As the fallout from the document leak from the law firm Mossack Fonseca continues, one thing that remains murky is what meaningful reform would look like, given that many of the financial activities unveiled in the Panama Papers are entirely legal. As the journalist Glenn Greenwald has written, the leak has highlighted just how easy it is to set up identity-masking offshore companies and stay within the bounds of the law.
So governments around the world should try to make that illegal, right? That turns out to be a lofty (and likely untenable) aspiration, as there are some legitimate reasons to offshore wealth. But a powerful first step in reforming the current system would be to make these transactions visible, says Gabriel Zucman, an assistant professor in economics at the University of California Berkeley and the author of The Hidden Wealth of Nations: The Scourge of Tax Havens. Zucman’s estimate that $200 billion of tax revenue is lost annually due to tax havens has been cited in just about every article written on the Panama Papers.
“There's a continuum of tax-avoidance, tax-evasion strategies, so there are things that are clearly illegal—having tax and income and failing to report it on your tax return—and then there's a big gray area where you try to disconnect yourself from your wealth, like putting it in shell companies, trusts, and foundations,” says Zucman. He says that the legality of all this shouldn’t be the core question; rather, the focus should be on pushing for transparency in a system where taxes can be dodged so easily. “There's a whole tax-immunization industry. Whether it's legal or not, it's not really the important question,” said Zucman. “The important question is: Why's that possible for rich people to pay less taxes than the rest of us?”