Presidential candidates such as Donald Trump and Bernie Sanders have had the American people contemplating the economy for nearly a year. With recent Panama Papers leaks that reveal the offshore tax avoidance activities of approximately 2,400 Americans, why has there been so little political outcry?
In early April, the Suddeutsche Zeitung, a German newspaper, obtained millions of files from the massive offshore law firm, Mossack Fonseca. These files, further leaked to journalists around the world, revealed that Mossack Fonseca had aided hundreds of politicians and other high profile individuals in efforts to move millions to “tax convenient” locations.
Until recently, much media coverage of the Panama Papers leak focused on the world political leaders with ties to Mossack Fonseca, including Russian President Vladimir Putin and the father of British Prime Minister David Cameron.
On Sunday, however, The New York Times reported on Mossack Fonseca’s American clients. At least 200 of those American clients have been known since the scandal broke, but Sunday’s story revealed that of the approximately 14,000 known individuals who sequestered money in offshore accounts, about 2,400 are US citizens.
Although individuals are permitted to hold funds in offshore accounts, they are legally required to report income on those funds to the federal government and pay taxes on them.
Despite this legal requirement, the government estimates that it loses between $40 billion and $70 billion in tax revenue each year when individuals keep their wealth offshore.
What does this revelation mean in the midst of an election season that has seen so much dialogue on the subject of taxes and financial reform?
Democratic candidate Bernie Sanders has long taken a strong stance on offshore tax havens, with tax reform in order to aid all members of society a central part of his campaign platform.
“Today, we lose over $100 billion a year in revenue because large corporations stash their cash in offshore tax havens around the world. That is unacceptable,” states Sanders’s campaign website. “If we are serious about reforming the tax code and rebuilding the middle class, we have got to demand that the wealthiest Americans and largest corporations pay their fair share in taxes.”
When news broke that at least 200 Americans had used Mossack Fonseca’s services to sequester funds offshore, Sanders was incensed.
“We’ve recently heard the startling revelations about the tax dodge that is taking place in Panama,” Sanders said in an April speech to supporters in Wyoming. “In a time of massive income and wealth inequality, how does it happen that you have large, profitable multinational corporations who in a given year pay zero, not a penny, in federal income taxes?”
And it is not just Sanders who has repeatedly spoken out against the American tax code.
Although Donald Trump has himself been accused of stashing money abroad, his own proposed tax plan includes reforming the tax code so that it takes into account money held abroad in offshore holdings.
In April, The Christian Science Monitor reported that Sanders’s claims that tax havens enable inequality have merit. Unlike the poor, who arguably have more need of the money, the very rich can hide funds, decreasing the amount the US government collects in taxes.
“What we’re seeing here is a tax avoidance mechanism that is only available to the most wealthy Americans,” the executive director of the Institute on Taxation and Economic Policy Matthew Gardner told the Monitor in a phone interview.
“When you allow best-off Americans to take advantage of these shelters,” says Mr. Gardner, “it does real harm to the public’s trust in government.”
With this charged political climate, then, why have the Panama Papers seemingly not caused a bigger shift in thought among Americans? Europeans are incensed – Iceland's prime minister was forced to resign after he was named in the Panama Papers.
For one thing, says Georgetown University professor James Angel, “No American politicians have been caught up in it yet. It might be a different story if Hillary Clinton or Donald Trump turn up on the list.”
Furthermore, Gardner told the Monitor, the American public already expects this from its politicians, another reason it has had so little reaction to the news.
“One implication,” says Gardner, “is that none of this is especially surprising. I think many Americans feel that some politicians are actively working to make inequality worse.”