Paul Krugman is getting an education. One of Thomas Piketty's students provided him with fresh data on the distribution of global wealth which indicates that wealth concentration today is similar to that of the "Gilded Age" that preceded the Great Depression. Moreover, much of the wealth held by the super-rich escapes taxation. Everyone knows that the wealthy use tax havens to hide their wealth from tax authorities. What we have not known is the extent of the wealth that is hidden in tax havens. Piketty's student provided a study which provides a striking estimate of hidden wealth. Switzerland alone has around $2 trillion of assets owned by foreigners. Other countries like Luxembourg, Ireland, Panama, island states close to Britain, and others in warmer climates, are partners in the tax avoidance scheme. The typical pattern is for a wealthy household to set up a fake corporation in a place like Luxembourg. The corporation purchases assets like mutual funds for the corporation and sends them to a bank in Switzerland. The household which collects the income from the securities held by the shell corporation is invisible to national tax authorities.
Krugman provides links to the papers that describe the concentration of wealth and the extent to which tax havens are used by the super-rich. These research papers help us to understand why Thomas Piketty believes that the growth in income inequality may be inevitable. Taxation is the only way to dilute the concentration of wealth. As long as much of the world's wealth is hidden in tax havens it is not subject to taxation. It would take global cooperation to eliminate the use of tax havens, and that would be resisted many national governments and by tax haven countries.
Perhaps the only way to put an end to the use of tax havens by the wealthy is for ordinary citizens to use the same strategies. It is relatively simple to set up a shell corporation and put one's assets in the corporation and to use the subsidiary of one of the large global banks to hold the assets owned by shell corporation. That would get the attention of national governments.
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