Academic journal article Texas Law Review

What Are Tax Havens and Why Are They Bad?

Academic journal article Texas Law Review

What Are Tax Havens and Why Are They Bad?

Article excerpt

What Are Tax Havens and Why Are They Bad? THE HIDDEN WEALTH OF NATIONS: THE SCOURGE OF TAX HAVENS. By Gabriel Zucman. Chicago, Illinois: University of Chicago Press, 2015. 200 pages. $20.00.


International taxation is a particularly distasteful portion of the currentevents diet. There are plenty of good reasons to learn about it: presidential candidates rail against avoidance and inversions,1 and headlines about Apple's offshore profits2 and the Panama Papers3 regularly find themselves on the front page. But there is also no avoiding the fact that the details of the international tax system can be bewildering. For most people, no amount of descriptive creativity (the "double Irish, Dutch Sandwich" comes to mind4) will make it otherwise.

One of the great virtues of Gabriel Zucman's new book on tax havens, and occasionally its great drawback, is that it distills this bewildering complexity down to just a few base elements. His analysis locates clear villains-in Luxembourg and Switzerland, mostly-and arrives backed by a few simple, hard numbers.

Two numbers, in particular, provide the center of gravity for Zucman's account. The first is the amount of household financial wealth that national statistics overlook. Zucman estimates that $7.6 trillion-8% of total worldwide wealth-is hidden in offshore accounts,5 the vast majority of which goes untaxed.6 The second is Zucman's attempt to quantify the costs of this unreported wealth. He estimates that it deprives governments of $200 billion in annual revenue, or about 1% of the worldwide total.7 By his count, the United States alone loses $35 billion.8

Making the first of these numbers look daunting requires no great effort. The missing $7.6 trillion is only about $600 billion less than the national wealth of Canada.9 The revenue figures require a bit more work, but not much: an additional $200 billion in revenue would, for example, handily cover America's annual interest payments on its national debt.10 In short, unreported wealth and its potential consequences are a big deal, and the importance of the topic goes no small distance toward explaining Zucman's deserving rise (aided by his dissertation advisor and occasional co-author, Thomas Piketty) to something resembling wunderkind status.

But understanding where Zucman's numbers come from and knowing what to do with them are different matters. His book offers itself as an exercise in both quantification and evangelism: he comes armed with both a fact-laden diagnosis and a few simple prescriptions to make the world of international taxation a better place. Yet Zucman's figures should be viewed as conversation starters rather than argument enders: the connection between $7.6 trillion in unreported wealth and the wider issue of tax havens is not as obvious as it might seem.

With that in mind, this review has three goals. The first is simply to summarize and explain Zucman's central findings for a legal audience-and to offer a sense of the limits of these estimates, particularly with respect to revenue loss. The second is to situate these findings against the backdrop of two long-running debates in international taxation. One is definitional: What is a tax haven? The other is diagnostic: Why are they bad? Answering these questions is crucial to understanding Zucman's findings, but they emerge only fleetingly throughout his book. The third and final goal is to comment critically on the prescriptions Zucman offers for battling unreported wealth, including his most novel: a global registry for financial securities. This proposal might be a good deal more ambitious than Zucman anticipates. Fortunately, it is a proposal about which legal scholarship should have something to say.

I. Missing Wealth and Missing Revenue A. Missing Wealth

Zucman's book is built around two central findings-what one might call "missing wealth" and "missing revenue." Missing wealth can be described as the solution to a long-standing empirical puzzle: why, at the global level, do official statistics show that national liabilities exceed assets? …

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