Gabriel Zucman is a professor of economics at ENS PSL, associate professor in Berkeley and founder of the EU tax observatory is an economist focusing on inequality and taxation. Researcher and activist against wealth, he publishes books and testified as an expert at the American Congress, the European Parliament and the French Senate on tax evasion.
The two data sources are studies made by international commissions in the 1990s. One study by Paul Volcker on the money of Jewish victims in 1996, the second chaired by historian Jean-Francois Bergier was intended to determine the role of Swiss banks during the Second World War.
History of tax havens
History of Switzerland: country designated as neutral in 1815. Most securities owned by the bearer, and had a potentially much higher value than gold, in the millions.
Tax in France was 4% on dividends before 1914, after the war, it rises to 50% then 72%
A bearer security held in Switzerland avoided the French tax. It was enough to pass the border with the title to export one’s wealth. Most capital was held in foreign bonds and stocks.
The Swiss introduced a law on banking secrecy in 1935 and welcomed the Jewish money.
From 1920 to 1929, assets under management increased by 14% per year, then by 1% per year in the 1930s. There were 2. 2 million accounts of which 30,000 were certainly linked to victims of the holocaust.
Among foreign depositors, there were 43% of French depositors, 8% Spanish or Italian, 4% of Germans. This represented 2% of European wealth in 1930.
Between 1950 and 1970, this amount further increased 2% to 5%, while bank charges increased rapidly. Banks thus become a protection racket set against the greater racket of tax inquisition.
In 1970, the oil shock leads to an increase in deposits. This is not associated with tax arbitrage.
From 1980, other offshore centers appear and compete with Switzerland.
The story presented by the author is selective and biased by his communist agenda. He presents as just an excessive taxation that is not consented by the population.
Specialization, not competition
There is a specialization of jurisdictions
Luxembourg asset manager specialize in stocks because it has an advantageous DTA with the United States for dividends. Stocks held in Switzerland see dividends subject to 35% withholding tax.
The Caiman Islands are specialized for hedge-funds thanks to light regulation.
Ireland is specialized in monetary funds.
The BVI, Panama, Liechtenstein offer companies, trust and foundations to opacify the ultimate beneficiary.
The SNB produces monthly statistics of management assets. In 2015, the amount is 2.3T.
Since 2009, the end of banking secrecy. This amount has increased by 18%.
60% of funds are held by Panama foundations and BVI companies.
The author assumes that the European wealth managed in Switzerland is 1. 3T (250b of France, Germany, and Italy), from the Persian Gulf to 230B, Asia 230b, Latin America 220, Africa 150b, Russia at 70b, USA 80b, Canada 40b.
The author presents these jurisdictions as useless. But financial innovations in risk transfer and pension funds require light taxation. Contrary to what he says, regulation in the Cayman islands is quite heavy compared to BVI in terms of audits and controls and. This is the reason why Cayman is viewed as better adapted to the management of other people’s money. The increase in AUM in Switzerland also testifies to the excellence of Swiss management compared to national champions in Europe which have a captive clientele subject to financial repression.
The hidden wealth of Nations
The author evaluates 8% of the world's wealth of offshore wealth, it is 7. 3t
His estimate method is based on the fact that tax havens declare a liabilities of 7 trillions superior to the assets declared as possessed in these territories. For example, Luxembourg has 3. 5T of assets, but only 1. 5T are declared in other countries.
Another 21T estimate was offered by Henry, on the basis of 7T offshore deposit declared to the bis and a typical X3 ratio according to Henry between cash and risky financial assets. The author considers this estimate to be excessive.
Finally, in addition to these 7. 3T, 0. 8T of $ 100 and 500 euros tickets were printed, which could be held in Swiss chests. Also, luxury real estate would further increase this amount.
These 8% figures are instructive. It seems that the Swiss have lost any capacity to resist the G7 since 2009, and a Swiss bank account has become both less sure than a US account and a European account, because it has two regulators instead of one.
Tax repression measures
From 1908 to 1913, Joseph Caillaux, Minister of Finance of France who introduced a tax on progressive successions up to 5% requires declarative obligations to French banks, obtained collaboration of the British. His career ended in the first month of the 1914 war in a scandal of bigamy. One of the two Madames Caillaux makes the headlines for the premeditated assassination of the director of Figaro (she will obtain acquittal by arguing of a "passionate" motive).
