Why So Few Rich Americans in the Pandora Papers?

The so-called Pandora papers recently hit the headlines when the International Consortium of Investigative Journalists (ICIJ) reviewed around 11.9 million documents previously classified as confidential by the parties involved and collected by 14 financial services firms in offshore debt havens that appear to underestimate their information had technology departments at least in terms of hacking prevention. As a result, I received many calls from journalists wondering why so few wealthy Americans were mentioned in these documents.

There are two reasons that somehow fit together. The main reason wealthy Americans no longer routinely show up on offshore disclosures like this one is because the cost-benefit ratio of hiding offshore accounts from the IRS is not cheap.

On the upside, US tax laws are very beneficial to wealthy Americans in that, with relatively little planning, they are able to convert what would be taxed at the highest federal tax bracket (37%) into long-term capital gains (LTCG), as the case may be Circumstances between 0% and 20% (plus, in some cases, 3.8% net investment income tax). But even that doesn’t say everything, because the US Tax Code does not tax capital gains annually, but only when the profit is realized, that is, when the asset is finally sold. Because of this, the nation’s richest men – like Elon Musk, Jeff Bezos, and Mark Zuckerberg – can see their fortunes grow tens of billion in any given year, but only have to pay taxes on Tesla
TSLA
or Amazon or Facebook stocks they liquidate in a given year, if any, plus their relative nominal wages. (You can see how much they saved here when the Democrats pulled the idea of ​​taxing billionaires’ unrealized gains.) But even the highest LTCG rate is only 23.8%, including the NII tax, which im Compared to the highest US income tax of 37% is nice tax bracket and often much higher tax brackets found in some other large developed countries.

On the cost side, the fines and penalties for undisclosed overseas accounts are extremely painful, and of course there is potential for tax evasion at the Club Fed. Since money is no longer physically transferred, at least beyond the retail level of finance, there is significant and redundant tracking of money flows, so the chances of getting caught are quite high, even before groups like that are assumed to be ICIJ sneaking around. On top of that, the mere allegation of offshore tax evasion could have painful consequences for you to be driven out of their businesses, damaging their own stock holdings, which could detract from their wealth far more than even the worst IRS penalties. Therefore, it is not worthwhile for wealthy Americans to even think a nanosecond about offshore tax evasion.

This is not to say that wealthy Americans don’t sometimes use offshore planning for this, that, or the other, but the vast majority of the time they do, it does so on a basis that is fully disclosed to the IRS. and advising high-priced international tax firms whose job it is to keep them out of trouble.

That is the first reason wealthy Americans rarely appear in these revelations, much to the confusion of journalists who believe that any document treasure will suddenly reveal a herd of Americans who are hiding money overseas but are then sorely disappointed. The second reason is similar to the first: the United States itself is a tax haven, if not the largest tax haven in the world.

What the Pandora Papers show is that the offshore ports are largely a huge laundromat for the poorly earned money of foreign individuals to invest in the United States. To quote verbatim from the ICIJ website: