The Hidden Wealth of Nations | Gabriel Zucman

Summary of: The Hidden Wealth of Nations: The Scourge of Tax Havens
By: Gabriel Zucman

Introduction

In ‘The Hidden Wealth of Nations: The Scourge of Tax Havens’, Gabriel Zucman provides a deep dive into the world of tax havens and their impact on the global economy. The book traces the history of tax havens, starting with their inception post-World War I and the subsequent escalation of the industry after deregulation in the 1980s under Margaret Thatcher. Zucman also reveals the staggering amount of wealth hidden in these havens, touching on the ways wealthy individuals and multinational corporations use them to avoid taxes. Taking it further, he explores the damage such tax evasion practices inflict on economies, and the existing and potential efforts to combat this issue.

The Rise and Evolution of Tax Havens

After World War I, many European countries raised income taxes to rebuild communities and support veterans. Wealthy Europeans dodged high taxes by moving their money to Switzerland, which had no reason to raise taxes and a well-established banking network. In the early 1980s, tax havens began to proliferate due to deregulation of financial markets in the UK. Swiss banks continue to thrive, holding almost $2.3 trillion, with 10% coming from wealthy Europeans.

The Concealed Wealth of the World

A staggering $7.6 trillion of the world’s money was concealed in tax havens in 2014, leading to a global imbalance where liabilities outweigh assets. The practice of keeping hidden wealth for avoiding taxes involves high-value non-financial items like jewelry, yachts, and real estate that are impossible to determine. This summary follows the example of a French investor buying stocks in a German corporation like BMW and how the sale would be treated as an asset in France but not when hidden in a Swiss bank account. The amount of hidden wealth is conservative, and the damage it can cause will be discussed in the follow-up.

The Impact of Tax Havens on European Economies

Tax havens have far-reaching implications on economies worldwide, costing them an estimated $200 billion in revenue in 2014 alone. Among the most affected are European countries, whose budgets suffer from severe cuts, hurting middle and working-class programs and further impacting economic growth and increasing debt. The rich, in contrast, continue to benefit from tax havens, with European personal wealth in Switzerland reaching $1.3 trillion in 2014. The loss of revenue to tax havens could have boosted the current GDP by 15 percent in France alone and been used to reduce debt, decrease tax rates, and foster growth to narrow the wealth gap.

Combating Tax Havens

Despite well-intentioned efforts to combat tax havens, most initiatives have been ineffective, leading to a 25% increase in personal wealth stored in tax havens since 2009. The failure of the G20 plan, which required governments to provide evidence of tax fraud before banks in foreign countries revealed financial information about their citizens, demonstrates the difficulty in combating tax havens. Additionally, politicians who publicly oppose tax havens often take part in tax evasion themselves. However, recent measures such as the United States’ Foreign Account Tax Compliance Act (FATCA), which enforces economic sanctions on foreign banks that withhold information from US authorities, bring hope for progress in combating tax havens. Nevertheless, much more work needs to be done.

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