It’s Amazing What America Could Do with The Money The Rich Hide Overseas
The documents known as the "Panama Papers" have created a
global scandal around the ways the world's rich conceal their wealth
from the authorities. The prime minister of Iceland offered his resignation after the papers reportedly revealed that he and his wife had a fortune on paper hidden away in the British Virgin Islands. British Prime Minister David Cameron is taking criticism as well, and he acknowledged that he profited from a secret family trust.
The
Washington Post has not reviewed the Panama Papers or verified their
authenticity, but what seems certain is that wealthy people all over the
world — and in the United States — pay much less in taxes by moving
their income and assets to foreign countries.
In the United
States, the Treasury would collect about $124 billion a year in
additional taxes — $36 billion from individual taxpayers and $88 billion
from multinational corporations — if it weren't for such schemes,
according to estimates by Gabriel Zucman, an economist at the University of California at Berkeley.
That's a lot of money — and we're all paying for it, Zucman said.
When
the wealthy pay less in taxes, the rest of the population bears the
burden. Either the government spends less money, providing fewer public
services, or ordinary citizens pay more to make up the cost.
"The taxes that are evaded at the top have to be compensated by higher taxes for the middle class," Zucman said.
Alternatively,
the government borrows the money, and interest rates increase as
ordinary people have to compete with the government to get loans.
To get an idea of how much money is at stake, here is a list of a few things Congress could do with $124 billion a year.
1. Feed the poor
The
money that Americans avoid paying in taxes by shifting their wealth
abroad would be more than enough to feed tens of millions of people for
a year.
The number of Americans receiving food stamps increased
from 26 million in 2007 to 48 million in 2013. While that number has
decreased as the economy has improved — falling to 45 million at the end
of last year, according to federal data — helping all these people put food on the table is a huge expense all the same, and this expansion has been controversial. Even
in 2013, though, the cost of the Supplemental Nutrition Assistance
Program — the technical term for food stamps — totaled less than $80
billion.
2. Pay the troops
In
fact, all the money at stake in international tax shifting would be
enough to pay every uniformed member of the U.S. armed forces.
Excluding housing and health care, the Pentagon's personnel costs
totaled $116 billion in 2014, according to the Congressional Budget Office, which
is less than Zucman's estimate of $124 billion. (That's
counting retirement pay as well as compensation for reservists and the
National Guard. Housing was another $19 billion, and the Department of
Veterans Affairs is asking Congress for $182 billion this year.)
Another
source of controversy in the federal budget has been the cost of
the Pentagon's F-35, a new warplane that military leaders hope will be
more versatile and resilient than past aircraft. While the F-35 is
intended to replace several planes currently in use, the Government
Accountability Office pointed out in a recent report that the cost of the program will be twice that of four legacy aircraft combined.
For
all that, the annual costs of the F-35 are projected to reach only $20
billion a year. If wealthy Americans and multinational
corporations couldn't avoid paying taxes by shifting their income
overseas, the Pentagon could pay for its F-35s six times over.
3. Send every kid to preschool
With
just $90 billion a year, Congress could set up a national network of
high-quality early-education programs open to all families, according to
a recent analysis from economist Josh Bivens and his colleagues at the liberal Economic Policy Institute.
Their
goal is to allow every family in the country to provide preschool and
child care for infants and toddlers 4 and younger for no more than 10
percent of their incomes. The federal government would pick up the rest
of the tab. The plan also calls for a staff of nurses to coach pregnant
mothers and families with infants on child rearing.
Bivens, it's
worth noting, says the plan would pay for itself over the long term, and
that the government wouldn't need a windfall from money squirreled away
in the Caribbean to make it happen. "The kids who grow up 10 to 20
years from now would be more likely to earn higher wages and avoid
contact with the criminal justice system," he recently told Wonkblog.
4. Give working families cash
Sen.
Marco Rubio (R-Fla.) has proposed giving families an annual tax credit
of $2,500 per child to help cover the cost of raising children, to
replace the current credit of $1,000. Under Rubio's plan, the
credit would be worth less for affluent families with more than $300,000
a year in joint income. It would reduce the taxes that families pay on
their salaries and wages, so families that pay less than a certain
amount in taxes because they are poorer would also receive less in
credits.
The nonpartisan Tax Policy Center projects
that Rubio's credit would cost $122 billion on average over the
next decade. If Americans stopped avoiding taxes, Congress would have
enough money to give parents a few grand every year while still having a
couple of billions to spare.
Michael Strain, an economist at the
conservative American Enterprise Institute, argued that policymakers
shouldn't forget about workers who don't have children. President Obama
and Rep. Paul Ryan (R-Wis.), the speaker of the House, have indicated
that they'd like to expand a crucial bonus for this group of taxpayers
known as the Earned Income Tax Credit. The cost of the plan they've
discussed would only be about $6 billion a year.
5. Borrow less money
"I
would use some of this to expand the Earned Income Tax Credit," Strain
said. "I would use a big chunk of it to close the deficit."
The
$124 billion in unpaid taxes would be enough to eliminate nearly a
quarter of the annual deficit — the difference between what the
government collects in taxes and the amount it spends, which the Congressional Budget Office projects will be $534 billion this year. That's money the government borrows.
Much
of that deficit is due to Social Security's shortfall. The program's
actuaries project that the New Deal program will no longer be able to
pay retirees all of what they're owed beginning in about 20 years, when
the trust fund will be exhausted and the program will be able to pay out
no more than what it collects in taxes every month.
Strain's
colleague Andrew Biggs estimates that making up Social Security's
actuarial deficit would cost about $182 billion a year beginning now.
The unpaid taxes could go a long way toward making up that money.
6. Roads, bridges and railways
Jared
Bernstein, who served as Vice President Biden's chief economist, did
not agree that the money should be used to reduce the deficit. In a note
to Wonkblog on Friday, he wrote that the government should work to pay
down the national debt, but that now is not the time. The U.S. economy
is still operating below its potential, he contends, and the goal should
be stimulating the economy rather than saving money.
Bernstein
wrote that the federal government should put more money toward
maintaining and building the country's physical infrastructure. That
includes highways, railroads, bridges, dams, levees, power lines and
airports, but also public schools. Bernstein pointed to recent research
that suggests the country should be spending an additional $46 billion a year or so keeping up the schools.
Zucman's
estimate of $124 billion wouldn't be enough to fund the most ambitious
plans for infrastructure, though. Bernie Sanders, the
Democratic presidential candidate, has introduced legislation that would
appropriate $200 billion a year for a period of five years. The
centrist advocates at Third Way say the country needs to spend even more
than that — about $240 billion a year over five years.
Max Ehrenfreund
Washingtonpost
