Tax havens are big news in the U.S., but a recent study shows that, when it comes to offshoring cash to dodge taxes, Americans are amateurs. Globally, tax havens are used to hide an estimated $21 trillion, more than the entire U.S. GDP, making it clear that offshored wealth is a truly global problem.
The idea of parking profits in another country to avoid paying taxes is nothing new -- scofflaws as far back as ancient Greece were using havens to cheat the taxman. But in the wake of 2008's financial meltdown, the practice has increasingly come under fire. Earlier this year, Apple came under attack after it spent hundreds of thousands of dollars in a lobbying push for a "tax holiday" that would enable it to bring some of its offshore profits into the U.S. without paying taxes.
And corporations aren't the only entities that use offshore havens to avoid paying taxes: Presidential candidate Mitt Romney has also been criticized for his offshore bank accounts in the Cayman Islands and Switzerland. By far the highest-profile tax dodger recently, however, has been Internet investor Eduardo Saverin, whose 2011 decision to renounce his U.S. citizenship in order to avoid paying taxes on his Facebook windfall resulted in a legislative firestorm.
In May, Saverin almost singlehandedly inspired a push for a major change in the tax code. As his decision to renounce his citizenship drew headlines, four senators quickly crafted the Ex-PATRIOT Act (Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy), a bill that would punish high-wealth individuals who renounce citizenship to dodge their taxes. To begin with, malefactors such as Saverin would be charged a 30% tax rate on any capital gains earned on U.S. soil; second, they would be barred from re-entry into the U.S.
Although U.S. citizens are small-timer when it comes to offshoring, our banks play a big part in the movement of global wealth to tax havens. TJN statistics suggest that, of the top 10 banks for global offshoring, five -- Goldman Sachs, Bank of America, Wells Fargo, Morgan Stanley, and JPMorgan/Chase -- are based in the U.S.
Offshoring is nothing new, but TJN's recent analysis suggests that it is happening on an almost unimaginable scale. More disturbingly, it's increasingly becoming clear that this global movement of wealth, which is robbing countries around the world of trillions in tax revenue, is not run by fly-by-night banks run out of sunny Caribbean countries. It is a global business of its own -- and American banks are leading the industry.
Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at email@example.com, or follow him on Twitter at @bruce1971.