‘OFFSHORE TRILLIONS’

[Letter to the Editor, and Response]

“Cass Sunstein’s review of Gabriel Zucman’s The Hidden Wealth of Nations [New York Review, January 14, 2016] erroneously claims that ‘Zucman is the first economist to produce specific
numbers of this kind.’ Actually, economists have been estimating the volume of missing
offshore wealth for decades. For instance, in 2005 British economists Richard Murphy
and John Christensen produced a widely published $11.5 trillion estimate. In 2011
James S. Henry, formerly director of economic research for McKinsey & Co., was
commissioned by the Tax Justice Network to compile detailed estimates of offshore
private wealth. Triangulating with three independent methodologies, including
extensive statistical analysis and ‘investigative economics’ involving interviews with
private bankers, tax lawyers, and crooks, Henry identified $21-$32 trillion of ‘missing’
wealth as of 2010. This provided The Economist's cover story on February 16, 2013.

“Zucman leans heavily on one IMF survey of traded assets for fifty countries, hunting
mismatches between assets and liabilities. This is incomplete. Many assets are not
unrecorded but misrecorded in the names of trustees or nominee directors, not beneficial
owners. Since there is a recorded owner, there is no mismatch, hence Zucman omits
this missing wealth. He also ignores some $5-$10 trillion of offshore non-financial
assets like real estate, art, yachts, and gold.

“So Zucman's $7.6 trillion estimate of offshore wealth (in 2014 dollars) is way too
low. His estimate for Latin America is just $700 billion, and for Argentina $100
billion. In contrast, recent studies by Argentine economists working with Henry have
uncovered over $400 billion of offshore wealth for Argentina alone. Similar gaps
exist for Russia, Mexico, Brazil, South Africa, Nigeria, and China, where $500 billion

fled the country just in 2015. Zucman underplays the crucial role of bankers and other enablers
in the global haven industry. As detailed in Henry's report - soon to be updated - the top fifty global
banks were responsible for soliciting and concealing at least $12 trillion of the $21-$32 trillion, on behalf of the world's elite. Ironically, many of these institutions helped create the 2008 financial crisis, and would not have survived without taxpayer- funded bailouts.

Sunstein is also.wrong to laud recent US tax enforcement efforts. Banks like UBS and Credit Suisse, caught red-handed facilitating tax dodging in the US, received light penalties. The Foreign Account Tax Compliance Act (FATCA) helps preserve the US as a haven by offering very limited reciprocity to other countries. This threatens to undermine the OECD's far more comprehensive global plan for information-sharing. Indeed, as any offshore wealth adviser knows, illicit money from across the planet is pouring into tax haven USA.

John Christensen' Executive Director Tax Justice Network London, England

James Henry Senior Fellow Columbia University New York City

Cass R. Sunstein replies:

“I am grateful for the response by John Christensen and James Henry of the Tax Justice Network (TJN), but also puzzled by it. Gabriel Zucman and I are in fundamental agreement with the TJN: tax havens are an extremely serious problem and far more needs to be done about them. “The Foreign Account Tax Compliance Act is a significant step in the right direction, because it requires all foreign banks to identify any American citizens among their clients-and to disclose to the Internal Revenue Service the amount of their holdings and any dividends and interest paid on them. (The US Department of Treasury has done, and continues to do, a great deal of work on the issue of reciprocity.) With Zucman, I agree that FATCA is not nearly enough, because a global solution is required.

I stand by my claim about Zucman's originality.
Citing their own work, Christensen and Henry claim that they
were there first, and they have indeed made valuable
contributions. But ‘investigative economics,’
extrapolating numbers from ‘interviews with private bankers,
tax lawyers, and crooks,’ involves a high degree of
speculation, and the numbers in Henry's illuminating report,
commissioned and published by the TJN, lack the rigor and care
of Zucman's peer-reviewed estimates. I agree, however, that
his estimates may be too low.”

‘PRICE WE PAY’ “A vivid new documentary, The Price We Pay, connects tax havens inequality, and insufficient regulation of financial transactions. The film makes a provocative argument that a new economic elite - wealthy managers and holders of capital-is now able to operate on a global scale, outside the constraints of any legal framework.” Sunstein, Cass R, ‘Parking the Big Money,’ in The New York Review, January 14, 2016, pp: 37-38, a review of The Hidden Wealth of Nations: The Scourge of Tax Havens, by Gabriel Zucman, University of Chicago Press, 2015. The Price We Pay a film directed by Harold Crooks, inspired by Brigitte Alepin's 2010 book La Crise fiscale qui vient (The Comin Fiscal Crisis), referenced in Sunstein, Cass R, ‘Parking the Big Money,’ in The New York Review, January 14, 2016.

GLOBAL WEALTH REGISTER

“ . . . [Gabriel] Zucman unveils his principal proposal: an automatic, fully global register, so that every government in the world can know where money is kept, and who is trying to escape national taxes. Under his proposal, the register would record ‘who owns all the financial securities in circulation, stocks, bonds, and shares of mutual funds throughout the world.’ If rich people in the United States or Germany are depositing their money into Swiss banks, the Swiss authorities would have to inform American and German officials of the deposits. Zucman emphasizes that all this should be done automatically, so as to make special inquiries or evidence of suspicion unnecessary. With the register, tax authorities could tell, essentially immediately, if their citizens are using tax havens. Zucman notes that a global register of this kind could have other benefits, helping to combat the financing of terrorism, bribery, and money laundering; public and private corruption might be added to this list. He notes too (and here he will immediately lose some readers) that such a register could facilitate the imposition of a global wealth tax, of the sort proposed, very controversially, by Thomas Piketty.

“To avoid the charge of utopianism, Zucman emphasizes that there is a clear international movement in the direction he favors.”

Sunstein, Cass R, ‘Parking the Big Money,’ in The New York Review, January 14, 2016, pp: 37-38, a review of The Hidden Wealth of Nations: The Scourge of Tax Havens, by Gabriel Zucman, University of Chicago Press, 2015.

WEALTHY HIDING MONEY “As it turns out, a lot of wealthy people in the United States, Europe, and elsewhere have been hiding money in foreign countries-above all, Switzerland, Luxembourg, and the Virgin Islands. As a result, they have been able to avoid paying taxes in their home countries.” Sunstein, Cass R, ‘Parking the Big Money,’ in The New York Review, January 14, 2016, pp: 37-38, a review of The Hidden Wealth of Nations: The Scourge of Tax Havens, by Gabriel Zucman, University of Chicago Press, 2015.

$15 MINIMUM WAGE WOULD HAVE ‘LITTLE EFFECT ON JOBS’

“ . . . Michael Reich, an economics professor at the University of California, Berkeley, said an increase to $15 would have little effect on jobs. He acknowledged that it could lead to more automation and higher prices and less sales volume at some businesses, but, he said, those effects ‘would be more than offset by increases in consumer purchasing power. That all results in a very small effect on the economy.’”

Steven Greenhouse, “How the $15 Minimum Wage Went from Laughable to Viable,” The New York Times, April 1, 2016. Steven Greenhouse, a visiting researcher at the Russell Sage Foundation, is a former labor and workplace reporter for The New York Times and the author of The Big Squeeze: Tough Times for the American Worker.

CRITICS SAY $15 MINIMUM WAGE WILL HURT BUSINESS, RAISE UNEMPLOYMENT

“ ‘Fifteen [$15 minimum wage] is going to be extremely difficult for retailers to work into their business model,” said Bill Dombrowski, president of the California Retailers Association. He said Internet competitors were already hurting many retailers, and ‘now you have the Legislature putting an additional burden on brick-and-mortar stores.’

“David Neumark, an economics professor at the University of California, Irvine, estimated that raising the state’s minimum to $15 would reduce employment among the least skilled by 5 percent to 10 percent. Critics of minimum-wage increases predict that workers will be replaced by automation and that businesses will need to raise prices, hurting sales and causing more layoffs. ‘There’s no question that a minimum-wage increase will help more people than it hurts,’ he said. ‘But it takes a lot of people getting a $300 raise to offset someone losing their job.’”

Steven Greenhouse, “How the $15 Minimum Wage Went for Laughable to Viable,” The New York Times, April 1,2016. Steven Greenhouse, a visiting researcher at the Russell Sage Foundation, is a former labor and workplace reporter for The New York Times and the author of The Big Squeeze: Tough Times for the American Worker.