that. My own congressman, Stephen Lynch [of Massachusetts], is somebody who I've talked to about this over the years, and he's the one who introduced legislation requiring private aircraft to disclose who the owners are. I think the US and England together as global dominant trading partners could raise the bar by requiring transparency and disclosure and could eliminate some of these trust mechanisms. Half the family offices in the world are in the United States and the UK.
So the idea is to do more to compel or enforce reporting?
Absolutely. It's totally within our power.
When it comes to the Republican tax plan, we've heard arguments already that it would reward people hiding wealth and worsen inequality. What do you think of it?
On the individual wealth side, I think eliminating the estate tax, abolishing the alternative minimum tax, and some of these pass-through structures, depending on how abused they are, could obviously be very advantageous to that top 1 percent group. On the corporate side, I have to say I'm still trying to understand. For instance, if they say Look, Apple, you can repatriate your $250 billion you have parked offshore and you're just going to have to pay 12 percent—that may open a door to a next level of transparency. They may want to bring back some of these assets if you give them enough of an advantageous tax break. We actually might have more disclosure.
I don't know yet if that's going to be a bigger loophole or if it might get some of these companies to stop playing quite the [same] level of games. You shouldn't reward bad behaviour, and these corporations have essentially dodged their responsibility to pay their fair share. We know from 2004, when we had an amnesty or a reduction, it didn't get invested in a way that was productive. So I don't think we should reward bad behavior or give away the store, but I don't think [Apple CEO] Tim Cook really likes the idea that he has to play these games. It's just the environment they're in. If you create a different set of rules, they might actually share more data.
It seems like countries with more progressive tax schemes are often deeply wrapped up in Paradise Papers-style leaks. Does higher taxation actually encourage wealth concealment?
The Scandinavian countries are interesting because there's not quite the same level of aggressive planning and tax avoidance [despite high taxes]. But I think that industry is global. There are people who are choosing not to play the global wealth-hiding game and there are people who are choosing to come out of the shadows. But it's basically a global phenomenon. I don't think you can really do meaningful tax reform without closing the most egregious loopholes.
Israel did a little bit of that and actually went to their wealth advisors and said, We're going to hire you to help us close down some of these most egregious loopholes and if you don't we're going to put you out of business. I think we let the wealth defense industry off the hook, and when we start to criminalize some of the behaviour and some of these trusts and mechanisms that are created entirely for the purpose of tax-dodging, we will start to get at one of the underlying drivers [of inequality]. Those wealth managers, they are like the agents of inequality. They're the people who get up every day and say, How can I hide wealth? We need to focus on them as a professional sector and hold them accountable.
Which reform you recommend in your report would do the most good on its own to reduce inequality—a wealth tax, a financial transaction tax, higher income tax, what?
I would focus on a wealth tax on very high net worth—start at $50 million and maybe make it graduated. I would dedicate the revenue to something that had a constituency to defend it. Let's create a debt-free college education fund, kind of like after World War II, a GI Bill for the next generation, and pay for it with a progressive tax on wealth. Not only do you reduce the concentration at the top but you do something in a way that expands opportunity.
This interview has been edited and condensed for length and clarity.
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