The United States freezes Swiss assets during the Second World War to avoid any funding for the axis. They demand to know the beneficiaries in 1945, but will be satisfied with fraudulent reports of Swiss banks domiciled the funds in Panama.
In 1962, De Gaulle organized a blockade in Monaco to ensure that the French who live there will be taxed.
In 2005, Europe introduce a data sharing directive that does not work because Luxembourg and Austria oppose it.
In 2009, Sarkozy convinced Merkel and Obama to end the banking secrecy of tax havens.
Fatca is the most effective regulation for Americans, it replaces regulation that only touched the American assets held by Americans.
The author covets these 7. 3T of funds and proposes that 200b of taxes could be collected every year if we killed the hen with golden eggs.
He reminds the reader that very few countries are in the lists of non -cooperative countries and that most of the assets correspond to companies from the OECD countries.
He wants a centralized world cadastre of assets that gives taxation power. It would be a question of gathering DTS, Clearstream, Cedel, etc. to have a cadastre of assets accessible by "all" the administrations. To do this, it would be necessary to sanction Switzerland and the offshore territories with a tariff of 35%, or organize a military blockade.
The CRS (Common Reporting Standard) is a regulation similar to FATCA imposing information sharing by the banks announced in 2014 by the 38 OECD countries, and endorsed by the following additional countries: Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Malaysia, Saudi Arabia, Singapore and South Africa. It has been implemented since 2018.
Conclusions
According to Otto Ammon, the population unable to work is less than 2% and the population in relative poverty was 20% in 1900 in all industrialized countries. If these statistics still seem valid, social assistance must therefore normally cost around 10% GDP. The sovereign functions cost 3% to 7% of GDP. According to Titus Gebel, Singapore, Hong Kong, Jersey, are well -managed states. They tax around 20% of GDP.
States seeking to collect taxes from 60% to 100% destroy their social capital by remunerating social status seeking (which according to Naval Ravikant, is a zero-sum game) than wealth creation (which is a positive sum game). This surplus of resources in theory enabled states to finance grand projects. In practice, states have led genocidal conflicts that killed hundreds of millions of people. In peacetime, they have implemented welfare systems, funded by Ponzi, bound to protect less and less and to indebt the future generations.
This mechanism of destruction of value creation by political rent-seeking is described by development economists in 1990, but also applies to France and Italy of the euro. Industrialized countries put their middle class in a situation of financialized serfdom in the 20th century.
Rent-seeking and the creation of loopholes is intrinsic to social hierarchy. In the 1950s in the United States Ronald Reagan was taxed at 95% on his actor wages. The first hedge-fund managers could categorize their remuneration as capital gains taxed at 25%. Reagan ended this when he became President 30 years later.
In the Florence of the 14th century of Dante and Medici, tax policy is used to maintain the fortune of one elite at the expense of another. For Trotsky who wrote as dissident in the 1930s, the Bolshevik Revolution led to the abolition of an authoritarian elite and the creation of another. The fact that a hierarchical structure as the State monopolizes a broader proportion of the wealth leads to an increase in incentive of rent-seeking by the elites, at the expense of the value creation. Government revenue produces such perverse incentives when it rises above 20% of GDP.
The OECD is a mismanagement cartel for countries that pushed the marginal tax rates beyond the Laffer point. Eastern countries like Montenegro, Romania, Hungary, the Czech Republic, marked by their 20th century history, now have a marginal tax rate of 10% to 20%.
Mr Zucman talks about justice when he cheers for such confiscation rates. He does not explain whether the genocidal capacity or the wholesale destruction of social capital attendant to socialism and fascism are according to him a small price to pay. A mismanagement cartel would try to eliminate any well managed community. It would therefore be necessary to sanction Switzerland with prices corresponding to 35% of GDP and perhaps also organize a blockade, or another war situation.
It seems that Panamanian trusts and foundations are in the crosshairs of Mr Zucman, in particular those whose financial assets, held by DTS, Clearstream or Cedel are European or American stocks and bonds.