Roughly two thousand years ago, the government of ancient Rome was facing a serious problem.
The tributium capitus, or poll tax, that they had imposed across their provinces was becoming unpopular.
And there was among a growing minority of Roman subjects who felt they were being forced to pay an unfair, overly burdensome, disproportionately high tax bill.
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Things got so bad that there were small revolts, especially in one of Rome’s critical eastern provinces where many simply refused to pay.
Eventually the authorities were able to round up the leader of the movement– a youthful, charismatic local artisan who was brought before the provincial prefecture.
After reviewing the evidence, though, the prefecture found that the leader had actually done nothing illegal, and according to ancient texts, announced to the public:
“I have examined him in your presence and have found no basis for your charges against him. . .”
But the crowd was out for blood. They wanted the resistance leader put down for good, viewing him as arrogant and disrespectful of their values.
Plus the central government in Rome wanted to send a strong message to strike fear in everyone subverting their authority and not paying tax.
So in the end the prefecture bowed to pressure, and the resistance leader was sentenced to death.
His name was Jesus Christ.
Two thousand years later there seems to be a lot of people out for blood again.
Over the weekend we witnessed the release of the “Paradise Papers,” another gigantic leak of financial records (similar to last year’s “Panama Papers”) which shows how clients of a Bermuda law firm have legally used foreign corporate and trust structures for privacy and tax mitigation.
Among the names unearthed so far are Madonna, U2’s Bono, actress Keira Knightly, Formula 1 star Lewis Hamilton, Queen Elizabeth II, and US Commerce Secretary Wilbur Ross.
And the public is outraged.
The basis of this outrage is that rich and powerful people are ‘hiding’ trillions of dollars in offshore tax havens, places like Switzerland and the Cayman Islands.
Journalists estimate the size of this offshore treasure trove to be in the tens of trillions; I’ve seen numbers ranging from $10 trillion to $32 trillion.
Yet there’s absolutely no rational basis to support these assertions whatsoever.
Consider that the ENTIRE banking system in Switzerland holds just $1.5 trillion in customer deposits.
In the Cayman Islands, non-resident customers hold less than $100 billion in deposits.
Jersey, one of the Channel Islands, has only $60 billion from non-resident depositors.
Bermuda, at the center of the most recent data leak, has an entire banking system worth just $19.2 billion.
And despite all the whining about Ireland as an offshore tax haven (despite a corporate rate of 12.5%), the country’s entire banking system has less than $200 billion.
Point is– even if you assume that literally ONE HUNDRED PERCENT of the deposits in these countries are tied to tax evasion (which is obviously ridiculous), it doesn’t come anywhere close to the estimates they keep reciting.
But no one ever questions the premise.
Everyone seems to believe in this myth that there’s tens of trillions of dollars hidden away evading taxes, even though all the data shows that this assertion is baseless.
Another basis of the public’s outrage is a belief that the clients of this Bermuda law firm were able to reduce their tax bills in ways that are only available to the ‘rich and powerful’.
Again, this is complete nonsense.
First off, EVERYONE has ways they reduce their tax bills.
People do this all the time… whether it’s shopping at a duty-free store or out-of-state to avoid sales tax, or perhaps holding an investment just a -little bit- longer before selling (in order to pay long-term capital gains, instead of the higher rate for short-term gains).
And these are all perfectly legal things to do.
But for some reason when a rich guy does perfectly legal things to reduce his/her tax bill, the public is outraged.
Second, you don’t have to be rich or powerful or famous to set up a structure overseas.
Establishing a foreign company often costs less than $1,000– hardly a billionaire’s price tag.
Most importantly, though, the public is out for blood because everything these rich folks are doing is completely legal.
The articles I’ve been reading about the Paradise Papers begrudgingly state that it’s completely legal to establish a foreign company to pay less tax.
And it is. Rational people take whatever reasonable, legal steps they can to reduce what they owe.
But people don’t like it. They feel that it’s ‘unfair’ for wealthy people to be able to slash their tax bil