From: TLS – Luttwak – Hidden Assets
This is the context that makes The Panama Papers so very important. With this totally new evidence in hand, we now know that globalization has caused rising inequality in quite another way than the transfer of higher-paying manufacturing jobs and all other such phenomena – very unfortunate in my view but not shameful or criminal. It is just a matter of numbers: Mossack Fonseca’s 214,000 offshore companies alone (and there are many other such shell companies, formed by many other law firms) handled not millions or billions but trillions of dollars in their totality, thereby wholly subverting the presumptively equalizing effect of taxation. When the less affluent must pay their payroll taxes and income taxes in full, while the more affluent with offshore companies do not pay their own taxes, the total effect of the taxation system is regressive, even without adding the inherently regressive effects of sales and value-added taxes. Once we recognize the sheer magnitude of “offshored” income flows, and once we take into account the strongly regressive effects of supposedly progressive taxation systems, the phenomenon of rising inequality in affluent societies may not need much additional explaining – and it hardly matters if those were tax-avoidance or tax-evasion trillions.