Tax day is a costly annual annoyance for most, but for some of the wealthiest people in the United States, this year’s April 18 tax deadline might not mean much. That’s because according to a new report, the richest sliver of our population has managed to avoid billions in tax obligations by hiding their money offshore.
What’s more, it could get easier for the mega-rich to hide their taxable income, thanks to efforts by the Supreme Court and the Biden administration.
A recent study from academic and Internal Revenue Service (IRS) researchers found that wealthy Americans have stashed nearly $2 trillion in foreign tax havens, with much of that fortune linked to a handful of the country’s richest households.
That data arrived weeks after the U.S. Supreme Court hobbled regulators’ efforts to combat international tax evasion schemes by limiting fines for people who fail to disclose foreign bank accounts. The study also follows a U.S. Senate report warning of a glaring loophole in a law designed to combat the use of tax havens — a law that Republican legislators have long been trying to repeal outright. Compounding matters, earlier this year, the Biden administration gave foreign banks a reprieve on tax reporting.
Together, the moves paint a picture of a tax day and many more to come where ordinary Americans will pay what they owe, while the rich can get off scot-free.
The new study, published last month by the National Bureau of Economic Research, found that U.S. households held “just below $2 trillion” in 2018 in financial accounts in places like Switzerland, Luxembourg, and the Cayman Islands that are generally considered tax havens because they have low effective tax rates.
Not surprisingly, a disproportionately high percentage of assets held in offshore tax havens are owned by the top 0.01 percent of U.S. earners.
“We find a strong concentration of offshore assets at the very top of the income distribution: Around 30 percent of all foreign assets belong to the top 0.01 percent, with a particularly high share for assets held through partnerships and assets held in tax havens,” the researchers write.
They additionally note that “more than 60 percent of the individuals in the top 0.01 percent of the income distribution own foreign accounts, the vast majority in tax havens.”
The study is based on account information reported to the IRS by foreign financial institutions under the Foreign Account Tax Compliance Act (FATCA), a law passed in 2010 to help the government crack down on offshore tax evasion.