Much scholarship and commentary on the growth of inequality in the United States has been focused on public policies that ‘raise the floor’ or directly help those at the bottom of the economic ladder by boosting the minimum wage or taxing high-earners and investing the proceeds in ways that help the public good.
Part of the inequality problem, however, is that trillions of dollars are being taken off the ledger, hidden from measurement and taxation, this process aided and abetted by professional wealth managers.
In the United States, there are billions a year that could be invested in building roads, schools, and infrastructure. They are not available because of taxation avoidance; hence the latter is a significant driver of inequality. Wealth managers make possible the level of tax avoidance on the grand scale that we are seeing today.
With the help of managers’ expert intervention, the wealthy are becoming stateless. Vast piles of private wealth float around the world, untouchable by states or state authority, mostly through the actions of wealth managers. Naturally, the existing system of offshore tax avoidance would still exist without wealth managers, but it would be much smaller, as the system requires expertise only specialists have.
Many wealth managers rationalize what they do by saying “My work is helping families.” It’s just that these families make up a tiny fraction of all the families in the world. As a result, we are witnessing a “re-feudalization” of modern economies. Wealth dynasties are expanding. This can hinder the circulation of wealth.
Instead of imposing fines on planners for aiding and abetting tax evasion, we should explore the power of public stigma. Social stigma could be an effective sanction on both wealth managers and their clients. The Foreign Account Tax Compliance Act (FATCA), established in 2010, has also been surprisingly effective. It requires US taxpayers to disclose any assets held in overseas accounts whose value exceeds a threshold amount, and it’s a true pain for wealth managers.
For more information, please read:
Agents of Inequality: How Wealth Managers to the Super-Rich Undermine Society and What We Can Do About It | The Nation