Panama Papers

By Kit

Well, the Panama Papers have come out, called the “Panama Papers” because they are over 10 million documents detailing the international shareholders and clients of firms set up cooperation with the Panamanian law firm, Mossack Fonseca, in order to help said international shareholders and clients avoid paying their own countries’ taxes. What makes this amusing is that a number of these folks are the political figures, such as Hillary Clinton, as well as heads of state and government presumably responsible for writing, implementing, and enforcing those tax laws, such as Iceland’s Prime Minister Sigmundur Gunlaugssun, who was forced to resign because of the scandal by the people of Iceland, among whom over half believe in invisible elves.

Other world leaders include include the Presidents of Ukraine, the President of Argentina, and, most surprisingly, the King of Saudi Arabia (huge shocker!). Several of Putin’s inner circle have been implicated, a fact which makes Snowden’s FSB-approved tweets on the whole matter at least a tad amusing.

A number of our world leaders, after presumably checking their own accounts to make sure they didn’t have money in Panama, or at least in Mossack Fonseca, have expressed their fury with all the sincerity of Capt. Renault’s outrage over the presence of gambling in Rick’s casino. France’s Francois Hollande has called for a sweeping investigation into the offshore accounts while UK’s George Osbourne called tax evasion “immoral.” Claude Rains was a magnificent actor who never won an Oscar despite being nominated four separate times, so it is nice to see his most iconic role receiving so many homages over 70 years later.

So far, few Americans have been directly implicated in the Panama Papers, save the Clintons, and even then it is both far lighter than other world leaders and not really a surprise given that it’s the Clintons. This in itself, is no proof of exceptional honesty among America’s wealthy as our super-rich tend to put their money in the English-speaking Cayman Islands and Bahamas instead of the Spanish-speaking Panama. Indeed, we recently passed a law, FACTA, which had the stated purpose of cracking down on overseas tax dodges by the 1% but hard the effect of making life a hell of bureaucratic paperwork for the 99% while only being a slight nuisance to the 1% (US citizens living abroad still have to pay income tax).

This should come as no surprise, there will always be rich and poor and the rich will usually have an easier go of things, barring the occasional revolution where society changes the names of its elites, for a number of reasons. They have the influence to tailor laws in their favor. If that fails then they have the resources to absorb the costs of laws, be it their ability to afford legion of accountants and tax attorneys who enable them to maneuver around FACTA, legions middle-class expatriates . Finally, if you pass a law that is very difficult to evade, as British Prime Minister Harold Wilson did in the 1960s when he passed a 95% supertax that inspired the Beatles’ song “Taxman” written by George Harrison, they take themselves and their taxable wealth and leave, as quite a few did. So hitting the rich with high taxes and a pile of regulations is probably not the best option.

Indeed, lower taxes generally lead to higher tax revenues than do high taxes in the long run. The reasons are simple. For one thing people are less likely to go looking for loopholes through which they can jump just to reduce the amount of taxes they are paying. Also, and more importantly, with less money leaving their pockets for the government people, rich, middle, and poor, are more likely to spend their wealth on goods and services, or investing it in businesses to make more money in the long run, producing more taxable wealth in the long run for both those who products are bought and for those who invested in successful businesses. On an individual level, these gains are marginal but on a national level, such as in a country with over 300 million individuals, they are massive.

But such national gains go back to marginal, and downright irrelevant, when your country is on a perpetual spending binge, such as when you have a massive Nordic-style welfare state. This means you must put the bulk of the taxation on the one group that has the resources to pay them (unlike the poor) but lacks the resources to put their money in offshore accounts or simply leave (unlike the reach); the Middle Class, as the Nordic countries, and many European countries, do. Despite the socialists’ promises of making the rich pay their fair share, it is always the middle class that end up paying the bulk of it.

This is also why the Panama Papers are probably a bigger scandal than they would have been had they been titled the “Cayman Islands Papers” or the “Bahamas Papers.” When the middle-class are fleeced on tax day as they are in Europe to pay for an expensive nationalized health care system and a massive welfare state they no doubt want to believe the rich are also paying for it through the nose. When it is revealed, to what should be no one’s surprise, that they are going out of their way to avoid paying those taxes it naturally inspires outrage. Especially when many of those countries are in the midst of a sovereign debt crisis far more severe than America’s.

This, of course, provides the socialists with more ammo to bolster their call of making the rich pay their fair share by implementing policies which, if they are lucky, will only lead to more offshore accounts and therefore a larger tax burden on the middle class and more calls to make the rich pay their fair share.

And so it goes.