The world’s wealthiest people have long relied on Swiss bank accounts and international shell corporations headquartered in tax haven countries, but the total amount of money they’re hiding from the world’s tax officials has always been hard to pin down.
One economist thinks he’s figured it out: Rich families are hiding at least $4.5 trillion offshore, according to Gabriel Zucman, and the real figure is probably closer to $6 trillion. Because Zucman’s data is from 2008, when the blooming financial crisis was driving asset prices down towards record lows, the total value of hidden global wealth is probably even higher today.
The estimate is based on global data on cross-border financial transactions that have always presented a puzzle to economists. The best data available shows far more money being owed across international lines than the total amount claimed by recipients of those same transactions. Using data from Swiss banks and logical deductions from the various reports that countries issue on their international assets and liabilities, Zucman estimates that tax haven accounts held $4.5 trillion in investment holdings and $1.4 trillion in material deposits like cash in 2008.
For scale, $5.9 trillion is nearly twice the annual federal budget of the United States and more than a third of the country’s total debt. If they were a country, global offshore assets would be the third largest economy in the world behind only the U.S. and China. Zucman’s estimate of household tax dodging through haven countries is about three times what corporate America hides offshore in untaxed profits.
The new estimate comes alongside a report that 40 percent of the world’s population lives on a budget of between $2 and $10 per day. Those 2.8 billion people constitute a “fragile middle” in the developing world between privation and the threshold earnings of the global middle class, according to the Financial Times. They are in danger of slipping back down the income distribution under global economic growth projections for the coming year.
Such people would be ripe for assistance and investment from both government development programs and private financial markets. Reducing poverty is closely correlated with national economic growth, the FT notes, and by shoring up the global gains that have created and expanded the “fragile middle,” the world’s governments could secure the vast gains that human civilization has made against abject poverty and misery over recent decades and centuries. But trillions of dollars of capital that could pay for that shoring up isn’t available because the world’s wealthiest are hoarding it in order to avoid paying what they owe in taxes.